Just learned that Commercial Mortgage Alert, a real estate industry publication, wrote about the Manhattan House condominium conversion controversy in its July 28, 2006 issue.
"Tenants of a big Manhattan apartment complex are taking action in an attempt to derail the property's conversion to condos, claiming their rights were violated by a pioneering securitization of the conversion loan."
Read the full article here.
Monday, September 18, 2006
Formal request to investigate Manhattan House lenders and sponsors
On August 17th, David Rozenholc requested a formal investigation by the New York State Department of Law into the conduct of Manhattan House's new owners and their lenders.
Read the entire letter here.
Read the entire letter here.
Wednesday, August 16, 2006
More on asbestos/windows installation problem
Posted below are two August 11, 2006 letters pertaining to the asbestos/windows installation problem.
David Rozenholc's letter informing the Attorney General's office that the sposor is ignoring their order regarding the asbestos in the building.
View the letter here.
Allan Starr's letter of reply.
View the letter here.
David Rozenholc's letter informing the Attorney General's office that the sposor is ignoring their order regarding the asbestos in the building.
View the letter here.
Allan Starr's letter of reply.
View the letter here.
Friday, August 11, 2006
Danger Asbestos!
Many tenants have reported sightings of "Danger Asbestos" signs in the building.
A photograph of one, along with asbestos removal equipment, was taken last Thursday August 3, 2006. This sign and the equipment were seen in a public hallway.
See the Danger Asbestos photo
A photograph of one, along with asbestos removal equipment, was taken last Thursday August 3, 2006. This sign and the equipment were seen in a public hallway.
See the Danger Asbestos photo
Martin Act violation allegations
In a August 4, 2006 letter from Allan Starr to the Attorney General's office provides the sponsor's position on the tenants' concerns about the conversion.
Most of the letter is about the tenants' claims that the sponsor has violated New York State's Martin Act - the legislation that governs condominium conversions.
View the letter here.
Most of the letter is about the tenants' claims that the sponsor has violated New York State's Martin Act - the legislation that governs condominium conversions.
View the letter here.
Formal request to investigate several issues in condo conversion
In a July 28, 2006 letter, David Rozenholc formally requests the New York State Department of Law investigate several issues in the proposed condo conversion.
Among the issues are:
-the tenants' right to hire building engineers
-the sponsor breeched its promise to renew market-rate tenant leases
-the harrasment of tenants
View the letter here.
Among the issues are:
-the tenants' right to hire building engineers
-the sponsor breeched its promise to renew market-rate tenant leases
-the harrasment of tenants
View the letter here.
Request for AG's office to resolve dispute
A July 21, 2006 letter from David Rozenholc to Allan Starr requests the Attorney General's office to resolve the dispute regarding the tenants' right to a building inspection.
View the letter here.
View the letter here.
Sponsor's behavior: letter to AG
A July 19, 2006 letter to the Attorney General's office explains how the sponsor has attempted to prevent the tenants' legal right to have an engineer inspect the building.
View the letter here
View the letter here
Tenants are entitled to building inspection
David Rozenholc, in a July 11, 2006 letter, explained why the tenants are entitled to a building inspection. They letter also expressed concerns about harrassment, asbestos, and the plans to install new windows.
View the letter here.
View the letter here.
Reply to request for building inspection
The sponsor's attorney sent a letter to David Rozenholc, dated June 30, 2006. The letter was a reply to the Manhattan House tenants' request to have its own engineers inspect the building.
View the letter here.
View the letter here.
Tenants' concerned about new window installation
June 2, 2006 a letter was sent to the sponsors describing tenants' concern about the plans to install new windows throughout the building.
View the letter here
View the letter here
Preliminary Objections Letter
May 24, 2006 a letter outlining Manhattan House tenants' preliminary objections to the proposed condominium conversion was sent to the Attorney General's office.
View the letter here.
View the letter here.
Monday, August 07, 2006
Condo surge sparks offering plan delays
Reforms by Spitzer's office, city have sped up permit and offering plan OKs, but developers still fret
by Jen Benepe, The Real Deal, 2006
by Jen Benepe, The Real Deal, 2006
Thousands of new condo units are going up in the city -- and so is the wait time to get those projects approved.
A survey by The Real Deal of developers, architects, lawyers, and city and state offices involved in bringing new developments to market shows that government agencies have been doing more to speed up processing of offering plans and building permits, but even this effort can't keep up with demand.
Last year was one of record growth in the number of new residential developments brought to the five boroughs, often causing a paperwork backlog that left developers frustrated. Total new construction permits issued by the city last year increased to 6,689 from its 1995 total of 3,944. In Manhattan, new construction permits more than doubled, and in Queens, the number of new permits grew by 169 percent, in Brooklyn 192 percent, and in the Bronx 140 percent.
Longer waits on offering plans
Most importantly, the office of attorney general and current gubernatorial front-runner candidate Eliot Spitzer must review all condominium offering plans, and critics (carefully) said his office still can't clear its backlog despite improved efforts.
