Apartment Boom Slowing

Spending on new apartment construction, alteration, and renovation in New York City is projected to decline to $11.6 billion in 2018 from $16 billion in 2016 and continue to drop, according to the Building Congress.

The State Division of Housing and Community Renewal posted new instructions online for initial registration of 421-a apartments subject to the post-2015 or earlier program rules. Also, as we blasted earlier this week, there are new required stabilized lease riders for New York City and ETPA areas.

The annual Rent Guidelines Board circus kicks off with a preliminary vote April 26th at the Great Hall at Cooper Union. The RGB hasn’t posted dates for hearings or a final vote yet.

Title Insurers are suing the State to overturn regulations effective February 1st that prohibit paying for golf outings, baseball tickets, and such to win business, but in the meantime there is still no free lunch. Even recipients can be fined under the rules

It is not too soon for apartment developers and managers to plan for a day with no parking. Crain’s reports that Manhattan parking garages are taking a heavy hit from ride and car-sharing services. Self-driving cars could dramatically reduce individual car ownership and alternate uses for even existing apartment garage space may need to be found.

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Housing Court Changes Coming

More evening hours and advice to tenants on free legal counsel on notices of petition are among the Housing Court reforms endorsed by NYS Chief Judge Janet DiFiore in her State of the Judiciary speech this week, echoing the recommendations of a Special Commission on the Future of the New York City Housing Court. The Commission also called for more judges, staff, and space, anticipating that already crowded courts would face more delays from motion practice as tenants received more legal representation.

Coincidentally, Mayor de Blasio this week announced a new program of free legal services for commercial tenants.

Still more bad State budget news as details of Governor Cuomo’s 2018 recommendations are revealed: the Governor wants to eliminate the sales tax exemption on energy purchased from ESCOs.

Shola Olatoye, chair of the New York City Housing Authority, testified at a hearing Tuesday that more than 80%, 320,000 of 392,000 Authority tenants, had experienced at least one day without heat or hot water so far this winter. Mayor de Blasio later commented that the City did the best it could with the money it had. Even City Council members noted the difference with how private owners were treated.

And speaking of Council members, it was revealed this week that Deputy Mayor Alicia Glen gave sworn testimony in November that, on housing issues, Council members “are often extremely confused and ill-informed and not that smart.” Well, she was under oath.

The Division of Housing and Community Renewal has issued updated instructions regarding SCRIE and DRIE tenants, including the latest ETPA local income limits.

An analysis of construction worker demographics by the Building Congress released this week says that the workers are getting older, whiter, and more likely to be immigrants.

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Laws and More Laws

Another dozen new laws approved by the New York City Council in December were either signed by the Mayor or enacted by default this week, including provisions to

  • Add requests for proof of citizenship status to the definition of harassment, except is where “otherwise required by law” or “requested for a specific and limited purpose,” such as, presumably, a credit check. Ask for Tax i.d. rather than SSN.
  • Require annual apartment inspections for mold and allergens.
  • Further limit construction noise, including noise from interior apartment renovation, to be further defined by regulation.

See more bills and details in the February New York Housing Journal.

Breaking down the tentative 2018/19 City assessments we reported Wednesday, billable assessments on rental units citywide went up 14% (Class 2 overall up 11.51%) and, unusually, the percentage increase in assessments on Brooklyn and Queens apartments reportedly increased more from physical changes than market forces.

Governor Cuomo proposed a roughly $5 million increase in spending, to about $48 million, for the Office of Rent Administration, plus $4.5 million to separately fund the Tenant Protection Unit, in his executive budget proposal, Tuesday. Head count was projected to remain the same, so it is not clear what the money is for.

The City Planning Commission, Wednesday, approved rezoning a 92 block area around Jerome Avenue in the Bronx, creating about 155 development sites. The plan now goes to the City Council.

Meanwhile, one of the new laws rushed through the Council last month allowed Council members and Borough Presidents to jump the queue on zoning requests. Council Member Margaret Chin and Manhattan BP Gale Brewer are wasting no time using the provision to try to stop new housing development on the Lower East Side.

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More MCI Proof Required

DHCR’s latest Operational Bulletin 2017-1, Major Capital Improvements, Confirmation of Costs, indicates that multiple forms of proof of payment will now be required with all MCI applications, and large cash payments will have to be supported by bank withdrawal records.

Mayor de Blasio, Monday, signed legislation requiring energy scores to be posted in apartment buildings. Not only the industry questions the wisdom of the plan.

New York Yimby reported this week that multifamily construction applications stabilized at around 19,000 units in 2017, after two years of massive drops. But Cushman & Wakefield warned of a potential glut in new office space ahead.

It could all wash out if controversial new flood maps are right. The City and the Federal Emergency Management Agency are in critical discussions over where it is safe to build, and who will have to pay higher insurance costs. Short term, winners and losers will be negotiated. Long term, Mother Nature will decide.

How did RXR get shovels in the ground in New Rochelle in eleven months, after spending eleven years getting to the same point for a similar project in Glen Cove? Scott Rechler explained in a Real Deal interview this week, that also points to 6 million more square feet of potential development in New Rochelle that could be approved in 90 days from an application.

