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Owners call for housing policy changes.

Rental apartment property owners say they must have many changes if they are to remain in business, providing decent, affordable housing for city residents. Costs are going up much faster than rents at the same time the meager income stream is tied up in a court system that favors tenants, according to many owners.

Water rates are expected to rise 12 percent this year alone, but supers must continually brush off city contractors determined to install water meters that could raise that ante even more.

Sanitation workers follow the weather, giving out tickets wherever the wind blows garbage and snow blowers miss slippery spots.

As one owner said, "you have to do volume, or live in and own a 20-unit building where you can control costs, or you're not going to make it."

REW asked property owners and managers who serve the low and middle class populations of the city what they would like to see revamped.

Suggestions included combining rent control into rent stabilization to save on duplicated bureaucracy; instructing judges to be truly fair and requiring rent deposits in court; dropping the maximum water charge per meter to $350 from $500; getting fair specifications for lead abatement from government to keep lead insurers from walking away; and overall, less red tape, fewer forms to fill out and more streamlined requirements.

Joe Strasburg, the Rent Stabilization Association's (RSA) new president, discussed several issues, noting that unit owners in co-ops and condominiums now share many concerns with apartment building owners. Some of these include lead paint liability and insurance problems, water metering, Division of Housing and Community Renewal (DHCR) regulations and upcoming negotiations with Local 32B-J which represents building personnel.

Lead Liability Question

Lead, he said, is being elevated to the same hysteria as asbestos. What makes it more of a problem is that insurance companies are not willing to insure owners for potential lead liability.

"If there is a jury award against an owner, it is a personal liability," said Strasburg. "The government must set reasonable guidelines to inform the owners as to what they have to do to limit the liability. If they have to tear down the sheetrock, it's going to bankrupt everyone."

On water metering, the RSA is concerned about the prohibitive costs for small property owners who have apartments that are filled with large extended families. "There is no recognition by the RGB [Rent Guidelines Board] that it's a terrible cost for owners," Strasburg noted, saying the new Commissioner of Environmental Protection, Marilyn Gelber, a former official in the Brooklyn Borough President's office, recognizes the problem but will not take over her new job until Feb. 22.

The industry is also about to enter into negotiations with 32B-J, another situation rental owners will share with cooperators. "Owners will have to start figuring those costs," observed Strasburg. If there is a strike, as there was on the last go 'round three years ago, there could be problems that arise - for instance from garbage build up - that city officials might have to handle.

Strasburg is also encouraged by Division of Housing and Community Renewal Commissioner Donald Halperin' s indication that its rules and regulations will have to be reviewed.

Small owners agreed with Strasburg's focus and also brought up additional concerns that must be addressed.

Although former Mayor David Dinkins promised a four-year real estate freeze on the average tax rate that Mayor Rudolf Giuliani has now pledged to support, what Dinkins didn't control was the assessment increases, noted Laurence Guttman, a principle in Laufence Guttman Associates, which owns small buildings in the East Village. "What you have to do is hire a tax certiorari attorney and protest the assessment and give your lawyer a percentage every year," he complained.

While he believes the actual value of these buildings has dropped from about eight times the rent roll in the late 80s to sales at three times rent roll today, the assessments haven't dropped accordingly, says Guttman.

J-51 Program Changed

He also complained the J-51 program hooked owners in originally with promises to bring tenants up to market rents when the J-51 abatement was finished. "That was changed in 1986 and now only affects new tenants if you put in a rider," he noted. But it doesn't pay to enforce it, he said, because if the tenants fight the increase or eviction, the court takes their side.

Escrow Rent Payments

"A little improvement like forcing the tenants to put the money into escrow in court would help," added Guttman, citing a universal lament from owners. "It costs me $2,000 for an attorney to get a payment schedule with a tenant," he said. "It's crazy."

Robert C. Eberhart, a Yorkville owner who also manages properties for others, agreed that Housing Court is a key consideration because it takes about six months as a rule now to remove a tenant for non-payments.

"You're not allowed to collect while you are proceeding in court and the courts don't require the tenant to pay any costs or put up rent into escrow," he complained. "The housing courts are in terrible shape."

Eberhart is contending now with a man who is literally a squatter in the super's apartment. "He hasn't paid rent and we're not asking for rent, but only demanding possession of the apartment," Eberhart explained. The man was the boyfriend of a former superintendent and after the super passed away, remained in the unit.

"We said we wouldn't give him a job, but he wouldn't leave," Eberhart said. "It's been since the end of July and we had everything set up with a marshall. Then he told the marshall he was 65 years old, and now some other city government agency has to check him out and get him alternate accommodations!"

