Via The New York TimesThe Court of Appeals dealt a financial blow on Thursday morning to the already beleaguered owners of the sprawling Stuyvesant Town and Peter Cooper Village complexes in Manhattan when it ruled that they improperly began charging market rents on thousands of apartments.
The ruling by the state's highest court may mean that the current owner, a partnership of Tishman Speyer Properties and BlackRock Realty, and the former owner, Metropolitan Life, may have to pay an estimated $200 million in rent overcharges and damages to tenants of some 4,000 apartments.
The court, in a majority ruling (two of the six judges dissented), said the owners improperly raised rents beyond certain set levels at the complexes while receiving tax breaks from the city for major renovations.
The decision could also affect landlords of as many as 80,000 apartments across the city who also may have improperly raised rents and deregulated apartments while receiving special tax breaks.
Tishman Speyer Properties and BlackRock, which purchased the properties in 2006 for a record-breaking $5.4 billion, are already under enormous financial pressure. The partnership is running out of cash to pay building loans and could default within the next several months.
In its decision, the court acknowledged that the developers have predicted "dire circumstances for our ruling, for themselves and the New York City real estate industry generally." But the court pointed out that numerous unresolved issues could lessen the amount of money that the owners may have to repay. And "if the statute imposes unacceptable burdens, defendants' remedy is to seek legislative relief."
Shortly after the Tishman Speyer partnership bought the complex in late 2006, nine tenants of seven apartments in the complexes filed suit claiming that the landlord had improperly charged market-rate tenants for thousands of apartments while collecting over $24 million in tax breaks since 1992 under the city's J-51 housing program. The program was designed to encourage landlords to rehabilitate their properties by providing tax breaks on the cost of various building improvements or renovations.
In March, the Appellate Division of the State Supreme Court ruled that the landlords had indeed improperly raised rents and decontrolled apartments. That decision galvanized much of the real estate industry, which submitted briefs on behalf of the Tishman Speyer partnership.
They argued that the court had misread the state law, which did not prevent landlords who received city tax breaks for building improvements from deregulating apartments, and overturn "15 years of real estate industry practice that had been endorsed by two government agencies with primary responsibilities in this area."
Alexander H. Schmidt, a lawyer who represented the original nine plaintiffs in the class-action case, said he was thrilled by the decision, not just for his clients but the "thousands of current and former market rate tenant class members they represent."
"The court's ruling is a landmark victory for them and for similarly situated tenants citywide," he said. "We hope that, now that their appeals on the governing issue of law have been exhausted, Jerry and Rob Speyer, the Tishman organization and MetLife will do the right thing by the tenants, and for the good of the city, by acting quickly to resolve all of the class members' rent overcharge claims by settling this case, and ending the litigation."
The Speyers were not immediately available for comment.
In a strongly worded dissent written by Judge Susan P. Read and joined by Judge Victoria A. Graffeo, the idea that the developers' "losses ultimately will turn on legal issues and defenses yet to be resolved is cold comfort."
"In the absence of meaningful legislative action, uncertainty will reign in an industry already rocked by the bursting of the great residential real estate bubble," the dissent continued.
There are about one million apartments with regulated rents in New York City. Over the past two decades landlords have lobbied successfully to loosen those restrictions. Under state law, landlords can deregulate an apartment when the rent for a vacant unit reaches $2,000 or more per month, or the rent is above $2,000 and a tenant's household income is above $175,000 for two consecutive years.
Once the apartment is deregulated, there are no restrictions on the landlord's ability to raise the rent.
Landlords are also allowed to pass along a portion of the cost of major renovations to the tenants. At Stuyvesant Town, for instance, the landlord routinely spent about $40,000 renovating vacant apartments and as a result was able to impose a $1,000 a month rent increase. As a result, the total rent would exceed the $2,000 threshold and the landlord was permitted to charge market rates.
