Two seemingly unrelated development stories caught the attention of even jaded housing observers in recent weeks. In a city where luxury apartments are mushrooming, commanding ever-higher prices in practically every neighborhood, the idea that a tax abatement program that’s been on the books since 1971 may be outdated, or that a long-term owner is taking advantage of a hot market to sell a housing complex may not seem like big news.
But together, the sale of Stuyvesant Town and Peter Cooper Village plus proposed changes to the 421-a tax abatement provision offer important insights into New York City’s housing market. Here are some of the lessons, as spelled out by informed observers and housing organizers.
In case there was any doubt, both items prove the sizzle of the city’s housing market hasn’t cooled despite the national real estate slowdown. When a government task force reports that tax subsidies “are no longer required to stimulate market rate development” – if only in certainly neighborhoods – you know that the city has changed dramatically since 1971, when article 421-a of the New York State Real Property Tax Law was enacted. It allowed developers of any new housing – even luxury housing – to save massive amounts on their taxes. Met Life’s decision to sell the 11,232-apartment Stuyvesant Town/Peter Cooper Village complex that it built in the 1940’s, which is 71 percent rent-stabilized today, reflects the changed city as well.
But beyond the general economic situation, the $5.4 billion price Met Life received from commercial real estate powerhouse Tishman Speyer – an astonishing $480,000 per apartment – indicates a key new reality: developers now see an upside to buying rent-stabilized buildings because they plan to de-stabilize them as soon as possible by hiking rents north of $2,000 a month, at which point they can be removed from rent stabilization. “The complex is only worth that much based on the assumption that you can rapidly deregulate apartments,” said Tom Waters, a housing analyst with the Community Service Society.
Experts say that even the tenant-led bid of $4.5 billion for the 110-building complex likely was predicated on removing many apartments from rent stabilization. And, some speculate that Tishman Speyer will also look to make more lucrative use of existing commercial space, and possibly even build additional apartments, if allowed, to maximize every last nook and cranny of the development.
Tenant lawyer Sam Himmelstein noted that Met Life itself had started to move aggressively over the past decade against tenants who, it argued, did not qualify for rent stabilization. The new owner, he suggested, was likely to continue this policy. The key for tenants is not to ignore the fine print of the rent regulations, he said.
What’s more, suggested Waters of CSS, the sale proves that the shortage of affordable housing is now significantly impacting the middle class. From moderate-income state-subsidized Mitchell-Lama buildings that have reached the end of their rent restrictions, to the sale of Stuy Town and Peter Cooper Village, this is the story of “people who are vulnerable to displacement even though their incomes are higher,” he said. Himmelstein urged tenants whose combined family incomes approach $175,000 a year – another trigger for luxury decontrol – to visit their accountants.
Some activists accuse the Bloomberg administration of following what might be called a “supply-side” housing policy, premised on getting developers to build more housing, no matter the price. “Bloomberg’s got a housing plan, but his plan is just to generate units regardless of their cost – and it ain’t working,” said Irene Baldwin, executive director of the Association for Neighborhood and Housing Development. The fallacy of the Mayor’s thinking, said Tenants & Neighbors Executive Director Jumaane Williams, is that the city doesn’t need more luxury apartments. “We don’t have a shortage of market rents,” Williams said. “We can’t out-build this problem. Preservation has to be the key.”
Many activists criticize the Mayor for not using his bully pulpit to shame Met Life for even proposing a deal that seemed likely to result in increased evictions. Tenants also could have taken a more aggressive stance, for example going after Met Life before the sale was consummated, seeking to embarrass the insurance giant that uses the benign and beloved cartoon character Snoopy in its ads into reconsidering its decision.
So, where do these issues go next? Back in the 1980s, the 421-a program was retooled to require developers in midtown Manhattan to guarantee that 20 percent of their units would be affordable housing in exchange for the program’s steep reduction in taxes. The Mayor’s review panel has recommended that this be expanded beyond midtown. Although the proposed new map includes much of Manhattan, it leaves out many desirable areas of Brooklyn and Queens – meaning that developers would still get the tax cuts without providing any affordable housing in already-gentrifying areas such as Williamsburg and Bushwick, plus all of Queens, except for a thin slice along the East River waterfront. So the battle now shifts to the City Council and the state legislature. Assemblyman Vito Lopez, of Brooklyn, and many allies have been pushing to mandate that this requirement to provide affordable housing in exchange for the tax break be applied citywide.
Missing from the discussion, however, are several other ideas. The first was proposed by Brad Lander, director of the Pratt Center for Community Development. He proposes adding a new clause to the tax abatement provision that would allow developers who are building 100 percent middle-income housing to get the tax abatement. This, he claims, could be a desirable item, particularly outside Manhattan. In addition, Lander says, the city will face another side effect: developers who can no longer grab the tax forgiveness will be paying more in taxes. The windfall for the city will likely be hundreds of millions of dollars, and could rise to billions over the coming decades. He suggests that the city should allocate the bulk of that money to affordable housing.
Going forward, Stuy Town and Peter Cooper Village tenants could focus on new owner Tishman Speyer’s equity partner, BlackRock Inc. BlackRock is part of a publicly traded company and tenants could make use of Securities and Exchange Commission rules, and the company’s legally required public meetings, to put pressure on corporate leaders. The tenants could also pursue Tishman Speyer’s lenders, Wachovia and Merrill Lynch – not to mention another financial backer, the California State Teachers’ Retirement System, whose membership probably would be sympathetic to the plight of embattled middle-class tenants on the other coast, many of them civil servants.
Also, the sale of Stuy Town/Peter Cooper Village once again exposes the city to the problems inherent in the so-called “luxury decontrol” provision that allows landlords to deregulate units that rent for more than $2,000 when they become vacant, or when the tenants have earned at least $175,000 for two consecutive years. When it was added to the rent stabilization law in 1994, that $2,000 threshold may have seemed high. Today, however, it’s a common price – indeed, one recent real estate industry survey indicated the average rent in Manhattan is already $2,400 a month. Gubernatorial candidate Eliot Spitzer has endorsed a proposal to index that rent level to inflation. In support of this, Lander points out that if that $2,000 stabilization ceiling had been raised in keeping with the single-year increases granted by the city’s Rent Guidelines Board, it would now be $2,995 – almost 50 percent higher. At a minimum, this would make it more difficult for landlords to hike rents to the point where they could legally pull them out of rent regulations.
On the surface, reopening the debate over rent regulations may seem an impossible goal to many tenant activists, particularly since the city’s rent protections are not up for review for another five years. “Policymakers in New York are simply not interested in a deep discussion about rent regulations,” said Jenny Laurie, the executive director of the Metropolitan Council on Housing.
Still, she noted, the modest incremental success of getting the Mayor to agree to rein in the giveaway of 421-a tax abatements offered some inspiration. “They’ve been giving away this money for decades,” she said. And the proposed changes came about as “a result of advocates hammering away at it.”