In the meantime, Eberhart had to hire an outside super. "Until we get him out we can't even think about putting in a live-in super," he said. "You end up hitting your head against the wall everywhere," he added.

R. Bonnie Haber, president of RBH Management Corp., and a vice president of the Community Housing Improvement Program (CHIP), another owners' organization, owns and manages 300 stabilized apartments, a number that includes about 25 rent controlled units as well as co-ops in Queens and Washington Heights. She gripes, "The Housing Court is so anti-landlord it becomes really unfair. Tenants don't pay rent, it's several hundred dollars of legal fees and the judges will give you $50."

Klein, who is on the Advisory Committee to the Court, said millions of dollars in rents are being permitted to be withheld. "Papers are disappearing in the courts, and owners can't get their rents," he deplored. "We've lost the right to recapture our property due to succession decision in the Court of Appeals."

Rubin Pikus, president of Milbrook Properties, owns and operates several thousand units for his own portfolio and others, and is another vice president of CHIP. As a member of the RSA, the Bronx Realty Board and the Realty Advisory Board, he said it would be difficult for him to pick one primary issue that needs to be changed. He cited as the worst, a toss-up between the court system and rent guidelines.

"They both need reality or anything close to it," he said. "The judges need to be controlled to stop letting tenants use the court not to pay rent." When owners can't collect rent money, they often have problems with cash flow and paying for other services, such as oil for heating.

Right now, Pikus has one building in the Bronx with over $20,000 tied up in court, involving about eight tenants. "They don't pay rent, they get show causes, [Orders to Show Cause for the owner to prove why the tenant should be paying rent], a couple are going to Jiggetts [a welfare resource] for those tenants claiming they are being discriminated against, and welfare pays everything that they owe, but it takes several months."

Pikus said "going to a reality approach" means if the tenant doesn't have a source to pay, they should be able to bring in welfare immediately before the back rent becomes a $4,000 bill. "I'm stranded with $20,000 in money in court," he said. "That's one month's rent roll in that building."

As for the rent guidelines, Pikus said owners are not getting enough in increases. "My average rents run $450 a month," he said. A 3 percent increase isn't enough to keep a building going, he explained, especially with an expected increase in water rates of 12 percent this year.

Lower Cap on Water Charges

While he pointed to the real estate tax freeze, Pikus said water is not under the freeze and there is a heavy push by city contractors in the Inwood section of Manhattan to put in water meters.

A few months after supers turn away contractors, the owners receive a notice stating the building will be charged doubled its frontage rate if contractors are not allowed in. While the city has already given a cap of $500 per apartment, it's $200 more than Pikus is paying now on average for his apartments in four boroughs, except Queens. "If they double my number, it's more than $500," he said, adding that he is arguing to make the cap $350.

For a 50-family building, a frontage bill averages $15,000 a year, he said, while doubling that is $30,000. "If you go to $500 it's still $25,000. Double is a major threat." But in the heavy population buildings, Pikus said, except for putting in flow restrictors, installing all low flow fixtures is cost prohibitive, even with help from city programs.

"I don't know anybody in my area of real estate who has done the retrofit," he said. "It doesn't pay. The cost to do it is not worth it."

Guttman said he'd like to see water escalations added to rent costs under RGB guidelines so that the tenants pay for some usage. Even with no leak, he noted, the owner has no control over the water use.

"It seems unfair," he said. "I have no problem paying for actual meter usage but its absurd that we can't pass along a percentage of the increase over our current frontage. If you are in a landlord tenant dispute, they keep the spigot running."

Overregulation

In Pikus' view, "Without the volume the little guy can't stay in business any longer unless you have 20 families and you live in it, and have tremendous control over your costs or have no mortgage."

If he had to pin down one thing, Eberhart said it would be the overregulation of the industry. "There are myriad laws and procedures and agencies."

Should an owner want to renovate an apartment, switch around a kitchen, change the location of a bathroom, or change a wall or two, these all require permits from the Building Department.

"It costs you thousands of dollars to make plans and get them approved and it probably costs you three months in time while you are doing this," Eberhart grumbled.

Then, he continued, to dispose of the construction debris the owner needs a container, but if he doesn't post a bond to get a permit for the container, he could get a ticket. "It's easier to pay the $50 or $100 ticket and chalk it up to the cost of doing business," Eberhart said. "There are numerous things that add up to making doing business very costly."