Stuyvesant Town and Peter Cooper Village, long a middle-class oasis in Manhattan for teachers, firefighters, nurses and even some politicians, has been at the center of a storm ever since Metropolitan Life sold the complexes in 2006 for $5.4 billion. The sale came amid a housing boom, in which the demand for luxury housing seemed insatiable, even as tenant advocates decried the loss of apartments affordable to lower and middle class New Yorkers.
Court Deals Blow to Owners of Huge Apartment Complex [NYT]
Related:
Tishman Rent Rise in Manhattan Voided by New York's Top Court [Bloomberg]
UPDATE 1-NY court rules against Stuyvesant Town owners [Reuters]
Court Rules Against Tishman in Stuyvesant Town Case [WSJ]
Stuy Town Owners Dealt Blow Over Rent Boosts [NBC NY]
Stuy Town Tenants Win Major Lawsuit Against Tishman Speyer [Gothamist]
Tishman Loses Stuy Town Fight; May Have to Pay $200 Million, Default [Village Voice]
Judge Deals Death Blow To Owners Of Troubled Stuyvesant Town [Business Insider]
NY court deals landlords huge setback [Crain's NY]
In its decision, the court acknowledged that the developers have predicted "dire circumstances for our ruling, for themselves and the New York City real estate industry generally." But the court pointed out that numerous unresolved issues could lessen the amount of money that the owners may have to repay. And "if the statute imposes unacceptable burdens, defendants' remedy is to seek legislative relief."
Shortly after the Tishman Speyer partnership bought the complex in late 2006, nine tenants of seven apartments in the complexes filed suit claiming that the landlord had improperly charged market-rate tenants for thousands of apartments while collecting over $24 million in tax breaks since 1992 under the city's J-51 housing program. The program was designed to encourage landlords to rehabilitate their properties by providing tax breaks on the cost of various building improvements or renovations.
In March, the Appellate Division of the State Supreme Court ruled that the landlords had indeed improperly raised rents and decontrolled apartments. That decision galvanized much of the real estate industry, which submitted briefs on behalf of the Tishman Speyer partnership.
They argued that the court had misread the state law, which did not prevent landlords who received city tax breaks for building improvements from deregulating apartments, and overturn "15 years of real estate industry practice that had been endorsed by two government agencies with primary responsibilities in this area."
Alexander H. Schmidt, a lawyer who represented the original nine plaintiffs in the class-action case, said he was thrilled by the decision, not just for his clients but the "thousands of current and former market rate tenant class members they represent."
"The court's ruling is a landmark victory for them and for similarly situated tenants citywide," he said. "We hope that, now that their appeals on the governing issue of law have been exhausted, Jerry and Rob Speyer, the Tishman organization and MetLife will do the right thing by the tenants, and for the good of the city, by acting quickly to resolve all of the class members' rent overcharge claims by settling this case, and ending the litigation."
The Speyers were not immediately available for comment.
In a strongly worded dissent written by Judge Susan P. Read and joined by Judge Victoria A. Graffeo, the idea that the developers' "losses ultimately will turn on legal issues and defenses yet to be resolved is cold comfort."
"In the absence of meaningful legislative action, uncertainty will reign in an industry already rocked by the bursting of the great residential real estate bubble," the dissent continued.
There are about one million apartments with regulated rents in New York City. Over the past two decades landlords have lobbied successfully to loosen those restrictions. Under state law, landlords can deregulate an apartment when the rent for a vacant unit reaches $2,000 or more per month, or the rent is above $2,000 and a tenant's household income is above $175,000 for two consecutive years.
Once the apartment is deregulated, there are no restrictions on the landlord's ability to raise the rent.
Landlords are also allowed to pass along a portion of the cost of major renovations to the tenants. At Stuyvesant Town, for instance, the landlord routinely spent about $40,000 renovating vacant apartments and as a result was able to impose a $1,000 a month rent increase. As a result, the total rent would exceed the $2,000 threshold and the landlord was permitted to charge market rates.
