When Douglas Altcheck first heard rumors last fall that Manhattan House, the 583-unit building where he’s rented an apartment for 25 years, would be converted to condominiums, he thought he would finally have an opportunity to become a homeowner.
But he soon heard more rumors that the owners, to maximize their profit on the building that covers an entire city block, would be offering an “insider’s rate” less attractive than the norm to tenants who insisted on staying, instead trying to empty the building through a variety of unpleasant tactics to make way for wealthier outside investors.
“I thought this was my chance to purchase my apartment,” said Altcheck, a dermatologist whose rent was stabilized until four years ago, when it hit the $2,000 mark that allows rent to be decontrolled for those who earn $175,000 or more annually. “There are no laws protecting market-rate tenants.”
Though that’s a bit of an overstatement, tenants of the landmark building one year later are seeing their fears about the condo conversion coming true in a situation that could foretell the future for many other tenants, as there are currently more than 700 buildings pending condo conversions in Manhattan. That’s according to the office of the state attorney general, which approves the proposals to convert. The new owners appear to be pushing tenants out by disturbing them with construction work, raising rent drastically and refusing to renew contracts.
As the first condo conversion on such a large and expensive scale, the contentious relationship between Manhattan House’s tenants and landlord could be the shape of things to come citywide. “With Manhattan House, what’s new is the size of the project, and other ones that are slated to enter,” said Jonathan Miller, CEO of Miller Samuel, a real estate appraisal and consulting firm.
Like the Peter Cooper Village and Stuyvesant Town complexes, which sold this month for $5.4 billion, Manhattan House is one of a number of affordable-housing apartment buildings built as part of a postwar urban renewal project designed for middle-class New Yorkers. The 22-story edifice is the Upper East Side’s first white brick structure, covering an entire block on 66th Street between Second and Third Avenues, and includes a parking lot, retail stores and the largest private garden in the city. Close to 250 apartments remain rent-stabilized. Market-rate apartments go for $4,000 to $8,000, said Rafael Urquia, chairman of the tenants’ association.
Eventually, buildings like Peter Cooper Village, Stuyvesant Town and Manhattan House will become condos, said Larry Longua, a professor at the New York University Real Estate Institute. “This will ultimately convert,” Longua said. “There’s no rent that they can achieve to make up what they’ll pay in interest. Deals like this are going to empty out the middle class from Manhattan.”
But the Manhattan House Tenant’s Association is fighting aspects of the conversion using tactics that can at least stall the process and give them bargaining power, he added.
Tenants are drawing attention to what they claim is abuse of a state law called the Martin Act as a way to force the new owners to lower the inflated rental and purchasing prices they’ve imposed, said Altcheck, a member of the tenants’ association.
According to the Martin Act, Altcheck and his neighbors, who also fretted about their fate, shouldn’t even have heard about future plans for Manhattan House until its new owners, N. Richard Kalikow and Jeremiah O’Connor, Jr., filed a proposal for tenants to review and for the New York Attorney General to approve. On Feb. 1, 2006, several months after the rumors started spreading, Kalikow and O’Connor submitted a proposal of their plans for the property they had purchased in October 2005 for about $625 million, which real estate experts said set a national record for the sales price of a single residential building.
In response to the apparent violation, and what the tenants call “scare tactics” by the landlord to force them out before apartments go on the market, the tenants’ association this past summer filed a complaint with the attorney general. It claims that to bankroll their purchase, Kalikow, O’Connor and Credit Suisse Bank, which backed them, publicly sold bonds. In doing so, they released details about the conversion before it was reviewed.
David Rozenholc, an attorney for the tenants’ association, said he is focusing on how the sale was funded. “The way this deal was financed is a new sort of creation, it’s one of the newer inventions in financing and buying.”
New York Life Insurance Company sold the building at the peak of the housing boom for more than $1 million per apartment. Kalikow and O’Connor bought the property as a joint venture between their two firms, Manchester Real Estate and Construction, LLC, and O’Connor North American Properties Partnership, respectively.
A spokeswoman for the owners would only confirm that the building is being transformed to condominiums.
Keeping conversion plans under wraps, as the Martin Act requires, protects tenants from hearing false rumors or moving out prematurely, said Urquia, an international corporate lawyer.
Credit Suisse posted details about the building’s future on bond-rating Web sites such as Fitch Ratings, the tenants’ association says. It also claims that O’Connor’s son and business partner, William, discussed the plan at a Columbia Business School alumni seminar on Dec. 8, which some Manhattan House tenants attended.
Allan Starr, an attorney for the owners, did not return phone calls. In a letter he sent the attorney general’s office this August which the tenants’ association provided, Starr said his clients have not and will not “engage in any pre-sales or other activity that violates the Martin Act.” He also said that William O’Connor merely used Manhattan House as an example while lecturing on other real estate issues, and didn’t realize there were residents in the audience.
But tenants think releasing the information was part of a larger effort to intimidate renters into leaving before the construction to renovate, remove asbestos and install central air conditioning is complete. They have also accused the owners of beginning the asbestos work before receiving the go-ahead from the attorney general, significantly hiking rent prices and using other methods to push out rent-stabilized tenants.
A spokesman for Attorney General Eliot Spitzer said he could not comment on an ongoing case.
As they wait to see whether their legal challenge will bear fruit – optimally forcing the owners to lower the rent hikes and improve the insider’s rate on purchasing – tenants say they’re stuck with exposed pipes in the hallways, holes in walls and floors, fire hazards, cut phone lines and other problems, while rents are predicted to rise as high as $10,000 a month.
“My apartment has been 90 degrees, there’s obviously something wrong, and pipes are everywhere,” said Altcheck, who was told his rent would increase by 50 percent. “This was at one time an institution, now it’s … like a war zone.”
