Cuomo’s Rent Check: Governor in the Middle as Dems Split Big Real Estate
Jim Hanas March 1, 2011, 7:28 p.m.
Last Thursday, Feb. 24, while journalists craned their recorders like goslings waiting to be fed, Democratic Senator Adriano Espaillat of the Bronx and Northern Manhattan gave the assembled tenant activists what they wanted.
“We will go down to the wire,” he said after the rally. “This is a 15-round fight.” Professional boxing matches are now only 12 rounds. Whatever. “This will be a 15-round fight.”
New York State’s rent-regulation law, which governs the rents for more than one million stabilized apartments in the city, expires June 15, but Democrats have already thrown the opening punch. State Assembly Speaker Sheldon Silver says that rent regulation must be renewed and strengthened in favor of tenants. If it isn’t, he will not support the renewal of a tax incentive that expired in December and was beloved by big apartment developers.
Mr. Silver’s move pits the two sides of Big Real Estate against one another-developers vs. landlords-and puts their onetime favorite candidate, Andrew Cuomo, in the middle.
“We shouldn’t be extending a tax break for residential developers without making sure we are strengthening protections for the tenants who live in their buildings,” Mr. Silver said in a statement last month, which his staff reiterated through an email to The Observer. In fact, the developers of shiny new condos, who stand to benefit the most from the credit, called 421a, are distinct from owners of the older buildings that primarily house the city’s rent-stabilized apartments.
A Cuomo spokesman said the governor is “open to everything,” though he is not confident a deal will be reached before April.
On one side, the governor has his biggest donors in the 2010 election-developers and landlords, including his top two donors, Jerry Speyer and Daniel Tishman, who contributed a combined $187,400. And on the other side, liberal activists and the politicians they help elect, including Speaker Silver. (And never mind that some in Big Real Estate remember Mario Cuomo, who as governor himself spearheaded the late ’80s tax changes that industry people say all but halted real estate trades.)
At last week’s rally, the crowd of a dozen politicians and several times more aides and activists recited their new mantra, out of sync but passionate: “Put it in the budget! In the? Budget! Governor Cuomo can do it in the budget! Governor Cuomo must do it in the budget!”
To say rent stabilization is a flash point for the real estate industry understates the issue. It is their Lenin lite, a socialist weed poking through New York’s capitalist grange. Kill it, and a million more tenants would be available to pay market-rate rents. As it stands now, the deregulation threshold is $2,000 a month; however, those tenants are protected by annual income benchmarks.
“What if the city said, ‘If you own a car, one day a week you have to let somebody use your car because we have a transportation problem in the city’?” said Robert Knakal, chairman of the city’s biggest investment-sales brokerage, Massey Knakal, who has brokered the sales of billions in apartment stock. “‘You own this building, you pay for it, but you can’t charge what the market will bear because we have to protect tenants.'”
The topic clearly rankles. “I have Richard LeFrak to speak with you,” a brisk voice said when The Observer answered a recent ring. Then, sans pleasantries or an introduction, Mr. LeFrak, head of one of the city’s biggest and most storied real estate concerns, said: “I only have 14,000 of those things [rent-stabilized units] and it’s a relatively minor part of my business. … My comment is that it’s not that significant in my world. … I just built 4,000 apartments on the West Coast and none of them are rent-stabilized. That’s my comment.”
Rent stabilization has been renewed and revised numerous times, with landlords making important gains over the past two decades. Most recently, in 2003, a Republican majority in the Senate renewed the law in a midnight session, but kept the cap at $2,000. Since regulations were first relaxed in 1993, over 300,000 apartments have been deregulated.
That chills New York City Democrats, whose constituencies are filled with thousands of people who stand to lose their infinitely more affordable homes. Local Democrats hope this will be the year they finally turn the tide, and Mr. Silver’s linkage of what they call rent reform to 421a could help them do it.
“Gee, what geniuses they are,” said Joseph Strasburg, head of the pro-landlord Rent Stabilization Association, when asked if linking rent reform to 421a will split the industry. “The reality is, both associations are connected together on this issue. We support [the Real Estate Board of New York’s] desire to get 421a,” which promotes “development and the hiring of thousands and thousands of jobs, like carpenters and steelworkers.”
But earlier in the phone interview, Mr. Strasburg pointed to divisions in the industry that gave money to Mr. Cuomo’s campaign: “Substantial dollars were from developers. We’re bricks and mortars, focusing on existing buildings that families own, operate and want to keep. I challenge anybody to try to lump us as part of the bigger picture.”
In spring 2010, when Democrats controlled both legislative houses, they and the Republicans (and the industry) hammered out a package favorable to tenants that also included an extension of 421a. The Assembly passed the bill based on it, but internecine warfare over disgraced Bronx pol Pedro Espada doomed the bill in the Senate. (A spokesman for the current Senate majority leader, Dean Skelos, says the Republicans are focused on the budget now, and as for rumors that rent stabilization would be allowed to lapse post-June 15, other Republicans say that’s not true.)
Steven Spinola, head of REBNY, the city’s leading trade group for the industry, including both landlords and developers, declined to say whether he supports linking rent stabilization and 421a. “I’m not sacrificing anything,” he said, adding, “Rent regulation affects well over one million apartments in the city of New York. Four-twenty-one-a will benefit thousands of jobs and new housing. I’m not going to say one of them is a top priority.”
For now, the Democratic strategy is clearly in flux. At the chilly Feb. 24 press conference, senators and assembly members threw their support behind a bill of Senator Espaillat’s that would raise the threshold for deregulation to $3,000 a month; stop converting vacant apartments to market rate; close some of the loopholes landlords commonly use to raise rents; and return most of the apartments deregulated in the last 20 years to stabilization.
Publicly, Governor Cuomo appears to have no stomach for a rent fight while his term is staked on getting a budget passed.
“The important consideration is Governor Cuomo, and that to me at least is an unknown,” said the Assembly majority leader, Ron Canestrari. “The more we complicate the budget, whether it’s rent control or a real property tax cap, the more difficult it is to get this enacted in about a month.”
But if it’s not part of the budget, won’t it just die? “That’s a concern. I can understand that, too,” he said, adding vaguely, “There are always ways.”