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Rent hikes 'another nail in coffin.' (Rent Guidelines Board votes on lease payment increases)

Despite an acknowledgement that residential buildings are experiencing rapidly increasing costs, the Rent Guidelines Board voted to increase lease payments by only 3 percent for one-year leases, 5 percent for two-year leases and set forth a complicated split vacancy factor.

The new vacancy factors are 5 percent for apartments renting up through $499.99; 3 percent for those renting between $500 and $999,999 and nothing for apartments renting for $1,000 or more.

In Albany, the Emergency Tenant Protection Act was extended for yet another week as politicians put pressure on each other to moderate their positions.

John J. Gilbert III, president of the Rent Stabilization., Association, which represents owners of thousands of units, said they were pushing hard in Albany. The extension for another seven days came down to leadership courtesy, he explained. "[Assembly Speaker Saul] Weprin asked for time," Gilbert said last week. "He has to wear some people down. We have seven days to hope for reform."

Public opinion is turning against the legislators noted Dan Margulies, executive director of the Community Housing Improvement Program (CHIP). "There are just as many people concerned about the unfair benefits of regulation for the well-to-do as there are people concerned about preserving all regulations regardless of what they do,' he said.

If the State Senate does nothing, rent regulations would expire completely at midnight tonight, June 30. Owner groups said this would not be cataclysmic, its tenant groups charged, but merely an orderly transition as leases came due for renewal beginning with September and October leases.

'Doing nothing' wits unlikely to occur, however, and owners instead prayed and lobbied for both luxury and vacancy decontrol.

Affordable housing owners were depressed and disappointed by the new rent guidelines, higher property taxes despite a so-called 'freeze,' and the fact that the city did not provide them with any reasonable return on their investment or acknowledgment of their sacrifices. They hoped the legislature would understand that the future of privately-owned housing was at stake because, they say, there is no longer any incentive to continue ownership.

City Council Minority Leader Alfred C. Cerullo along with Council Members John A. Fasco and Thomas V. Ognibene appear to be recognizing these problems, and vowed to push for debate on rent regulation reform in that body.

They have sponsored a reform package -- introduced in May of 1992' that has yet to be discussed in the Housing Committee, chaired by Member Archie Spigner. It includes provisions for vacancy decontrol; exemption for vacant units in buildings with 20 or fewer units and a minimum rent of $450 for those apartments; an income restriction of $75,000 for tenants to benefit from stabilization; and deregulation of apartments renting for $750 or more.

Jack Freud, director of research for the RSA said, 'The Rent Guidelines Board heard and acknowledged the S.O.S. signal sent out by the real estate industry and they refused to throw out a life preserver. They passed a guideline that was irrational, insufficient and unfair. It's a mess.'

Margulies said of the new guidelines, 'The performance of the board hit a new low this year along with the guidelines.' He predicted "horrendous confusion" that will be caused by splitting the vacancy guideline into three parts.

Statements made by the board indicated they believed that housing was in deep trouble and they had nothing to do with it. Their solution, Marguiles said, is to have a special meeting in the next couple of weeks to pass a resolution to ask offlet people to solve the problem of housing.

'They passed," he said, 'guidelines which were tantamount to saying 'Let them eat resolutions.' We can't run buildings on resolutions, we need rent."

Middle-income housing owners report increasing turnover from their higher rent apartments in the $700 to $800 range that are now being rerented for less money. They also cite a noticeable increase in collecton problems as the city's economy stumbles along. Other owners in various boroughs have reported "walls" when apartments climb over $600.

Michael Laub, a partner in the Realty Group which owns and manages 4,300 units, said "I am really disappointed. I'm so disgusted, because it's always, 'Nail the property owner, he can't move his buildings.' They don't even realize they are nailing the coffin closed."

While he said the 5 percent vacancy factor for units renting under $500 is better than nothing, after explaining the economics of preparing an apartment for a new tenant, it is obvious it takes years for owners to recoup an investment that never quite catches up.

"An apartment that I'm getting $450 for now ," Laub explained, "if somebody moves out I can 8 percent more or $36 on a one-year lease (3 percent increase plus 5 percent vacancy). so now the rent is $486. Just to get it ready and paint friar apartment would cost me $5(X) without new equipment. If I put in new equipment I get a big 1140 [of the cost of the new equipment added to the rental per month.]

Laub predicts the city will be the loser because when owners get friar demoralized and disgusted, they will abandon the properties or sell them to people who do not know how to run them properly causing their eventual abandonment. "You have to leave a little bone for a person." he said sadly.. "I really don't want to buy property in New York City any more. It's not going to get better.