Long delays remain an irritating and expensive stumbling block in the business, said developers, lawyers and architects affected by the slow pace of bureaucracy, which can't clear applications within the required 30-day time frame.
"The review of each plan is undertaken by an attorney, a legal assistant and an engineer," explained Brad Maione, a spokesperson for the attorney general's office. "There has been some delay during the past year in the issuance of engineering comments. However, the office has hired additional engineers to avoid any delays going forward."
Maione also said that the office returns developers' submissions with comments within the legally mandated 30 days.
But a lawyer who routinely submits his clients' plans to the state says the reality is the office sends back comments within the legally mandated time period, but there is always something to delay the final approval quickly. "Every single plan that is submitted is issued a deficiency letter" that stalls the pace of each project, he said. He requested anonymity to avoid future problems with the attorney general's office. People in the industry, he said, are "particularly upset" because the attorney general's office can't meet the 30-day deadline.
Another stalling technique is when the attorney general's office sends back deficiency letters from the paralegal and the architect, but without the required sign-off from the engineer. "Very often you will get a memo but it is not officially reviewed until it comes from all three," he said.
That appears to have caused concern at the Real Estate Board of New York, whose representatives raised the matter with the attorney general's office last winter, said Steve Spinola, president of REBNY. That's helped, but not fixed the problem, he said. Additional engineers were hired and attorneys were moved around to handle the workload. "They have reduced the time frame, and are continuing to monitor it and make improvements," Spinola said.
But the fact remains that you can't fight city hall -- not if you want to win. Spinola was quick to say it wasn't board members who complained enough for REBNY to talk to the attorney general's office, which underscores developers' fears of being labeled open critics of the state.
Dave Perry, who heads up sales at the Clarett Group, a large New York developer, said his office gets prompt replies. "We have a very gifted team, and it seems like every time we submit something there are only some minor comments," he said. "Lately, when we get anything through the A.G.'s office, we have a timetable and it's either earlier or exact." The current review of Clarett's 200 West End Avenue plans was going very quickly, he said.
Another major New York developer, who requested anonymity, was more candid: "It's never been good," he said, "and I have been doing business in New York for a long time." Even 15, eight and five years ago, his office experienced delays with the attorney general's office, the developer added. "But of course no one wants to go on the record saying that, because everyone is afraid of them," he said.
A lawyer who prepares and submits offering plans to the attorney general's office on a regular basis said that the delays reflect a small budget for personnel. "They have had three engineers for years, that's it," he said, "and the number of plans has gone up 40 percent during that time." Even with that dramatic increase in the market, it was his belief that the office still had only two architects to review "all these thousands of plans."
He said the deficiency letters that outline problems that must be corrected before an offering plan can be approved were nothing but delaying tactics to let over-burdened professional staff meet 30-day turnaround requirements.
The offering plans require a level of detail that could be improved with a little streamlining, said one real estate lawyer, who also asked to be left unnamed for fear of alienating the authorities. "The more detailed the regulation the better perhaps, but the interesting question is how many people, even the attorneys who are supposed to, will read the whole thing?" he asked. "In the '80s, they were much thinner."
But, paradoxically, the fees the attorney general's office charges for offering plan reviews can't be used to hire the very people that could clear the logjam. Because the number of people handling offering plan reviews is mandated by state law -- and budgeted through the governor's office and the state Legislature -- there is no legal way to a common-sense solution. "We raised that issue -- that if we increased the fees, would it help with the staffing issues," said Spinola, who said his members were willing to pay more to get a quicker turnaround.
Assembly Speaker Sheldon Silver's office said the issue had not been called to its attention. Spitzer's campaign offices did not return calls for comment on the matter.
City's workload up, too
The number of new construction permits and permits for major alterations is also up, making it hard for the city Buildings Department to clear that backlog as well.
Since 2001, permit applications in Queens are up 96 percent. In Brooklyn, the number is up almost 50 percent over the same time period.
But developers aren't quite as rough on the city as they are on the state.
"I haven't heard any recent complaints from our members," said Spinola when asked about reports that city permit issuance was often late. "And they are a hell of a lot better than they were 4 1/2 years ago."
He said that under current Commissioner Patricia Lancaster, the department had added new computer programs, streamlined processes and speeded permit approvals.
But one architect, who also declined to be identified, disagreed. "It's been a slower review process," he said, especially when it comes to the time it takes to get feedback on a permit request. He also said he had heard that there was a problem with training and staff in the department. "We still have deadlines we have to meet," he said. "If we are experiencing that delay, you can imagine the ripple effect in terms of the industry."
Department spokesman Ilyse Fink said the workload has grown over the past few years, but so has hiring. She said there was a continuing an "in-depth, formal effort to revamp agency operations."
