New York, NY —
The real estate industry is reeling from a decision that was handed down by the state's highest court, Thursday. It means that the owners of Stuyvesant and Peter Cooper Village may have to pay millions in rent over charges to tenants and return apartments to rent stabilization system. Tenants are celebrating the victory. WNYC's Cindy Rodriguez reports:
REPORTER: It's been almost three years since Tishman Speyer along with Black Rock Realty paid $5.4 billion for these two large complexes that stretch from 14th Street to 23rd Street on Manhattan's east side.
From the outset there were complaints that the new owner was aggressively trying to push out rent regulated tenants so they could raise rents to market rates. At an impromptu press conference, John Marsh, head of the tenants association saw the ruling as justice:
MARSH: Today is a great day for the tenants residence of our community. we waited a very long time for this. hopefully stability will return to the community. the moving vans will stop coming and going everybody and we will finally get to know our neighbors and keep our neighbors.
REPORTER: In yesterday's decision, the judges ruled that landlord Tishman Speyer should not have been raising the rents to market rates because they were receiving what's called a j-51 tax credit.
The tax credit is given to owners who rehabilitate and make improvements to their properties. And according to the decision, the law says in exchange owners are expected to keep apartments rent regulated.
According to court papers, the owners had received $25 million in tax credits much less than they could potentially owe in rent over charges. The plaintiffs say tenants are owed more than $200 million.
The decision could go beyond this large Manhattan complex. The Rent Stabilization Association, a landlord group estimates that tens of thousands of units across the city could be affected making many more landlords potentially liable for overcharges as well.
Attorney Jeffrey Turkel wrote an amicus brief for the RSA. He warns that if rent rolls decrease, then property values will go down and so will property taxes a main source of revenue for the city:
TURKEL: So the city is going to find that the hole in its budget has just gotten tens of millions if not hundreds of millions of dollars larger. and a lot of the politicians who supported the tenants cause, may find that the tax dollars they need for other programs are not going to be there.
REPORTER: In it's decision the four judges ruling in favor of the tenants downplayed the predictions of dire financial consequences. They wrote that several issues still need to be resolved such as who will be entitled to compensation and will the compensation be retroactive.
While it's unclear what tenants stand to gain, Larry Longua, a professor at NYU’s Schack Institute of Real Estate says the decision is making huge waves:
LONGUA: Oh its all over the place there's e-mails flying around all over the place.
REPORTER: Longua says that's because no one can figure out yet what the ramifications will be:
LONGUA: Any market hates uncertainty and this decision comes down and creates massive uncertainty and it's just going to freeze the market.
REPORTER: Longua calls it a wake up call for lenders making loans without understanding or thoroughly researching New York City's rent regulation laws.
But for Tishman Speyer, one of the most prominent real estate developers in the country, the decision is a huge blow. The owner of Stuyvesant Town and Peter Cooper Village was already close to defaulting on its loan.
The credit rating agency Real Point says the property is worth about $2 billion. $3 billion less than what they paid for it. In its most current analysis Real Point says "the ruling marks the beginning of a lengthy workout between borrower and lender", and while the tenants are celebrating their victory they also worry about the future of their buildings. City councilman Daniel Garodnick says this was a complex real estate deal with many different investors:
GARODNICK: What do the church of England, the government of singapore, the answer is they are all investors here.
REPORTER: Garodnick is a market rate tenant at Peter Cooper Village. He says it will be crucial to make sure that whatever happens tenants find an owner that is benevolent and looks after them:
Garodnick: That will promote peace and stability and not aggressive pursuit of rent stabilized tenants. That's what this is going to be out and that's what we will look to achieve.
REPORTER: The recent ruling comes from the state's highest court and cannot appealed. But a trial court will likely have to work out the details of any compensation.
In a written statement, Tishman Speyer said the ruling reverses 15 years of government practice and raises a number of difficult issues that will need to be resolved by the courts and various government agencies in the coming months and years. For wnyc, I'm Cindy Rodriguez.