Landlords score in Manhattan House and Sheffield57 cases

In a major victory for residential landlords, a New York State appeals court late last month overturned two controversial rulings that prevented the eviction of market-rate tenants at Manhattan House and Sheffield57, two of the biggest condominium conversions in the city’s history.

In March 2007, Housing Court Judge David Cohen blocked Sheffield57 sponsor Kent Swig from evicting 23 market-rate tenants and later that year hindered Manhattan House's sponsors, O’Connor Capital Partners, from evicting 29 tenants.

In his decisions, Cohen said that the intent of New York State’s 1982 Martin Act was to protect all tenants from losing their homes in case of condo or co-operative conversions.

However, the three-judge panel argued in the November decision that since the leases had expired prior to the state Attorney General accepting the “red herring” plan, which outlines the specifics of the conversion, the Martin Act does not protect them.

“Where the tenant holds over after the expiration of the lease term, the landlord is not required to allege or prove any basis for eviction other than the expiration of the lease,” the court wrote in the Manhattan House case.

In 2005, a partnership led by Swig Equities acquired the Sheffield, which later changed to Sheffield57, at 322 West 57th Street, then an 845-unit rental building, for $418 million. That same year, O’Connor Capital Partners teamed up with developer Richard Kalikow to buy the 583-unit Manhattan House, at 200 East 66th Street, for $623 million, a U.S. record price for a single residential building. In late 2007, O’Connor bought out Kalikow after a lengthy court battle.

In each case, the sponsors sought the eviction of all market-rate tenants so they could convert the non-regulated rental apartments into condo units. The Manhattan House conversion is valued at $1.1 billion, making it one of the most expensive condominium conversions in U.S. history.

Lawyers for the tenants still maintain that market-rate tenants should be protected under the Martin Act.

“I think Judge Cohen’s decision -- the decision that they reversed -- was consistent with the legislative intent and consistent with good case law,” said attorney Kevin McConnell, who represents Manhattan House, as well as tenants at Sheffield57.

“I virulently believe these tenants deserve protection from eviction," he said.

At the time of the March 2007 Sheffield ruling, more than 7,000 rental apartments at 60 buildings were being converted in the city. Many of those conversions have slowed down or stopped, as the credit markets have made it difficult for apartment buyers to get financing.

McConnell said tenants at Manhattan House are deciding whether to appeal. He added that he could not comment on behalf of his Sheffield57 clients, because he had not discussed the case with them at press time.

Manhattan House and Sheffield57 officials were not immediately available for comment.

December 03, 2008, David Jones, The Real Deal