In 2006, the department hired 122 people, reformed its rules to cut down on corruption, and set up electronic scheduling to eliminate the practice of appointment scalping, a sort of institutionalized system that critics have labeled near-bribery. The department's plans through 2009 focus on continuing reforms. Despite a huge increase in permits, average wait times dropped from 25 minutes in 2001 to 7 minutes in 2005, she said.
Fink said the department had increased its staff of licensed architects and engineers by 40 percent. It's also started emphasizing a pre-certification program that lets certified engineers submit already-approved permits. An audit of about 20 percent of those permits provides some assurance that the plans are solid, and also transfers liability to the certifying engineer, she said. "It is a work in progress, but the key point is that there is progress," said Fink of the agency's improvements.
"If you look at the numbers, there are a lot of plans being submitted," said one developer. At one time, there used to be zero conversions, he noted. "So, I just think they are trying, and it's tough."
Wednesday, June 07, 2006
Bonds Backed By Condo Conversion Loans Face Many Risks
By Danielle Reed
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Bonds backed by condo conversion loans carry more risks than typical commercial mortgage bonds - and those risks could be exacerbated by a slowing housing market.
As demand for condos soared during the housing boom, real estate developers have taken scores of buildings - often made up of rental units - and converted them into condominiums. This rush fueled demand for short-term loans used to finance the conversions, and the securitization and sale of these loans became the logical the next logical step.
The first condo conversion bonds appeared in 2005. So far there have been just a handful of such deals, though investment banks expect the numbers to increase as investors become familiar with the bonds.
The natural buyers of these securities are savvy investors looking for more exposure to real estate and the higher yields associated with bonds backed by commercial real estate.
But because these bonds are new, they are also somewhat untested. And investors holding them face a number of risks that go beyond the reasons that drive defaults in more typical, longer-maturing commercial mortgage bonds.
One big risk is that bondholders could be left holding the bag if the borrower has trouble selling the condominiums.
While a borrower may have an option to extend the loan, if sales are delayed long enough or simply don't happen at close to the projected pace, the likelihood of borrower default increases.
And there are always unexpected hurdles that can come up during the conversion process.
Regulatory approval - from local or state government agencies - can take longer than expected, for example. Existing rental tenants in a given building, who often are not pleased at the prospect of having to buy their homes or move, can sometimes successfully stonewall a project. Because renovations are almost always required, construction delays can also be a factor.
And of course, there is always the risk that the housing market can slow just as a developer is getting ready to sell units.
"In this market anything that drags out the condo conversion process is a risk factor," said Brian Lancaster, head of structured products research at Wachovia Securities. Especially, he said, because "construction costs are going up and condo markets are cooling."
Evidence that condo markets are cooling mounted last Thursday, as the National Association of Realtors reported that existing condo and co-op sales had fallen to an 839,000 seasonally-adjusted annual rate in April, down from a rate of 862,000 in March. The inventory of condos and co-ops for sale rose to a 7.1 months' supply at the current sales pace, up from 6.9 months in March and up from 4.1 months in April last year.
The median sales price for co-ops and condos was $222,000, down 0.2% from $222,500 one year earlier.
Case In Point: The Manhattan House
Some of the first condo conversion projects may already be experiencing some headwinds.
Consider the case of the Manhattan House in New York, a sprawling, 22-story, 1951 white-brick building with 583 apartments that takes up an entire block in Manhattan's East 60's.
The developers converting the rental building into condos borrowed a total of $756 million, of which $450 million is included in a $1.99 billion bond underwritten by Credit Suisse that was sold in 2005. The Manhattan House loan is the largest single loan in the transaction.
Rating agencies Fitch Ratings and Standard and Poor's flagged a few concerns about the loan, including the fact that the condominium offering plan had not been filed with the attorney general's office at the time the financing was put in place. Approval by the Attorney General is a requirement before sales can begin. The rating agencies also noted that a little over 250 apartments in the building were rent stabilized as of late 2005.
Units that are rent stabilized cannot be converted automatically into condominium units. Tenants have the right to remain in the apartments, often at rental rates well below market rates.
Meanwhile, market-rate rental tenants typically have rights to renew their leases once the condominium offering plan has been approved.
The tenants of Manhattan House seem prepared to fight for their rights to remain in place. They've hired a lawyer, David Rozenholc, who specializes in representing tenants.
The offering plan has now been filed with the New York State Attorney General, but has not been approved. During this time, Rozenholc said, the tenants "have an opportunity to raise any objections to the plan," and they certainly intend to do that. "We have many objections," he said. These include allegations that the developer harassed tenants in an effort to empty the building of as many renters as possible.
In addition, Rozenholc said, while the developer maintains that market-rate rental tenants don't have rights to renew their leases during the time between when the offering plan has been filed but before it is approved, "we disagree," he said. The issue, "is not clear," he said, and it's now "being tested in the courts."
Still, even if tenants are able to delay regulatory approval, it doesn't automatically mean that bondholders have to worry, analysts said. Regarding the Manhattan House loan and the bond it is backing, ratings agency Fitch Ratings said that it assumed delays in approvals and in construction when rating the bond. Rating a bond involves determining, for example, how much of a cash cushion should be required in order for the most senior classes of notes to receive a triple-A rating.
