UPDATED, 10:30 p.m., DEC 2 One of the city’s top affordable housing developers is seeking partners to share in a giant revenue bump it reckons is possible at a large Harlem housing complex, despite the fact that all its units are rent-regulated.
L+M Development Partners, in partnership with Savanna and others, is looking for investors to buy a stake in Savoy Park, a seven-building, 1,790-unit rent-stabilized property located just north of West 139th Street. The offering memo, downloadable on TRData, indicates that 800 of the units are ripe for pricey renovations, allowing ownership to increase monthly average rents by $912, for a future gross potential rent increase of $9 million annually.
Savoy Park brought in approximately $23 million in base rent in 2014, according to Trepp data. This means the partners hope to bring in nearly 40 percent more in rent revenue once they execute their plan. The offering memo, however, provides no indication as to how long that would take.
(Download the Savoy Park offering memo here.)
“The natural turnover rate for affordable, rent-stabilized apartments in New York City is very low,” said Benjamin Dulchin, the executive director for the Association for Neighborhood and Housing Development, an affordable housing advocacy coalition. Regulated units that rent for $900 a month or less, for example, have an annual turnover rate of just 4 percent, and the rate for units at the $1,200 level is only marginally higher, Dulchin said, citing his organization’s analysis.
According to the memo, Savoy Park saves approximately $2.4 million each year in real estate taxes through a New York City tax abatement. The incentive, awarded as part of an Article XI Regulatory Agreement, is meant to spur either new construction or the rehabilitation of existing affordable stock. The agreement with the city was struck after the complex sold in the summer of 2012, when Mayor Bloomberg was still in office.
“They’re getting a pretty significant abatement,” Dulchin said. “The fact of maintaining it rent-stabilized isn’t really enough because market rents in that neighborhood are likely to be in the rent-stabilized range anyway.”
A spokesperson for C&C Apartment Management, the property management arm of L+M, said that “ all rent increases are in full accordance with rent stabilization guidelines and the regulatory agreement for the property, and are part of our efforts to improve the buildings and enhance the quality of life for all residents.” After the story was published, the spokesperson added in a statement that “rents will not be dramatically increasing any time soon,” and that the owner expects the projected rent increases and value enhancement plan “will take decades to achieve”. (TRD, however, had never specified a timeline for the rent increases. See C&C’s full statement at the bottom of this story.)
Since 2012, 294 units at Savoy Park have already been renovated at an average cost of $38,278 a unit, generating a monthly rental increase of $750 per apartment, according to the offering memo.
According to state guidelines, landlords are allowed to make a permanent rent increase equal to 1/60th of the cost of the “Individual Apartment Improvement”, or IAI — even if the units are stabilized. A source familiar with the ownership said the rent increases being sought at Savoy Park were par for the course, and the plan “is merely suggesting what additionally remains from natural turnover of deeply stabilized units (around 5% of these units turn over every year naturally).”
David Hershey-Webb, an attorney who specializes in affordable housing- related litigation and who has successfully represented Savoy Park tenants in a previous rent overcharge case, said “a $912 increase [in rent] is not so hard to get.”
The landlords, however, need to jump through a few hoops before getting that extra rent, he said. To carry out the improvements, the unit has to either be vacant, or the landlord has to have the tenant’s consent — which is unlikely given the major rent hikes that the improvements would give rise to.
“It’s like with Stuy Town,” Hershey-Webb said. “What happened with Stuy-Town and a lot of buildings is once they [investors] bought the building, they realized that it’s actually not that easy to move, say, 20 percent of the units to market.”
Or in this case, not to market in the destabilized sense, but to annually-stabilized levels which could much more closely mirror market-rate rents in Northern Harlem.
Charles Robinson, a Savoy Park tenant, said he is concerned that the current ownership would employ “surreptitious” tactics to remove tenants and create the vacancies necessary to execute unit improvements. “I think they’re more relentless to raise the rent, more so than [previous owner] Vantage,” he said.
When the current partners picked up the complex in 2012 for over $210 million, and entered it into the 40-year regulatory agreement to stabilize all of its units, the move was heralded by many affordable housing advocates as a great improvement over the previous ownership, Neil Rubler’s Vantage Properties [now Candlebrook Properties], which many considered predatory in its quest to destabilize 20 percent of Savoy Park’s affordable apartments. In 2010, Andrew Cuomo, then New York attorney general, sued Vantage for allegedly harassing tenants. The suit led to a $1 million settlement.
C&C Apartment Management’s full statement after the story was published is printed below:
“When we took over ownership of Savoy Park in 2012, we worked with the City of New York to put a regulatory agreement in place that preserves long-term affordability. That agreement puts deregulated units back into rent stabilization, while also providing additional affordability protections by way of rent and income caps over a 40-year period.
Contrary to what is reported here, rents will not be dramatically increasing any time soon. This article’s reference to a ‘value enhancement plan’ is also grossly out of context and references long-term potential revenue at the property, which we expect will take decades to achieve.
We are committed to the long-term future of the property and believe Savoy will continue to be a source of much needed affordable and workforce housing for existing residents and new members of the Harlem community.”