Stuy Town’s Columbus: How a Lawyer Rediscovered an Arcane Rent Rule and Shook New York

len Stuy Towns Columbus: How a Lawyer Rediscovered an Arcane Rent Rule and Shook New YorkIt didn’t take long after New York’s top court issued its major Stuyvesant Town–Peter Cooper Village ruling last week for celebrations at the East Side apartment complex to begin.

Just after 9 a.m. on Oct. 21, the Court of Appeals handed the complex’s owners a defeat with tremendous implications—ruling that they never had the right to take more than 4,000 apartments out of the rent stabilization program—and, by 2:30 p.m., a hastily organized press conference formed on a sidewalk next to the complex. With reporters circling, a gaggle of elected officials, tenants and lawyers cheered the ruling, grandstanded for the cameras and shook each other’s hands, offering congratulations all around on a job well done.

Nowhere in sight was Leonard Grunstein, the 57-year-old real estate attorney who, perhaps more than anyone else, can lay claim to conceiving the ultimately successful lawsuit that has rocked the real estate industry. Courtesy of the court decision, the owners of Stuy Town, a partnership led by the landlord giant Tishman Speyer, are sure to take a tremendous financial hit, making the 110-building complex worth but a fraction of the $5.4 billion that was paid for it (and Tishman Speyer had already overpaid, buying at the market’s peak in late 2006). An untold number of city landlords are now in the same boat.

“What a great decision!” Mr. Grunstein said Monday.

In an interview in his office in the Chrysler Building (which is, incidentally, controlled by Tishman Speyer), Mr. Grunstein, who wore a suit vest, baggy pants and round, horn-rimmed glasses, recounted his early role in what concluded as a landmark case, potentially costing landlords billions in value.

A partner at Troutman Sanders, Mr. Grunstein had been retained by the Stuyvesant Town–Peter Cooper Village Tenants Association three years earlier. Hardly thrilled about the prospect of a high-priced sale that would lead to more stabilized tenants being pushed out to make way for market-rate renters, the group was preparing its own bid for the property and brought in Mr. Grunstein to round up the particulars of the bid.

In the process, he went digging for potential legal problems with the complex and the sale, sending off memos to elected officials that highlighted some concerns. Among those issues: He felt the law did not allow an owner to take apartments out of rent stabilization at the same time that the owner received a tax break for renovations, called J-51, an action Stuyvesant Town’s owners had been taking for years.

A longtime lawyer on real estate deals involving government and apartment buildings, Mr. Grunstein said he knew about this issue for years but was never in a position to bring a case. “This is a very arcane, esoteric area—if you don’t know it, you don’t know to look for it.”


TENANTS AND ELECTED OFFICIALS sought to slow the sale, but longtime owner MetLife proceeded at its quick pace and unloaded the property to the Tishman Speyer team on Oct. 16, 2006, seemingly closing the issue and wiping its hands of the property. (The tenants made it to the final round with a bid of about $4.5 billion.)

But in the weeks after the sale, some members of the tenants association, by Mr. Grunstein’s telling, wanted to revisit the concerns their attorney had raised in the bidding process, as they were worried the high sales price would lead to rapid deregulation of apartments.

“We had a meting, and they said, ‘Can you do something about it?’ And, I said, ‘There’s this claim, let’s see if we can get some plaintiffs,’” he said.

From there, a second attorney entered the scene—Mr. Grunstein said he had a potential conflict with MetLife that could have precluded him from bringing a lawsuit—who effectively took over the case. Stuart Saft, then a partner at the firm Wolf Haldenstein, had worked for two losing teams during the bidding process. An experienced lawyer who frequently dealt with rent stabilization law and conversions, he said he, too, had seen the J-51 issue as a red flag while he prepared the bids.

“I went through the whole due diligence package, and it occurred to me that this was a potential problem,” said Mr. Saft, who described himself as an old friend of Mr. Grunstein’s. “We both had the same realization, and we started talking about it, and I went back to my then-firm and suggested we could bring it as a class action.”

On Jan. 22, 2007, with a set of market-rate tenants as the plaintiffs, the class action suit—Roberts v. Tishman Speyer Properties—was filed in State Supreme Court, setting it down the road to last week’s win at the Court of Appeals. (Mr. Saft later left his firm, as did a litigator who filed the suit. Alexander Schmidt took over at the appellate level and argued the case in the Court of Appeals.)

Interestingly, Mr. Grunstein is insistent that there were far more legitimate problems with the Stuyvesant Town sale that were never challenged legally. He contends, for instance, that MetLife should not have been allowed to sell the property in the first place because it never filed a required disclosure document, an issue he seemed far more interested in talking about than the J-51 lawsuit.

“The funniest part is,” he said of the J-51 issue, “this is the least of what we talked about.”

More from Eliot Brown on the Stuyvesant Town decision:

Want a New Lease at Stuy Town? Sit Tight

Thompson, Electeds Rally Behind Stuy Town Tenants; Bloomberg Doesn’t

Vig Stuy: Stuy Town Deregulation Efforts a Mess as Financial Clock Ticks

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