"We always assume it will take longer" to get approvals from regulators, said Zanda Lynn, managing director in Fitch Ratings' commercial mortgage-backed securities group. "Litigation could still occur in that time frame."
30-05-06 1751GMT
Copyright (c) 2006 Dow Jones & Company, Inc.
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Bonds backed by condo conversion loans carry more risks than typical commercial mortgage bonds - and those risks could be exacerbated by a slowing housing market.
As demand for condos soared during the housing boom, real estate developers have taken scores of buildings - often made up of rental units - and converted them into condominiums. This rush fueled demand for short-term loans used to finance the conversions, and the securitization and sale of these loans became the logical the next logical step.
The first condo conversion bonds appeared in 2005. So far there have been just a handful of such deals, though investment banks expect the numbers to increase as investors become familiar with the bonds.
The natural buyers of these securities are savvy investors looking for more exposure to real estate and the higher yields associated with bonds backed by commercial real estate.
But because these bonds are new, they are also somewhat untested. And investors holding them face a number of risks that go beyond the reasons that drive defaults in more typical, longer-maturing commercial mortgage bonds.
One big risk is that bondholders could be left holding the bag if the borrower has trouble selling the condominiums.
While a borrower may have an option to extend the loan, if sales are delayed long enough or simply don't happen at close to the projected pace, the likelihood of borrower default increases.
And there are always unexpected hurdles that can come up during the conversion process.
Regulatory approval - from local or state government agencies - can take longer than expected, for example. Existing rental tenants in a given building, who often are not pleased at the prospect of having to buy their homes or move, can sometimes successfully stonewall a project. Because renovations are almost always required, construction delays can also be a factor.
And of course, there is always the risk that the housing market can slow just as a developer is getting ready to sell units.
"In this market anything that drags out the condo conversion process is a risk factor," said Brian Lancaster, head of structured products research at Wachovia Securities. Especially, he said, because "construction costs are going up and condo markets are cooling."
Evidence that condo markets are cooling mounted last Thursday, as the National Association of Realtors reported that existing condo and co-op sales had fallen to an 839,000 seasonally-adjusted annual rate in April, down from a rate of 862,000 in March. The inventory of condos and co-ops for sale rose to a 7.1 months' supply at the current sales pace, up from 6.9 months in March and up from 4.1 months in April last year.
The median sales price for co-ops and condos was $222,000, down 0.2% from $222,500 one year earlier.
Case In Point: The Manhattan House
Some of the first condo conversion projects may already be experiencing some headwinds.
Consider the case of the Manhattan House in New York, a sprawling, 22-story, 1951 white-brick building with 583 apartments that takes up an entire block in Manhattan's East 60's.
The developers converting the rental building into condos borrowed a total of $756 million, of which $450 million is included in a $1.99 billion bond underwritten by Credit Suisse that was sold in 2005. The Manhattan House loan is the largest single loan in the transaction.
Rating agencies Fitch Ratings and Standard and Poor's flagged a few concerns about the loan, including the fact that the condominium offering plan had not been filed with the attorney general's office at the time the financing was put in place. Approval by the Attorney General is a requirement before sales can begin. The rating agencies also noted that a little over 250 apartments in the building were rent stabilized as of late 2005.
Units that are rent stabilized cannot be converted automatically into condominium units. Tenants have the right to remain in the apartments, often at rental rates well below market rates.
Meanwhile, market-rate rental tenants typically have rights to renew their leases once the condominium offering plan has been approved.
The tenants of Manhattan House seem prepared to fight for their rights to remain in place. They've hired a lawyer, David Rozenholc, who specializes in representing tenants.
The offering plan has now been filed with the New York State Attorney General, but has not been approved. During this time, Rozenholc said, the tenants "have an opportunity to raise any objections to the plan," and they certainly intend to do that. "We have many objections," he said. These include allegations that the developer harassed tenants in an effort to empty the building of as many renters as possible.
In addition, Rozenholc said, while the developer maintains that market-rate rental tenants don't have rights to renew their leases during the time between when the offering plan has been filed but before it is approved, "we disagree," he said. The issue, "is not clear," he said, and it's now "being tested in the courts."
Still, even if tenants are able to delay regulatory approval, it doesn't automatically mean that bondholders have to worry, analysts said. Regarding the Manhattan House loan and the bond it is backing, ratings agency Fitch Ratings said that it assumed delays in approvals and in construction when rating the bond. Rating a bond involves determining, for example, how much of a cash cushion should be required in order for the most senior classes of notes to receive a triple-A rating.
"We always assume it will take longer" to get approvals from regulators, said Zanda Lynn, managing director in Fitch Ratings' commercial mortgage-backed securities group. "Litigation could still occur in that time frame."