Stuyvesant Town and Peter Cooper Village, long a middle-class oasis in Manhattan for teachers, firefighters, nurses and even some politicians, has been at the center of a storm ever since Metropolitan Life sold the complexes in 2006 for $5.4 billion. The sale came amid a housing boom, in which the demand for luxury housing seemed insatiable, even as tenant advocates decried the loss of apartments affordable to lower and middle class New Yorkers.
Court Deals Blow to Owners of Huge Apartment Complex [NYT]
Related:
Tishman Rent Rise in Manhattan Voided by New York's Top Court [Bloomberg]
UPDATE 1-NY court rules against Stuyvesant Town owners [Reuters]
Court Rules Against Tishman in Stuyvesant Town Case [WSJ]
Stuy Town Owners Dealt Blow Over Rent Boosts [NBC NY]
Stuy Town Tenants Win Major Lawsuit Against Tishman Speyer [Gothamist]
Tishman Loses Stuy Town Fight; May Have to Pay $200 Million, Default [Village Voice]
Judge Deals Death Blow To Owners Of Troubled Stuyvesant Town [Business Insider]
NY court deals landlords huge setback [Crain's NY]
Woo-hoo!
This is the "hot" news????
This is OLD news
LOL
As they say "revenge is a dish best served cold"
This is unbelievable! Great news!
We may have to gird ourselves for more battles though:
From the article:
And “if the statute imposes unacceptable burdens, defendants’ remedy is to seek legislative relief.”
Let's see how fast Albany gets its act together to help out our dear landlord.
If someone is currently living in a rent-stabilized apartment does this ruling mean
that the owner (whomever it is) CANNOT
deregulate until the end of J-51 (ie 2017?).
Or can the owner say, OK, now I want to leave
J-51? Are they legally obligated to stay?
Thanks.
These two greedy, inept, and arrogant losers are getting what they deserve. This is what happenes when you put your failed newspaper reporter son in charge of a multi billion dollar investment deal.
Hold on to those illegal walls boys, you'll need to burn them for heat.
I lived in Stuy Town for 4 years but have been gone for 8 months...how do we file for the money back?
What will happen next? Anybody knows what the next leagal steps are going to be?
What do this ruling and TS's financiai difficulties mean to current (market rate) tenants and our quality of life?
It means water and gas will go tits up by Monday.
Robbie forgot to post this on his blog that covers Tishman Speyer in the news. WTG Robbie!
Robbie forgot to post this on his blog that covers Tishman Speyer in the news. WTG Robbie!
Looks like the court ruled that the Speyers violated some of the code of ethics outlined by the real estate board of NY. Should they get the boot from the board of governors?
I am delirious! Walking around congratulating everybody. RS'ers are thrilled. Imagine that.
Where's the party?
BTW--what press was at the conference?
Sorry, not sure. It was so hard to hear that I spent most of my time trying to make my way up front. But there were lots of press.
soooooooooooooooo... anyone know anything about what is going to change from here on out? current rent, what is coming back and how long it'll take?
:))))))))))))))))))))
Would anyone know how this affects the major capital improvement increases given to the rent stabilized tenants?
Has no effect
Thank you Ziggy.
I'm not hopeful about the rebates (I bet they just pay back the $24 million of tax credits rather than pay the rebates), but does anyone have any idea when we could see a rent reduction? Also, does this apply to ALL market rate apartments in PCVST?
this applies to all MR apartments in STPCV. Court did not address remedy thus it is unclear whether Metlife and TS could repay J51 benefits and get out from under this ruling. One of a number of as yet unresolved issues.
It seems to me that if they just pay back the money to get out
of J-51 that just eliminates the point of the lawsuit. It's
like robbing a bank and getting caught but you don't
serve any jail time because you gave the money back.
It's clear that they signed up for J-51 until 2017. From what
I can see there's no out clause.
I called Garodnick's office today and the person I spoke with
said he believes that TS has to live up to the terms of J-51, ie
no deregulation until 2017.
ziggy, you seem to know a lot of the details. Are you a MR tenant or active in the tenants' association?