"Somebody ought to have the guts and the foresight to vote and legislate the way it should be done for the better of the city and the state." Laub added.

Roberts Bernstem. president of the Small Property Owners of New York and an owner of small properties in Manhattan, deemed the guidelines 'lousy,' and blamed them on an election year.

Bernstein said the rent/operation ratio will be never be put more into balance with the rest of the country. Out of every dollar earned. she noted. owners pay almost 75 to 80 cents on maintenance in New York City but 55 cents in the rest of the U.S.

Small owners friar are beginning to collect over $750 have already had to make concessions. she said. "So the rent guidelines don't affect us. The more affordable owners are being hurt."

Rubin Pikus, president of Milbrook Properties. who is also a CHIP board member, owns and operates close to 3,000 rental units in Washington Heights. Flatbush and the Bronx. He spoke at the first RGB hearing and requested a minimum of 7 percent and 10 percent increases.

Owners are suffering tremendously in the loss of rent area, he observed. between lowering rents and having to repair apartments after-people move out. "A lot of people are moving out and doubling up with families," he noted.

While he used to see an average of 20 to 25 vacancies a month, that figure is rising to 40 for the first half of this year. "I'm losing the rent. and I have to fix up the apartments and find someone with credibility to rent them at preferential rents." he explained. Unfornately, the tenants are moving out of the higher rent units in the $700 to $800 range and he cannot re- rent them at friar number. He is also having more collection problems. going from a 3 percent issue in the past to a 6 percent problem for the first half of this year. and expects it to reach 9 percent for the year.

When the leases renew at 3 percent in the lower rents of $400 to $500. "it doesn't make up for the deficiencies." Pikus said. He explained these tenants typically renew for one year because the..two-year rate is higher.

What owners really need is a 15 percent to 20 percent raise in rents. Pikus said. acknowledging it is not realistic in this political atmosphere.

Irving A. Spodek, director of operations. Kaled Management. which manages and owns 2,500 units in Queens. Brooklyn and Manhattan, said the guidelines are outrageous. "It's totally inadequate and unfair," Spodek said.

According to the Bureau of Labor Statistics, the cost of living increase for the tri-state area was almost 4 percent last year, he noted, while the RGB is giving only a 3 percent increase. Of the 5 percent increase for two years it comes to 2.5 percent per year. "The city just increased real estate taxes and operating expenses are increasing more rapidly,' he added.

In Queens, rent for a one,bedroom in a doorman building is about $750. I've had situations where we were getting $850 and had to keep it empty and then go back to $800,' Spodek said . "That's what we're faced with."

While his properties would not be affected by luxury decontrol, Spodek hoped the legislature would implement vacancy decontrol. "At least you would have something to look forward to," he said, predicting the legislature would instead merely extend the rent regulations. "You don't need a crystal bail to see that," he said. Even higher-end owners were complaining, particularly about the loss of a vacancy allowance.

Apartment Owners Association (AOA) President Irwin Gumley, also president of Gumley-Haft Inc. manages 5,000 units of which 1,000 are rentals. "The guidelines are inadequate especially at our level because we don't have a vacancy allowance," he said.

The rent guidelines have never kept pace with the cost of operating the buildings, he said, noting that real estate taxes alone went up 4.6 percent for bills due July 1. Insurance premiums and wages are going up next year and the guidelines do not take into account mortgage debt servicing. 'After 50 years you become immune to it,' he added.

"Where we have decontrol," Gumley said, the rents are higher but the people in the stabilized apartments can afford more." Gumley reported these tenants typically own homes in the Hamptons, have live-in maids and drive luxury cars.

Nancy Packes, president of Feathered Nest which specializes in high-end apartment rentals, said removing regulations would prompt two trends. While it would cause more people to move because they would not have a low rent as a reason for remaining in their apartments, Packes believes it would also tend to hinder some activity because fewer people would be able to afford higher rentals. "The net effect would be to help the brokerage industry,' she said.

But she explained most sophisticated owners only raise rents to the place the market will accept them. Individual owners, however, often hang onto the hope of a higher rent too long.

Adam R. Rose, executive vice president, Dwelling Managers, Inc. manages 12,000 units of which several thousand are owned. 'The entire system rewards the wrong people with the wrong kind of incentives to hang onto apartments that may be too large or may not actually meet their needs, he said. "The laudable goals of rent stabilization have been grossly distorted by a system which benefits high income individuals rather than those with actual need," Rose continued. "We have people with high incomes, lavish cars with housekeepers -- it was intended to help working people with moderate incomes."
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Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Jun 30, 1993
Previous Article:Keeping up with tenants seeking better value.
Next Article:Senate passes weaker tax bill.

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