by Care Swanson
Four Brokers Weigh In, Saying Deregulation Would Mean Chaos
NY Observer, May 5, 1997
The much-hyped June 15 rollout of Joe Bruno's Landlord Elixir -- with its anticipated bitter, upstate flavor -- has many Manhattanites besieging real estate agents at cocktail parties and restaurants, wondering what's really going to happen. "It's like, please, leave me alone," said Cathe Le Blanc, head of the Corcoran Group's yuppie-focused rental operations. 'I try not to tell people what I do anymore until this law is done. Because the questions are nonstop." Though brokers are careful to mention that they don't know much more about Albany's machinations than other well-informed New Yorkers' they are, after all, the priesthood in a city that worships real estate. So The Observer talked with four of them -- Ms. Le Blanc, Christopher Thomas, head of William B. May Real Estate's office in Brooklyn Heights, and Dan Gerstein and Gil Neary, co-owners of the Chelsea-based D.G. Neary Realty -- about what will happen when (or if) rent laws go away. They all used the same word: chaos. Well, that's only if regulation disappears completely on June 15, which is unlikely. But they all agree that rent regulation is on its last legs, and that there's going to be a culling of the kinds of people who can afford to live in Manhattan. They had some testy words about people who complain about this inevitable change. Rent-regulated tenants "begin to lose touch with the value of something," said Mr. Gerstein. "They are comfortable in their situation, meeting their expenses and don't have ambition to do more," scolded Mr. Neary. "This... regulation had an effect of creating partisans addicted to this subsidy," said Mr. Thomas. "Life styles have been built around this." Ms. Le Blanc was even more direct in her vision of a regulation- free Manhattan. "The people who are making, I would say, between $100,000 and $200,000 a year -- they are what I would call 'the New Yorkers' -- who have something that's maybe $400 or $500 under market value, they're the ones who are going to be totally affected," she said. What of the people who don't meet the financial requirements to be one of "the New Yorkers"? "They're going to have to leave the city," she said. The brokers are counting on that. For all the talk of the invisible hand of the marketplace kneading rents down to a happy medium between the current market rate and unregulated rents, this is Manhattan, and many people will pay anything to live in the right neighborhood. The agents agree that the only way rents will go down is if there's a flood of new units on the market. Rents have gone down before. When the 1980's went bust, flashy condominium towers ended up being rented out while their developers went through bankruptcy. Co-op boards relaxed the rules on renting because owners couldn't sell. But when Wall Street recovered and the economy turned around, the market got tight and rents went through the roof. A GHOST TOWN? GREAT! "The real victims of this have been several generations of young people who come to New York and pay half of their salaries on rent," said Mr. Thomas. Once again, Ms. Le Blanc offered a candid view of regulation-free New York: "Once the city empties out, you're going to have negotiating power in the city," she predicted in her cheery broker's voice. Brokers make money when people move, so they're in favor of any loosening of the market. They may not like Mr. Bruno or the upstate politicians who are making this decision -- people whose constituents live in "$30,000 mobile homes," as Mr. Neary put it -- but for all their hand-wringing about the elderly, the disabled and the poor, they're business people and are constitutionally impatient with government regulation. "Does Joe Bruno's position make sense?" said Mr. Thomas. "In laissez-faire capitalism, yes. But after 40 years, there would be chaos in this city. There would be homelessness." Actually, Mr. Thomas worries that a modified deregulation would just gum up everything with an all new bureaucracy, so he favors getting rid of rent control and keeping something like the current stabilization rules. He's not in favor of regulations that take income into account. "If there's some exception for the poor, lo and behold everyone will be poor," he said. They also are sympathetic to the landlords, who, before the 1974 introduction of rent stabilization, often couldn't pay their gas bills and simply let the buildings fall into disrepair. Mr. Neary recalled a five-room Upper East Side railroad flat he used to rent for $400 a month: "The building was horrific... I was paying the most in the building. So they couldn't have been paying their taxes on what they were getting. So what's your incentive for fixing up the building?" But how are people -- potential clients -- reacting? "I'm getting a lot of calls about what's going to happen," said Ms. Le Blanc. "You always have a few panic-people who feel they have to run and jump, but the panic is what's going to [create] the chaos. They're like, 'Should I buy'? and I'm like, you know, the purchase market is at the top of the market right now." Her advice is to "chill," especially given that market-rate rentals, which she said were "higher than I've ever seen in 15 years in the business" through last fall, have fallen slightly. That's because, at a certain point, it became cheaper to buy a one-bedroom than to rent it. 'RUBBING THEIR HANDS TOGETHER' The impending changes have brought formerly intractable rent- controlled tenants to the table to negotiate with landlords. "From a landlord's point of view, I do see them rubbing their hands together," said Mr. Thomas. As for what's going to happen to suddenly deregulated renters, there is some history upon which to draw. Mr. Nears cited 95 Horatio Street, which had been built with city tax incentives that required the apartments to be rent-stabilized for 20 years. When the abatement expired, so did regulation. "So that tossed a lot of people out on the street," he said. "It meant that, for a year, we were getting phone calls from these people, who were like, 'I'm living in this apartment, I really like it, I'm paying $1,200 a month, and I just got a letter under my door that said my rent's going to be $1,950.' Well, the first month, we rented a few people apartments that were hanging around. The next month, there were no apartments left for $1,950 that were better than what they were living in, by and large. So a lot of people bit the bullet and stayed. A lot of people moved into smaller apartments. And other people, I guess, went somewhere else. I don't know." Of course, it's not the broker s job to worry about dislocation. They know what people are willing to pay for real estate -- they know what the market will hear. Their business doesn't allow them to consider that some people believe they have a right to be sheltered from the ever-accelerating economic maelstrom of Manhattan. "The gap [between regulation and the marketplace] has gotten absurd," said Mr. Neary. "You have people living in apartments for a few hundred dollars next to people paying $8,000 to $10,000. There's an absurd inequity there. I mean, does an 89 year-old woman really need to have a nine-room apartment on Park Avenue? If she lived in the suburbs and the space was too big, she'd sell it, and somebody who needed the space would move in." Brokers like to talk about little old ladies on Park Avenue -- it has a nice cushion from reality -- but one thing is true: As buildings go co-op, there is growing resentment of rent-regulated tenants paying $1,000 a month by their neighbors who paid $450,000 to own, plus maintenance. As the city becomes more owner- occupied and luxury decontrolled, sympathies are changing. Nobody wants to subsidize the lawyer next door. None of the brokers think that it's all going to disappear on June 15. Not only would that be politically difficult, but with all the new apartments being developed, "with what they're going to have to charge to cover their costs, there's no way in hell the big boys [developers] are going to let this happen in this city," predicted Ms. Le Blanc. But luxury decontrol will probably be defined down, "to start to push people," as Ms. LeBlanc put it. And in any case, Mr. Bruno's "gotten the multimillionaires who are paying $400 to $500 a month thinking about what they're going to do. Because they're not going to be able to live in the city. Not in a 10-room apartment." Brokers are looking forward to most any change, though. "I'm a happy little camper," said Ms. LeBlanc. "Or I will be."