FREE CHAMPAGNE! OK, it's symbolic, only one bottle. A Korbel? Anyway--pick a time--say 9:30 pm? 9? Bring your own little cup. SOmebody else has to pop it--they scare me. :-)
Who's in?
Neither. I am a long term resident and a lawyer and have followed case very closely
MO' CHAMPAGNE. Has been donated if anybod is planning to show. That's two bottles.
"In the absence of meaningful legislative action, uncertainty will reign in an industry already rocked by the bursting of the great residential real estate bubble," the dissent continued.
Not "uncertainty" - "certainty"
Not "the" great bubble - "their" great bubble
Not "the dissent" - "the owned"
Congratulations Amy et al. for taking down the blood sucking goliath with a slingshot pebble smack between fat Jerry's greedy eyes. Thanks for ripping bullseye targets off doors leading into the homes of several million NYC residents.
If I recall correctly, you can't decide to just opt out or buy your way out of J51. Once you're in, you're supposed to be in for the full term. Otherwise, what's the point?
Here's a link to an earlier Luxie post on opting out early
of j51
http://stuytownluxliving.com/2009/03/attorney-tishman-may-try-to-leave-j-51-program-early.html
As all of you, I'm VERY excited about this ruling. However, I am not seeing anything anywhere that mentions WHEN the MR tenants will be paid back (via whatever form they decide). I'm seeing a few of you on here have legal experience - any ideas? Are we talking weeks, months, years, decades?
Any help would be appreciated - thanks!
Here's the latest from the NYTimes: http://www.nytimes.com/2009/10/23/nyregion/23stuyimpact.html?_r=1&hp. Landlords are saying the ruling is terrible for the industry--right. They won't be able to gouge tenants anymore. It's just tragic.
And here's an article from the New York Observer, complete with a quote from our very own Bud Perrone: http://www.observer.com/2009/real-estate/speyers-dealt-tremendous-hit-court-rules-tenants-stuy-town#
I wouldn't start counting my rebate check just yet. The Supreme Court trial will deal with damages and defining the class. A distinct possibility exists that this decision will work more towards preserving stabilized housing rather than compensating MR tenants. Not to second guess the system, but there's going to be a lot more nuance to the judicial decision making process than 1+1=2.
This is very interesting, from the Observer article:
But in the scheme of what was a $6.29 billion transaction--including reserve funds--they had only a sliver of investment. According to a person familiar with the financing structure, Tishman Speyer and its affiliates put only $112 million of equity into the deal. They also have taken an untold amount in fees for managing the property, likely worth tens of millions.
I knew that Tishman Speyer didn' t have much of their own money in the deal, but it surprised me that they were collecting fees for "management" of the property! What a rip-off!
I think you can count, but count slowly.
I would be surprised if compensation was not awarded. If nothing else, in the form of rent rebates or credits going forward.
At this point, there is little chance they can walk away without paying anything. There is documented liability and deep pockets here.
I would venture to guess that they have extracted as much in fees as they put up in equity capital--or close to it.
What I want to know is who put up the money for the 'reserve funds.' Talk about a financial organ donor....
I disagree. Let's not jump any guns here. The court, not TS, would determine exactly how, if any, monies are to be distributed. A landlord cannot simply and unilaterally decide 'We've been ordered to pay you back for overcharging you, but we would like to instead offer you a credit for future tenancy' like a retailer would offer store credit, unless those terms become part of a settlement (long, lonnnnng process). You would need to take into account a few things, like lot of people have a) moved out and/or moved far; and b) some people who would qualify have deceased, in which case it may need to be litigated, determined issues/next of kin, etc.; and c) a lot of people simply don't want to live here for whatever reason.
Like Ziggy said, this is just the end of the beginning of a long, long process, the mere tip of the iceberg.
Damages have not been decided. It's all conversation and no more at this point.
But I want, I NEED, a dishwasher.
Now that the question of law has been resolved the tenants will get their day in court (NY Supreme). First thing is first, the class must be certified. Since there's no real question of fact, the matter should be resolve quite quickly and both complexes should be ordered to return to rent regulated status. The question is when will the court schedule this.
