Matthew Schuerman on The Real Estate blog (NYO) posted today on Judge David B. Cohen, a NY housing judge, and his ruling that Kent Swig, pre-eminent New York real estate owner/operator, can not let his Sheffield "free market unit" leases lapse (i.e., choose not to renew them).
This is big news for a number of reasons. First of all, it obviously does not only affect Mr. Swig and the Sheffield project (including his investment partners and lender) - it affects every condominium conversion project in the city, and each developer, bank, and investor involved in one.
The process of a condominium conversion these days is generally as follows: First, a developer gets the existing building under contract, with capital and financing lined up. After closing, the developer submits their condominium plan to the Attorney General. Because of the high number of projects ongoing, the time to get these plans completed, filed and approved has jumped from about 6 months in 2004 to more than a year today.
During this approval process, the developer can vacate some of the units, but is limited by an existing law prohibiting "warehousing" of vacant units. After the condo plan is approved by the AG, the developer can choose not to renew "free market" leases as they expire as they convert and sell the units to condominium buyers.
All rent-controlled and rent-stabilized units can not be vacated and converted to condos. The only exception is if the developer is able to change the classification of these units to "free market" by showing that the current rent for the unit is higher than a certain amount per month, and investing a certain amount of money in the apartment to renovate it. Even then, not every unit's classification may be changed.
Whatever units can not be changed to "free market" and converted to a condominium is either operated as rental apartments by the developer/owner of the building, or sold to a third-party who will operate the units as rentals.
Judge Cohen's ruling, in my mind, is reckless. If owners of buildings are not allowed to raise the rents as much as they want (note that I am only referring to market-rate units -- not the rent-controlled and rent-stabilized units), and they are not allowed to make their own decision of whether to renew leases, then what rights do landlords have?
No one reads this blog, but I would love to hear other's thoughts on the subject. If you happen to have typed in the wrong URL and landed here by accident, leave a comment.