30-05-06 1751GMT
Copyright (c) 2006 Dow Jones & Company, Inc.
As Apartments Become Condos, Tenants Are Stuck in the Middle
April 30, 2006
As New York Apartments Become Condos, Tenants Are Stuck in the Middle
By JOSH BARBANEL
At Manhattan House, the first and perhaps the grandest white brick building on the Upper East Side, every day seems to be moving day. One by one, scores of residents, most of them affluent and many of them elderly, are packing up their things and moving on — and not willingly.
The building, a block-square rental complex with five 20-story towers, where Grace Kelly and Benny Goodman once rented, is being turned into a condominium in the most expensive rental-to-condo conversion to date, valued at perhaps $1.1 billion, according to the proposed offering plan.
It is one of more than 60 pending condominium conversion projects in Manhattan listed by the New York State attorney general's office, involving more than 7,000 condominium units.
These projects, the first large wave of condominium conversions in New York in 20 years, are cutting into the supply of rental apartments, driving rents higher, and ushering in a wrenching period of uncertainty for many existing tenants.
In the 1980's, tenants facing condo conversion, most of them in rent-stabilized units, banded together and negotiated large discounts from developers on the sale prices of their individual apartments, and became condo owners. But now, with rent stabilization laws weakened, landlords are taking a tougher stand, evicting even market-rate tenants and offering only tiny discounts on the sale prices to rent-stabilized tenants, who are allowed to continue renting after a conversion.
Tenants say they are being rushed out so that the new purchasers can sell the apartments at the highest possible prices, and to pay off their mortgages. "People are so frightened in this building," said Gail Amsterdam, who lives in Manhattan House and is trying to protect her mother and uncle from eviction in the market-rate apartments when their leases expire. "I don't understand why nobody is standing up for elderly people who cannot stand up for themselves."
Landlords defend the changes by saying that they are obeying the law, and that they have the right to convert buildings. "If people are unhappy with the change, I can't help that," said N. Richard Kalikow, one of the buyers of Manhattan House. "They have rights. We have rights. Everybody is going to pursue their rights."
Although soaring condo prices feature prominently in dinner conversation, New York remains a renter city. Three-quarters of all households in Manhattan rent.
About half of the apartments being converted are in a handful of large buildings. Among them are Manhattan House, on East 66th Street and Second Avenue with 583 apartments; the 50-story Sheffield with 852 apartments on West 57th Street; River Terrace with 410 apartments on East 72nd Street and the East River; and 25 Broad Street, a landmark former office tower in the financial district, with 345 apartments. Many of these buildings were sold last year, some at record prices.
Although market-rate tenants in condo conversions are not usually entitled to renew their leases, owners are not permitted to empty buildings of market-rate tenants before a conversion plan is filed, or to evict or impose exorbitant rent increases on them after the conversion take place.
But, owners say, they are allowed to evict market-rate tenants during the time a conversion plan works its way through the approval process. Tenant lawyers are challenging this interpretation in a series of eviction cases pending in Housing Court. At the same time, tenants are lobbying elected officials for help.
At Manhattan House, two developers, Mr. Kalikow and Jeremiah O'Connor, paid $623 million, an average of more than $1 million per apartment, and obtained more than $750 million in financing to buy and upgrade the building, and cover their conversion costs. The price was the highest paid for a Manhattan rental complex, according to brokers. But Mr. Kalikow said the price was not too high, and he disputed contentions by tenants that the project's high cost put him under pressure to harass tenants and empty the building.
He plans to refurbish the building, restoring the casement windows that were included in the original modernist design, and installing central air conditioning in each apartment, he said. Although Mr. Kalikow said he converted more than 7,000 apartments during the 1980's, this is his first project during the current wave of conversions.
In the last few months, more than 60 tenants have moved out, and according to a list circulated by tenants in mid-April, another 16 were to move out by the end of April. Four others were being vacated after renters had died.
Most days, boxes and sofas are wheeled down to trucks backed into loading bays, next to the tulips and daffodils blooming in the garden on East 65th Street near Second Avenue. Passenger elevators are often backed up, tenants say, as the freight elevators are overloaded.
"Are you staying or leaving?" one elderly man asked another in the elevator, and received a resigned shrug in response.
Eve W. Paul, a lawyer and former general counsel to the Planned Parenthood Federation of America, said her $4,450-a-month apartment has a lease that runs out in two months, and she is troubled by the idea of moving because the apartment is a link to her late husband, who developed a brain tumor after they moved in four years ago, and then died.
"We did everything together," said Ms. Paul, who is in her 70's. "It feels very wrenching to have to leave all of the things that we chose together."
Tenants forced to find new places are facing a shortage of good rentals. When Peggy Johnson, an advertising executive, moved out of the Sheffield on West 57th Street last month, she had to pay $200 more a month for an apartment with "60 percent of the space," she said.
The vacancy rate in Manhattan rental apartments fell from a peak of 3.8 percent in 2002, to 1.5 percent last year, and then fell again in March to 0.75 percent, according to figures calculated by Citi Habitats.