The damages portion should be bifurcated into its own matter. Unless TS decides to settle the matter out right, they'll litigate on this for how ever long it takes.
So the way I see it, rent regulations are coming first, possible damages later. For fellow attorneys out there, would you concur?
lifer, my feeling (and this is strictly my personal opinion) is that the court is likely to take into consideration much more than the "deep pockets" of TS. Remember that this ruling has consequences that extend widely across the spectrum of real estate owners, from small mom and pop multifamily dwellings to huge developments. I'm not an attorney, but it seems to me that there will be an element of fairness factored into the decision making process. Remember, the issue has been won regarding luxury decontrol and J-51's, and those small property owners might just (unfortunately) serve to insulate TS from large penalties.
I mention the deep pockets not to suggest the magnitude of a settlement but rather to indicate that the funds are there to pay one.
Certainly, you would think that the tenants impacted would be entitled to the difference between MR & RS rent. I would also think that some sort of damages are in order but I don't have a sense of the magnitude of those damages.
I think something that has been lost in a lot of peoples calculations is that under rent stabilization rules, the landlord is still entitled to a vacancy increase and and increase to pay for renovations--all of those miles of granite and trucks full of wine fridges....
The price differences are probably a lot smaller than people think but I'm sure there is a difference--and an assurance that you won't be screwed by these guys with a surprise 33% rent hike! At least until 2017.
Something here does not seem to add up...
I moved in about 2 years ago and have paid $3000/mo in rent for a 1 bedroom that I share with a roommate. I read on [I think] Reuters that the average stabilized rent before deregulation started to occur was around $1240 (Because my unit is a 1 bedroom, I would think that it had a lower rate than this, but let’s just roll with the figure).
Hypothetically, as far as I understand, I should receive:
$3000 (current rent) - $1240 (stabilized rent) = $1760 * 24 months = $44,240?
According to Bloomberg News, NY State Law permits 3x damages for illegal rent increases, which is exactly what this is--so I am potentially due $132,720? Something does not seem right…
[Institutional Investing 101] As far as ownership/equity goes, Tishman Speyer does not 'own' StuyTown, per se. They are a real estate private equity firm, and while their end goal might be 100% ownership of the complex, they initially finance the transaction by creating a limited partnership (like a hedge fund legal structure) and enlist equity and debt investors (in the case of PCV/StuyTown, CALPERS, Bank of England, etc. The PE firm may have the option to buy out the other investors at the end of a specific term, but initially they have a very small stake). As we all know, the complex has been hemorrhaging money for basically the entire term of the investment, and the equity owners in the partnership are almost out of cash. If they do not have any cash, then they cannot make payments on the bonds they used to finance the deal--this is known as 'default.' The partnership then goes into receivership, which essentially (bankruptcy law is exceedingly complex and I am not a lawyer) means that the debt holders now have a claim on assets (property of the equity holders) approximately proportional to the amount of interest/principal payments they are due over the life of the bonds they hold. This is the situation that the StuyTown partnership is approaching.
I apologize for the above lecture, but it seems that many do not seem to know the basics of how private investments are work...and understandably so…why would you if you don't work in the industry? The point is this: it does not matter if StuyTown goes bankrupt--the debt holders then become the equity holders, and are responsible for whatever liabilities the investment partnership has accrued--legal settlements fall into this category. Before the bondholders receive any of their principal back, all these obligations must be satisfied [generally speaking]. Obviously there has been no legal settlement to discuss damages, but there certainly is enough money in debt principal to pay out any legal settlement that a court could hand out. [I also think that it is important for people to understand that whatever settlement is made, Tishman Speyer is only going to be paying a very small percentage of it. The rest will come out of the investments of the other equity and debt holders.]