The scoop from NY1 this week is that Robert Cornegy  is likely to be named chairman of the NY City Council Housing Committee and Rafael Salamanca will chair Land Use.

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Wheeler, Dealer

Corey Johnson, elected Wednesday  as the new Speaker of the New York City Council, wants to staff up the Council’s Land Use Division so that instead of members simply vetoing projects in their neighborhoods, the Council can wheel and deal. He has the personal experience, after winning a historic district and reduced project size in exchange for approval of a planned St. John’s Terminal development with Pier 40 air rights a year ago.

Governor Cuomo’s State of the State message this week didn’t offer any new housing programs, but hinted at moving the Red Hook container port, extending a subway from Manhattan, and opening up a massive waterfront development site. He also plans to advance plans for new rail lines on existing Long Island routes that should improve service and encourage nearby development.

The MTA is also offering a unique development opportunity: 3.8 acres above the Bay Ridge Freight Rail branch along 61st Street in Brooklyn.

As expected, Wednesday, Mayor de Blasio announced that a law requiring HPD to develop a Speculation Watch List went into effect. The department has ten months to develop an online listing of building purchases it considers to be over-financed, resulting in potential tenant harassment, displacement, and gentrification.

While the Mayor urged tenants of private buildings to call 311 with any heat problems during yesterday’s snowstorm, the New York City Housing Authority had about 3,000 apartments without heat, according to press reports.

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Double Standards

The year couldn’t end without another New York City Housing Authority lead-paint scandal. The Daily News reported last week that NYCHA placed families in apartments with known lead paint, abated by uncertified workers, without any of the required disclosure notices.
Private property owners may be more affected by a Federal Appeals Court ruling, Wednesday, ordering the U.S. Environmental Protection Agency to propose long considered modifications to the lead hazard levels for paint, dust, and soil within 90 days and adopt any changes within a year.
The State Division of Housing and Community Renewal wound up the year with a new Tenant FAQ on Major Capital Improvements, advising tenants that grounds for challenging MCI rent increases include “defects in the installation of the new equipment, improper cost documentation, complaints of harassment by the owner, outstanding violations of record, lack of registration filings, the issuance of DHCR rent reduction orders,” and “failure to meet useful life requirements for the item being replaced.”
Commercial real estate owners and operators did pretty well in the tax bill signed by President Trump, Friday. The National Association of Realtors published an industry summary, including examples of the effects on developers’ personal taxes.
Looking ahead, pension funds, insurance companies and other institutional investors are reportedly over the urban luxury apartment boom and looking to suburban multifamily development and class B apartments for higher yields.
New York City, meanwhile, is predicting slower job growth for the next several years and wage and tax growth in the 3-4% range.
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Council Slams Owners

Building owners, managers, and developers were slammed with new requirements on everything from mold to energy to construction noise as the New York City Council wrapped up its term, Tuesday, passing almost 40 new laws.

  • If signed by the Mayor, as expected, owners will soon have to due annual mold and allergen inspections, similar to lead paint inspections, and hire certified mold assessors and abatement workers.
  • Buildings will have to post letter grades on their energy use, similar to restaurant grades, based on their energy benchmarking score. Every building with a score from 50 to 90 will have to post a “B” in the lobby, for example.
  • Under another bill, the City Housing Department will create a new online listing of building addresses by owner name, reporting violation totals and harassment findings.
  • Amendments to the noise code will require new regulations defining noise limits for  indoor renovation.
  • And, the Buildings Department is directed to develop more stringent energy conservation standards for construction than the national and state standards.
  • Subsidized housing projects, including 421a buildings, will be required to list all apartments, building amenities, rents, and vacancies on a central City listing portal. Efforts by CHIP, ABO and other industry groups succeeded in exempting stabilized buildings generally from the City portal listing requirement as originally proposed.

Details on these and other measures affecting the industry will be in the February New York Housing Journal.

Tuesday was a bad day for building owners in the State Court of Appeals as well, with a decision overturning the lower court ruling in Prometheus Realty that blocked a City water bill credit to single family homeowners at the expense of multifamily owners and other customers. Mayor de Blasio immediately announced that homeowners would get a $183 credit, but it wasn’t clear how or when it would be applied or how it might affect other owners’ bills.

The new tax law passed by Congress this week was kinder to housing developers, preserving 1031 exchanges,  private activity bond financing for affordable housing and low income housing tax credits among other business tax changes. On the homeownership side, Zillow estimated that the new  $750,000 cap on home mortgage interest would drop the number of homeowners nationally for whom it paid to itemize from about 44% to 14% . In Nassau County, it would decline from almost 100% to 68%, and in Rockland from 97% to 50%. In Manhattan, however, the percentage would only decline from 100% to 99.8%.

Look out WeWork. It turns out that one of the hot new amenities for new apartment developments and renovations in Westchester is co-working space. Also, pet-washing facilities.

