UPDATED, 5:41 p.m., Jan. 31, 2020: Landlords who want out of the multifamily market after last year’s rent-law shakeup should have to offer their buildings to tenants first, a Democratic state senator says.
Sen. Zellnor Myrie, who represents Central Brooklyn, is drafting new legislation that would give tenants first dibs on buying their landlord’s property should it come up for sale.
The measure would let tenants convert a property into a limited-equity cooperative — a permanently affordable model pioneered in the 1970s when the city was wracked by disinvestment and deteriorating housing.
“There is no contesting that the [new rent law] affected the rent-regulated market, and that was the purpose — to end a speculative model,” Myrie said. “If you built into your investment that you would deregulate and hike rents, that is no longer the case, and this is a bad investment for you.”
Landlords who say they will be unable to keep their buildings in good repair or cover the cost of capital improvements create “an opportunity in the rent-regulated market to keep tenants in their homes, create a path to ownership and maintain buildings,” Myrie said.
His Tenant Opportunity to Purchase Act is modeled after right-of-first-refusal statutes in a handful of states and in Washington D.C., where a 40-year-old law gives tenants the option to buy their building before a third party, to assign that right to a developer of their choosing or to concede their rights for a fee — which can be tens of thousands of dollars.
The Washington legislation has resulted in the conversion of more than 10,000 units to direct ownership by tenants or chosen developers, according to one of its authors, Michael Diamond, a law professor at Georgetown University Law Center.
Diamond explained that the measure arose during a “heavy speculative bubble” in D.C.’s housing market. Concerns of the feasibility of the program, Diamond said, have been laid to rest, and it has been, in his estimation, a success.
“It gave tenants not only a seat at the negotiating table, but with significant leverage to obtain a benefit, which can be one of any number of things,” Diamond said.
According to a spokesperson for Washington’s Department of Housing and Community Development, in 2017, financing from the agency was used to complete 13 purchases totaling 824 units. They used more than $67 million from the district’s Housing Production Trust Fund, which is funded by mortgage-recording and deed-transfer taxes.
Critics have voiced concerns about the capacity of first-time homeowners to manage building expenses if major renovations or capital improvements are required. Diamond argued that “tenants develop that expertise over time.”
Dominic Moulden, a community organizer in Washington experienced in facilitating such conversions, explained the “ideal scenario” for tenants. A building comes up for sale and residents have six months to decide to pursue a sale. Tenant associations in Washington can obtain public funding and low-interest financing to buy and renovate the building and form a limited-equity cooperative.
“When you can take control of multifamily buildings with working-class, low-income, black, immigrant people in those buildings, you can prevent displacement,” Moulden said.
There has been disagreement over what triggers tenants’ right of first refusal. Last year, an appeals court ruled that a reallocation of multiple individual interests does not.
In New York, groups including the Community Service Society, the Urban Homesteading Assistance Board, the New Economy Project and tenant coalition Housing Justice For All are pushing for the state to dedicate revenue to finance and provide supportive services for such purchases.
Julia Duranti-Martínez, campaign coordinator at the New Economy Project, said that while developing affordable units in this manner would not be less expensive, the units would be permanently affordable, unlike new affordable housing development supported by public financing.
The proposed legislation lays out a process if tenants and their landlord cannot agree on a price. Each side would get an appraisal, and if the amounts differ, a third party would decide the sale price, according to Duranti-Martínez.
Myrie said he hopes his bill will allow people who have been unable to build generational wealth through individual homeownership to do so through a collective model.
“The home-ownership dream has been so ingrained in our society’s psyche, but the truth is for black and brown people, that dream has in many instances become a nightmare,” Myrie said. “We have to change this notion that this is the only path to wealth creation and talk about shared wealth and community investment.”
Write to Georgia Kromrei at gk@therealdeal.com
Correction, Jan. 31, 2020: A previous version of this story incorrectly said the legislation would allow tenants to buy their building at its assessed value.