Hot for Profit

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If it weren’t for one small problem, the little apartment building on East 95th Street would have been a shoo-in to become an affordable tenant-run co-op. The building’s residents, who get along well, are mostly long-timers. They know what they’re getting into: Over the years, they’ve dealt with the flaws and quirks of their home, because with the city as their absentee landlord, they’ve wound up having to do routine repairs and maintenance themselves. Most of them are poor or near-poor, but they’ve managed to figure out a financing scheme that would pay to fix the building, combining low-interest loans and the high Upper East Side rents that the four vacant apartments could command.

Unfortunately for the tenants, that source of revenue is also the hitch in their plans to form a co-op. This building is owned by the city. And because 230 East 95th Street is in a desirable neighborhood, the city housing agency has decided to sell it off instead. The building has been put into the newly expanded Asset Sales Program, a housing department initiative to sell apartment buildings to landlords.

“The only problem is, the building is on 95th Street,” sighs tenant Johnny Moreno. “If it were on 100th Street or up, they would have given it to us right away.” Says tenant association president Georgette Pittman, “They’re just fighting for that almighty dollar.”

As of this spring, nearly 100 city-owned buildings were earmarked for Asset Sales, and many of the tenants in the handful of buildings who have been notified about the program are now scrambling to try to buy or take over their homes. For many of them, accustomed to years of neglect from the Department of Housing Preservation & Development, it’s a startling wake-up call: The free market has arrived.

Asset Sales is only the latest effort in HPD’s push to get rid of the run-down housing the city repossessed years ago from landlords who failed to pay property taxes. From the beginning, the Giuliani administration has been determined to shed what it considers expensive albatrosses, a legacy of the Koch and Dinkins years.

But the city’s strategy for shifting those buildings from public responsibility to private hands is now in flux. For years, HPD’s policy experts spent their creative energies crafting innovative protocols to gently ease city-owned buildings into new owners’ hands, arranging for management and oversight to help make sure properties remain well-maintained and tenants stay put.

More recently, the department has become particularly adept at thinking up new ways to get around its own schemes. By expanding the Asset Sales Program, the agency has widened the loopholes that it can use to send the buildings it owns or oversees straight to the open market. In a thriving real estate market and a roaring economy, city policy now appears to trust that the entrepreneurial skill of private landlords will be enough to salvage and maintain these troubled buildings.

But in the process, tenant advocates charge, the city is making a major mistake. “I have a problem with utilizing city property, and allowing those resources not to become permanently affordable housing,” says Manhattan City Councilwoman Margarita Lopez, a vocal critic of the program. “I can’t support it.”

What Lopez and other pro-tenant policymakers object to is the same news the mayor shouts from the rooftops: the stock of city-owned property is rapidly dwindling, largely due to free-market-oriented programs like Asset Sales. Seven years ago, the city owned 49,343 apartments; now, it owns 21,110. By rushing to put all its properties into the hands of private landlords, critics say, the city is squandering a vital public resource–and, perhaps, its last good opportunity to fix and protect housing for poor and working-class people.

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Asset Sales was launched in 1997 as a quick and easy method to return city-owned buildings to private hands. According to HPD’s original description, it was intended to be used in “areas with strong real estate markets.” In these hotter neighborhoods, goes the thinking, landlords are not very likely to plunder or neglect their buildings, since the properties are long-term assets rather than short-term speculative investments.

The Asset Sales Program has no official regulations, just a general scheme. After HPD announces that the building is slated for the program, its tenants get first dibs. If they can’t come up with the financing to buy it within 90 days at the price HPD wants, the agency makes the building available to the general public, selling it as-is. Each deal must also be okayed by the mayor and the City Council. In the first round, carried out in 1998, 14 buildings were sold this way.

For the city, the scenario is ideal. It involves no subsidies, no certified inspections, no extra staff, no legal headaches–just the prospect of a little cash for a building that had been a costly liability. But it also virtually guarantees that rents will go up, whether the building is sold to its tenants or to a developer.

If the tenants buy, they may face sharp rent increases to pay for mortgages or repairs. For example, in the East 95th Street building, the ground floor is held up by a forest of beams, the stairwells are cracking, and the roof leaks. By one engineer’s estimate, fixing these and all the other problems would probably run about $210,000. But according to the statements the tenants submitted to HPD, they can hardly afford big rent hikes: their incomes range between $2,300 and $30,000 a year.