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Dogs and Fleas

Sleep with dogs, wake up with fleas. Or, rent to the City of New York and have your property condemned. Mayor de Blasio last week announced he would use eminent domain to take buildings with large numbers of homeless families placed in them under the “cluster housing” program. It is not clear how this solves the homeless problem.
The Mayor’s other new plan to address housing shortages is to help finance 200 condos or co-ops a year for middle income families with an Open Door” program. It will help a whopping 1300 families by 2026 and joins the Neighborhood Pillars program, the Mitchell-Lama Reinvestment ProgramSeniors Firstand HomeFix programs, among others.
The City Council, meanwhile, has issued a 72 page report on the problems of retailers. Among the ideas: require building owners to report retail vacancies of more than 90 days, new zoning to require street retail in some residential areas (presumably to create more vacancies), and tax incentives because taxes are too high.
The Council was also busy on the housing front last week, passing legislation to add “an individual’s actual or perceived romantic, physical or sexual attraction to other persons” to protected classes; and prohibiting building owners from requesting identification from tenants or prospective tenants that would indicate citizenship status, unless such documentation is otherwise required by law (i.e., a tax i.d. for a security account) or is requested for a specific and limited purpose such as, perhaps, a credit check.
The Council also amended the J-51 law to increase the assessed value per unit for eligibility from $30,000 to $32,000 and index it for inflation.
The latest episode of Housing Authority screw-ups included the Authority sending “breach of lease” notices to tenants who may or may not have missed lead inspection or repair appointments, and a report, Wednesday, that 81% of 8900 units inspected in 2017 (after four years of missed inspections) had potential lead hazards. Buried in the story, however, is the fact that more than half those units are believed to be lead free and may just have peeling paint.
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New NIMBY Tool

City Council Member Margaret Chin and Manhattan Borough President Gale Brewer are seeking a rapid zoning change to retroactively block an approved development on the Lower East Side. In another chilling blow to as-of-right development, the pols are using a new law sponsored by Chin that became final without the Mayor’s signature, perhaps because he didn’t want to be associated with it or just didn’t want to challenge the Council with a veto.

Although the latest 421-a law provides benefits for condo projects, new City regulations will make them practically impossible. In order to apply for the tax exemption, developers must have a sales contract on every single unit in the project within a year of the building’s completion and agreement by each purchaser to remain a primary resident for five years. Because the developer has to make the deadline and clear other hurdles, buyers can’t know if they will get the exemption when they sign a contract.

Title insurance brokers can’t buy you lunch or take you to a golf outing anymore under new rules issued by the State Division of Financial Services effective December 18th. The DFS is cracking down on “marketing expenses” that it believes inflate rates.

The New York City Housing Authority confirmed to the Daily News this week that, until 2016, none of the NYCHA workers assigned to do lead paint inspections had Lead-Based Paint Visual Assessment certificates, which the U.S. Department of Housing & Urban Development (HUD) requires. And, until August, none of the NYCHA workers assigned to lead paint cleanup had the required Environmental Protection Administration (EPA) Lead Renovator Certification. Private owners would be facing huge fines and jail time for NYCHA’s failures reported in recent weeks.

In an unusual public move, the Manhattan Housing Court Advisory Council has ordered Judge Susan Avery removed from the bench for conflicts, delaying cases, and unprofessional behavior. Avery was deemed “not qualified” by the Bar Association, twice.

Meanwhile, the Appellate Division, First Department, recently refused to remove a non-primary resident in 92 Cooper v. Roughton-Hester, saying that the tenant’s Pennsylvania voter registration and tax filings weren’t dispositive by themselves and that a new trial was required.

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Council Fights Building Improvements

Be prepared to be publicly shamed on a “speculation watch list” if you buy a building with high leverage to fix it up under legislation passed by the New York City Council Thursday. Buying a building with large numbers of violations could also get you on the list, depending on criteria to be developed by HPD. A second bill will prevent you from getting a building permit to renovate apartments or fix many violations in certain neighborhoods without a Certificate of No Harassment issued by HPD after a hearing.

The Council also broadened the definition of harassment to include knowingly providing any false or misleading information to any resident of an apartment, making multiple false violation certifications, or materially misrepresenting the regulatory status or occupancy of a building on a permit application.

Ironically, the Council approved an East Harlem neighborhood rezoning at the same meeting, where hoped for development will be slowed by the above measures.

The Preliminary Maximum Base Rent Factor for 2018-2019 is 7.4%. The Division of Housing and Community Renewal held a hearing on the proposal Wednesday. Tenants and politicians called for a rent freeze, but DHCR has always adopted the number dictated by formula in the past. The biggest cost increase reflected in the formula is a 9% hike in property taxes.

In its continuing effort to be the City’s Worst Landlord, NYCHA planned to break into hundreds of apartments this week to do visual lead paint inspections. Don’t try this at home as we imagine the City would accuse a private owner doing this of harassment.

Housing is tight, but Newsday found rentals for most budgets available across Long Island in a recent survey, with one bedrooms ranging from $1400 in Patchogue to $2115 in Sayville.

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