"It is a great time to be a landlord," said Jack Levy, senior managing director of Rose Associates, which manages 30,000 apartments.
Rents had lagged in the last few years, even as condominium prices climbed higher and higher. Builders turned planned rental projects into condominiums and even long-term owners of rental buildings, like the New York Life Insurance Company, which built Manhattan House in 1951 and owned it until last year, decided to sell at the high prices offered by condo-converters.
Some tenants are refusing to look for new places and are fighting instead. At Manhattan House, several hundred tenants put money into a legal fund, and have hired David Rozenholc, a tenant lawyer who specializes in battling developers on behalf of holdout tenants.
Samuel J. Himmelstein and Kevin R. McConnell, the lawyers for tenants at the Sheffield, cited legislative memos from the 1980's that suggest that the Legislature intended to protect market-rate tenants, along with other tenants throughout the conversion process.
"They have depopulated the building by telling people you have to move," said Nancy Rovelli, an insurance broker who heads the tenants association at the Sheffield and is facing an eviction hearing in May.
Kent Swig, a principal in the group that purchased the Sheffield for $418 million and 25 Broad Street for more than $200 million, both last year, declined to discuss any pending litigation. He said he would like to negotiate with the tenants, but under state law he was barred from doing so until a conversion plan was approved.
"The law puts everybody at a disadvantage because it prevents communication," he said. At Manhattan House, Patricia Lynch, a writer and former television news producer, thought she would be protected during a conversion because she had lived in a rent-stabilized apartment in the building since 1975. She pays about $2,000 a month for a two-bedroom unit with a fireplace and a small balcony.
But after the building was sold, Ms. Lynch received a notice that her lease would not be renewed. The new building owners said that she was not entitled to a rent-stabilized lease because she lived in Southampton, where she has a country house and keeps her car, rather than in the Manhattan apartment, which she contends is her main residence.
Ms. Amsterdam, who runs an executive search business and whose own Manhattan House apartment is rent-stabilized, found that the developer for the conversion in her building has provided no special consideration for elderly tenants. Her mother, Elizabeth, 89, and her uncle, Martin Burwick, 96, moved into separate market-rate apartments in the building, so they could be near her. Her mother received a notice offering her a lease renewal at $4,400 per month, 63 percent above her current rent of $2,700, what she said was well above market-rate rents for apartments in the neighborhood. In order to stay, she would have to agree to be relocated to another apartment in the building on 15 days notice. Her daughter has compiled a thick file of letters to elected officials, but few answers.
Her uncle, Mr. Burwick, who has round-the-clock nursing care paid for by Medicaid, was not offered a lease extension. He has been told that he must leave his apartment by June 30. Mr. Kalikow said he was not aware of the case.
Ms. Amsterdam plans to fight any move to evict her uncle. But in the conflict between market forces and sentimental attachment, Ms. Paul has surrendered to the market. Last week she told her neighbors that she was resigning from the tenants group and would soon be moving out.
Copyright 2006 The New York Times Company
As New York Apartments Become Condos, Tenants Are Stuck in the Middle
By JOSH BARBANEL
At Manhattan House, the first and perhaps the grandest white brick building on the Upper East Side, every day seems to be moving day. One by one, scores of residents, most of them affluent and many of them elderly, are packing up their things and moving on — and not willingly.
The building, a block-square rental complex with five 20-story towers, where Grace Kelly and Benny Goodman once rented, is being turned into a condominium in the most expensive rental-to-condo conversion to date, valued at perhaps $1.1 billion, according to the proposed offering plan.
It is one of more than 60 pending condominium conversion projects in Manhattan listed by the New York State attorney general's office, involving more than 7,000 condominium units.
These projects, the first large wave of condominium conversions in New York in 20 years, are cutting into the supply of rental apartments, driving rents higher, and ushering in a wrenching period of uncertainty for many existing tenants.
In the 1980's, tenants facing condo conversion, most of them in rent-stabilized units, banded together and negotiated large discounts from developers on the sale prices of their individual apartments, and became condo owners. But now, with rent stabilization laws weakened, landlords are taking a tougher stand, evicting even market-rate tenants and offering only tiny discounts on the sale prices to rent-stabilized tenants, who are allowed to continue renting after a conversion.
Tenants say they are being rushed out so that the new purchasers can sell the apartments at the highest possible prices, and to pay off their mortgages. "People are so frightened in this building," said Gail Amsterdam, who lives in Manhattan House and is trying to protect her mother and uncle from eviction in the market-rate apartments when their leases expire. "I don't understand why nobody is standing up for elderly people who cannot stand up for themselves."
Landlords defend the changes by saying that they are obeying the law, and that they have the right to convert buildings. "If people are unhappy with the change, I can't help that," said N. Richard Kalikow, one of the buyers of Manhattan House. "They have rights. We have rights. Everybody is going to pursue their rights."