On the other hand, if a building gets sold off, the rents are frozen for only two years. After that, they are governed by New York’s rent stabilization laws, and a landlord can apply for increases to offset the cost of improvements. In these beat-up properties, that could very quickly add up to big hikes.

But there’s a larger issue at stake that goes beyond what rent any one tenant pays. Many of the buildings newly enrolled in Asset Sales are in Central Harlem, which has a long history of landlord abuse and abandonment. This shift also seems to contradict the department’s own strategy of using the program in economically robust neighborhoods.

“Most people would consider Harlem a strong real estate market,” counters HPD spokesperson Carol Abrams. But even as it puts new Harlem buildings on the market, the housing agency is in the process of seizing about 80 virtually abandoned tax-delinquent buildings in the same neighborhood–evidence that not all Harlem landlords agree with her.

Ultimately, policy experts say, Asset Sales does little to guarantee that properties stay out of the downward spiral that sent thousands of buildings into city ownership in the first place. In the 1970s and 1980s, landlords in Harlem, the Lower East Side, the South Bronx and other neighborhoods deliberately ran buildings into the ground, refusing to provide services or repairs, then selling the properties for quick profit to other landlords who would keep the rip-off cycle going. Other landlords simply found themselves overwhelmed with the financial demands of ownership. In the end, owners would often walk away from these disaster zones, leaving the city as the landlord of last resort. Since most of these owners also failed to pay their property taxes and water and sewage bills, the city ended up with acres of run-down apartments.

To housing advocates, putting dilapidated buildings in poor neighborhoods back onto the open market is a recipe for disaster. “It smells good, but the meat ain’t fresh,” is how Harlem City Councilmember Bill Perkins puts it. “It’s part of a market-driven housing policy than has been proven to be a failure in communities like mine.”

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Asset Sales has attracted other critics and some serious challenges. In April, Legal Aid attorney Harvey Epstein, representing the East 95th Street tenants, convinced a judge to put the entire Asset Sales Program on hold while the court makes its decision. The suit charges that by the city’s own laws, HPD can’t get rid of publicly owned property without using rules and guidelines to do it.

Several other tenant groups have managed to worm their way out of Asset Sales through carefully crafted, politically backed exemptions. There’s one other deciding factor: in each case, the deal costs the city no money.

After years of bitter fighting with the city, a group of tenants on East 21st Street–in the tenement building that houses Ess-a-Bagel–wrangled a complex real estate deal that allowed them to keep the building without a city-financed subsidy. In exchange for zoning exemptions that allow him to increase the size of a building he’s constructing nearby, developer Donald Capoccia would rehabilitate the building. “We’re getting the housing saved, and [Capoccia’s company] will be making out handsomely,” explains Cooper Square Mutual Housing Association’s Val Orselli, who helped orchestrate the deal. But it’s a unique situation, relying on a happy coincidence of developer drive and tenant need.

In another case, tenants at a West 92nd Street building slated for Asset Sales managed to talk their way into a modified version of the city’s Tenant Interim Lease program. They are forming a tenant owned co-op, but they have agreed to forego the standard $50,000-a-unit subsidy for repairs.

These few exemptions, however, don’t satisfy those who believe that the program is wasting a priceless opportunity. Asset Sales now faces wide political opposition from the Manhattan delegation of the City Council, several of whom have refused to approve any building sales in their districts.

“It doesn’t have a clear programmatic purpose,” charges the Lower East Side’s Lopez, who is pushing for a City Council oversight hearing on the program. “Until I see clearly, in black and white, what the policies, rules, and regulations are for all this, I’m not going to let this issue alone.”

For the tenants on East 95th Street, the politicians may have come too late. HPD rejected both their application to go into TIL and their offer to buy the building for $205,000, and soon, the housing agency will be considering offers from new potential owners. The tenants’ best hope now is for a settlement with the city, or a favorable decision from the state Supreme Court judge who is now considering their case. But they’re still determined to take over the property, despite the fight they’ll have to put up for it. “This is a family building,” says Pittman. “We know how to do it. We just need the chance.”