This is where I get a bit confused. As far as I have interpreted the ruling, TS was indeed wrongly charging tenants market-rate rents when they were still receiving tax breaks contingent upon them charging rent-stabilized rents. Anyone who has paid a dime over the market stabilized price during their tenure living in StuyTown is most likely going to be entitled to the excess money back...how's my aim here? Additionally, will TS (or whoever is the next owner of the complex) be able to halt their tax benefits and legally put rents back to market levels? How long will this take, and will there be any period of reduced rents? Boiling it all down, my question comes to this: does anybody (preferably an attorney) have an educated guess as to what I can expect, and when can I expect it?
I moved here because I thought the apartment was nice and that $3000 was a pretty decent deal for a large, legit one bedroom compared to what else was on the market at the time (still, it certainly is not terrible). How can I (and everyone else in a similar situation) possibly be 'entitled' to a potential settlement payment equivalent to an entry-level Ferrari for doing nothing more than paying my rent on time for what I thought was a decent apartment? Is this really a winning lottery ticket? I am a big fan of free money, but does anyone else feel [somewhat] like a bag of shit for taking it, assuming my interpretation is correct?
Side note: Any part of this post may be 100% incorrect...if anybody out there finds anything wrong with my interpretation, including the things that I have deemed 'facts,' please correct me!
The formula should be:
(Current Rent) - (Last known RS rate) + (cost of improvements/40) = OVERCHARGE.
NY Supreme will hear the damages case separately to determine whether we'll get anything back up to x3 pursuant to NY law.
TS is claiming their improvements were in the 40K/apartment range which sounds steep but nonetheless the improvement cost will likely get factored in.
"Certainly, you would think that the tenants impacted would be entitled to the difference between MR & RS rent. I would also think that some sort of damages are in order but I don't have a sense of the magnitude of those damages."
Actually no, I think there's a way to look at this from the point of people who were forced into paying market rates versus people who willingly signed leases for market rate apartments. Consider that people who where already in place but saw their rents increased due to decontrol versus those who had the choice to pay those same rates at any of the available MR rental buildings in the city. Look, I'm not going to be the arbiter of this, I'm just saying that there's going to be a lot of logical and ethical factors that will weigh on the decision making process, and it won't necessarily be a matter of "doing the math" as some posters are speculating about.
Whatever the outcome, one needs to remember that the BIG picture story here is that the Rent Stabilization laws EXPIRE in 2011 and could very well render the entire J-51 issue moot at that time. Tenants need to continue to work to insure equitable protections for affordable housing for the future.
I don't know if you should feel like a bag of shit, but before you moved in lots of people waited on a list for years for the opportunity to live here. Once in, they tended to appreciate their good fortune and the amenities that ST and PCV offered, and they usually stayed a good long while, lending stability. Now we have transients regularly trashing the place. Nothing personal, that's just what's happened.
Did I crunch your numbers right? 'Should be'? Check your formula- at that method, TS actually owes me for living in their apartment:
(Current Rent $3195) - (Last known RS rate $895) + ($40000/40) = $3300, which is more than what I pay.
As far as your 'concern' with the $40000/apartment price tag for renovations: let them think as high as they want, it only hurts them in the long-run (re-do the numbers using $50k for example and you'll see what I mean).
What they cannot do, however, is claim $40k/apartment renovation in the past, and now claim it was only $20k in the interest of lowering potential damages.
It would be nice if any damages were reserved for the RS'ers who have been tortured over the years, pre and post-sale. I'm very serious about this. Many, many RS'ers had legal bills, and unbelievable stress, during the attemped regime change. Gods only know how many don't live here anymore simply because they were frightened out. I'm still here becase I don't suffer fools, but yeah, all those days in housing court didn't help me hold a particular job--that's just one example of where damages lay.
You are correct. You will not be the arbiter. Actually, you sound more like a Speyer than an arbiter....
If you think the RS laws won't be renewed--if not strengthened--then I think you are oblivious to the current economic, political and legal environment.
Anyone else agree?
My mistake:
(Current Rent) - (Last known RS rate) - (cost of improvements/40) = OVERCHARGE.