Although soaring condo prices feature prominently in dinner conversation, New York remains a renter city. Three-quarters of all households in Manhattan rent.
About half of the apartments being converted are in a handful of large buildings. Among them are Manhattan House, on East 66th Street and Second Avenue with 583 apartments; the 50-story Sheffield with 852 apartments on West 57th Street; River Terrace with 410 apartments on East 72nd Street and the East River; and 25 Broad Street, a landmark former office tower in the financial district, with 345 apartments. Many of these buildings were sold last year, some at record prices.
Although market-rate tenants in condo conversions are not usually entitled to renew their leases, owners are not permitted to empty buildings of market-rate tenants before a conversion plan is filed, or to evict or impose exorbitant rent increases on them after the conversion take place.
But, owners say, they are allowed to evict market-rate tenants during the time a conversion plan works its way through the approval process. Tenant lawyers are challenging this interpretation in a series of eviction cases pending in Housing Court. At the same time, tenants are lobbying elected officials for help.
At Manhattan House, two developers, Mr. Kalikow and Jeremiah O'Connor, paid $623 million, an average of more than $1 million per apartment, and obtained more than $750 million in financing to buy and upgrade the building, and cover their conversion costs. The price was the highest paid for a Manhattan rental complex, according to brokers. But Mr. Kalikow said the price was not too high, and he disputed contentions by tenants that the project's high cost put him under pressure to harass tenants and empty the building.
He plans to refurbish the building, restoring the casement windows that were included in the original modernist design, and installing central air conditioning in each apartment, he said. Although Mr. Kalikow said he converted more than 7,000 apartments during the 1980's, this is his first project during the current wave of conversions.
In the last few months, more than 60 tenants have moved out, and according to a list circulated by tenants in mid-April, another 16 were to move out by the end of April. Four others were being vacated after renters had died.
Most days, boxes and sofas are wheeled down to trucks backed into loading bays, next to the tulips and daffodils blooming in the garden on East 65th Street near Second Avenue. Passenger elevators are often backed up, tenants say, as the freight elevators are overloaded.
"Are you staying or leaving?" one elderly man asked another in the elevator, and received a resigned shrug in response.
Eve W. Paul, a lawyer and former general counsel to the Planned Parenthood Federation of America, said her $4,450-a-month apartment has a lease that runs out in two months, and she is troubled by the idea of moving because the apartment is a link to her late husband, who developed a brain tumor after they moved in four years ago, and then died.
"We did everything together," said Ms. Paul, who is in her 70's. "It feels very wrenching to have to leave all of the things that we chose together."
Tenants forced to find new places are facing a shortage of good rentals. When Peggy Johnson, an advertising executive, moved out of the Sheffield on West 57th Street last month, she had to pay $200 more a month for an apartment with "60 percent of the space," she said.
The vacancy rate in Manhattan rental apartments fell from a peak of 3.8 percent in 2002, to 1.5 percent last year, and then fell again in March to 0.75 percent, according to figures calculated by Citi Habitats.
"It is a great time to be a landlord," said Jack Levy, senior managing director of Rose Associates, which manages 30,000 apartments.
Rents had lagged in the last few years, even as condominium prices climbed higher and higher. Builders turned planned rental projects into condominiums and even long-term owners of rental buildings, like the New York Life Insurance Company, which built Manhattan House in 1951 and owned it until last year, decided to sell at the high prices offered by condo-converters.
Some tenants are refusing to look for new places and are fighting instead. At Manhattan House, several hundred tenants put money into a legal fund, and have hired David Rozenholc, a tenant lawyer who specializes in battling developers on behalf of holdout tenants.
Samuel J. Himmelstein and Kevin R. McConnell, the lawyers for tenants at the Sheffield, cited legislative memos from the 1980's that suggest that the Legislature intended to protect market-rate tenants, along with other tenants throughout the conversion process.
"They have depopulated the building by telling people you have to move," said Nancy Rovelli, an insurance broker who heads the tenants association at the Sheffield and is facing an eviction hearing in May.
Kent Swig, a principal in the group that purchased the Sheffield for $418 million and 25 Broad Street for more than $200 million, both last year, declined to discuss any pending litigation. He said he would like to negotiate with the tenants, but under state law he was barred from doing so until a conversion plan was approved.
"The law puts everybody at a disadvantage because it prevents communication," he said. At Manhattan House, Patricia Lynch, a writer and former television news producer, thought she would be protected during a conversion because she had lived in a rent-stabilized apartment in the building since 1975. She pays about $2,000 a month for a two-bedroom unit with a fireplace and a small balcony.
But after the building was sold, Ms. Lynch received a notice that her lease would not be renewed. The new building owners said that she was not entitled to a rent-stabilized lease because she lived in Southampton, where she has a country house and keeps her car, rather than in the Manhattan apartment, which she contends is her main residence.