Lump Control & Stabilization

Steven Weisz, head of the W Development Group, a Park Slope owner, said the high rent-high income de-stabilization is a joke. The income verification is not realistic, he said, and the legal registered rent of $2,000 is not having an impact. Weisz believes apartments renting for $1,000 should not be protected. "It will cut down on paperwork and on the bureaucracy and make it more equitable for owners," he added.

Housing attorney Ruben Klein, who is president of the Bronx Realty Board, noted that rent control has been around for 51 years. What bothers him most, he says, is that no two rents for any two apartments are the same. "There is no relationship to space or floor and it just keeps adding onto the inequities of the process," he said. "That is a result of the controls running on and on."

Weisz would like to see the rent control program merged into rent stabilization and operate under the same rules and regulations. "It would make for a lot less paperwork and you'd be able to trim the state bureaucracy," he advised.

Right now, in order to raise a rent control tenant's rent, he said, an owner has to apply through the Maximum Base Rent (MBR) program. "That is extremely paperwork intensive and is costly," he noted.

Weisz has one building with two rent control tenants. "You have to get a list of all violations to date, [called a certificate of pending violations] that is being sold by the city for $30," he said, "and there is a fee per rent controlled apartment that is also $30 per unit for two years."

To get a 10 percent raise on a $200 rent apartment, which is $20 per month, he says an owner could spend $60 and two or three days to fill out the paperwork.

Weisz thinks most owners would rather be able to raise the rents the stabilized amounts - 3 percent for a one year lease and 5 percent for a two year lease for leases written through Sept. 30 of this year - rather than putting up with the MBR system. "And those increases don't keep up with expenses," he added.

Haber said, "Here we are in February and they still haven't sent out the MBR certifications for people with violations." This paperwork is started in the summer and filed by October. Once the owners finally receive their OK from DHCR, they have to bill the tenants arrears effective January 1. "And we never get it all," Haber added.

"That system is archaic," Haber complained. "That was put into place for emergency measures because of World War II. Now we're friends with Japan. Isn't it time to let go?"

Haber agreed that wrapping rent control into the rent stabilization program would help, particularly if the rent control units were brought up with some kind of minimum increase such as to the lowest ,Stabilized rent for that unit in the same building.

"I have $300 apartments and a five percent increase is nothing," Haber said. "But then the stabilization rates need to be more reasonable, too."

This is going to be an expensive year, Weisz said, because of the low temperatures outside during the heating season. "The fuel cost pass-along program is also extremely, extremely paperwork intensive," he said. "It's almost like they are daring you not to apply. Most small owners don't simply have the time or patience or even the knowledge to complete these very difficult forms. They give up, and give up on the housing accommodations that they are trying to upkeep."

It is precisely because owners are sick of paperwork that allowed Joy McLaughlin to start her company 18-years ago. The former rent control official is president of McLaughlin Realty, and owns about 500 units citywide, but also provides management as well as consulting services to other building owners for items such as obtaining MBR rent increases and J-51 tax abatements.

While she applauded DHCR for accepting architects and engineering sign-offs on violations for MBR increases under rent control regulations, she says she still isn't happy with the turnaround time for granting orders for rent increases and rent restorations.

"You might have corrected the violation but you are still in a position of waiting forever to get the order from DHCR," she said.

$300 Inspections

And if an owner needs an immediate inspection on the building, she said, "you have to go and dig into your pocket for $300 for code enforcement to get your violations dismissed. Then when they come to dismiss them, they give you more. Unless you have an immediate sale or pay the money, you have the violations on record. They are taking a snail's pace to get to your building."

Actually, according to Housing Preservation and Development's Code Enforcement division, no inspector will come out - unless a tenant complains without paying the $300 fee by certified check or money order. And then it still takes a couple of weeks for the visit.

Haber said what she hates the most is that every other business is allowed to charge prices based on the services they give in the free market and this industry is not. The rent increases are not in keeping with expenses, she noted. "All our vendors raise their prices at will and we are stuck."

Years ago, Klein, a partner in the law firm of Klein & Keenan, used to own about 30 apartment buildings, selling some and eventually, as the market declined, letting the city take over the last of the buildings. He worries that the abandonment of the 1970s is starting to happen once again as costs rise and the court system plays against the owners.

Over the last year, he has seen many owners finally give up managing their own buildings to an army of managing agents as costs, rules and regulations took their toll. "In New York, most of the owners used to run their properties themselves. The owners gave up, they can't take the courts. So they turn it over and they pay for the management and have somebody else to do all the work. The average owner used to know his property and could keep track of who was living in the apartments."
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Title Annotation:rental apartment property owners in New York, New York
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Feb 9, 1994
Words:2961
Previous Article:Property management critical for institutional owners.
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