Ms. Amsterdam, who runs an executive search business and whose own Manhattan House apartment is rent-stabilized, found that the developer for the conversion in her building has provided no special consideration for elderly tenants. Her mother, Elizabeth, 89, and her uncle, Martin Burwick, 96, moved into separate market-rate apartments in the building, so they could be near her. Her mother received a notice offering her a lease renewal at $4,400 per month, 63 percent above her current rent of $2,700, what she said was well above market-rate rents for apartments in the neighborhood. In order to stay, she would have to agree to be relocated to another apartment in the building on 15 days notice. Her daughter has compiled a thick file of letters to elected officials, but few answers.
Her uncle, Mr. Burwick, who has round-the-clock nursing care paid for by Medicaid, was not offered a lease extension. He has been told that he must leave his apartment by June 30. Mr. Kalikow said he was not aware of the case.
Ms. Amsterdam plans to fight any move to evict her uncle. But in the conflict between market forces and sentimental attachment, Ms. Paul has surrendered to the market. Last week she told her neighbors that she was resigning from the tenants group and would soon be moving out.
Copyright 2006 The New York Times Company
Wednesday, April 12, 2006
The Effect of Risky Real Estate Lending Practices
In the April 12, 2006 Wall Street Journal is an article, “Big Banks Find Property Loans Riskier” by David Enrich, which describes the main reason Manhattan House residents are in their current predicament.
The piece is about “the growing jitters among bankers and regulators that an influx of capital into commercial real estate lending is causing some in the business to take aggressive risks and could leave banks over exposed in a cyclical industry.” Commercial real estate lending covers apartment complexes like Manhattan House.
Specifically, major lenders are choosing not to compete with investment banks, which they fear are agreeing to lending terms that would be unheard-of in a less feverish environment. The intense competition is in part yet another byproduct of the huge supply of capital in the hands of yield-hungry investors.
Credit Suisse – a global investment bank - provided Kalikow and O’Connor the loan to purchase Manhattan House through the use of CMBS (Commercial Mortgage Backed
Security) notes.
“I’m from Texas, and I’ve seen this movie before,” said Todd Maclin, J.P. Morgan Chase & Co.’s commercial-banking chief.
The piece is about “the growing jitters among bankers and regulators that an influx of capital into commercial real estate lending is causing some in the business to take aggressive risks and could leave banks over exposed in a cyclical industry.” Commercial real estate lending covers apartment complexes like Manhattan House.
Specifically, major lenders are choosing not to compete with investment banks, which they fear are agreeing to lending terms that would be unheard-of in a less feverish environment. The intense competition is in part yet another byproduct of the huge supply of capital in the hands of yield-hungry investors.
Credit Suisse – a global investment bank - provided Kalikow and O’Connor the loan to purchase Manhattan House through the use of CMBS (Commercial Mortgage Backed
Security) notes.
“I’m from Texas, and I’ve seen this movie before,” said Todd Maclin, J.P. Morgan Chase & Co.’s commercial-banking chief.
Tuesday, April 11, 2006
Condo Conversion Articles
Listed below are links to 3 condo conversion articles that might be of interest to MH residents.
Understanding a Condominium Offering Plan
Financing Condominium Offerings
The Sword of Spitzer
Understanding a Condominium Offering Plan
Financing Condominium Offerings
The Sword of Spitzer
Friday, April 07, 2006
Tenant Questionaire
All concerned Manhattan House tenants should fill out and submit the Tenant Questionaire. Please send it to Rafael Urquia or directly to David Rozenholc, 9 East 84 Street, NY, NY 10021.
Print out the Tenant Questionaire by clicking here
Print out the Tenant Questionaire by clicking here
Friday, March 03, 2006
Spotting Glut, Bloomberg Deflates Condo Cushion
Mayor Bloomberg recently —and rather suddenly— inserted a big pin into the oxygen-deprived real-estate bubble.
On February 23rd Mr. Bloomberg announced the establishment of a task force to overhaul a Lindsay-era program (the term of art is the 421a program) established back when there was little hope of attracting new construction in the city.
In recent years, hundreds—if not thousands—of market-rate condominiums have sprouted up across the city on the public’s dollar under the 421a program.
Click here to read the NY Observer story
On February 23rd Mr. Bloomberg announced the establishment of a task force to overhaul a Lindsay-era program (the term of art is the 421a program) established back when there was little hope of attracting new construction in the city.
In recent years, hundreds—if not thousands—of market-rate condominiums have sprouted up across the city on the public’s dollar under the 421a program.
Click here to read the NY Observer story
Monday, February 27, 2006
Tenants Say They're Lost in Dust of Conversions
This is what will happen to tenants at Manhattan House if they don't join together and fight back.
"Unlike the 1980's, tenants today have little control over issues like the hours and extent of renovation work and whether a steep discount in purchase price is offered."
Click here to read the full NY Times story
"Unlike the 1980's, tenants today have little control over issues like the hours and extent of renovation work and whether a steep discount in purchase price is offered."
Click here to read the full NY Times story
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