Towers and Tenements: Letter from a Landlord
BY J. A. LOBBIA''Dear Voice, Please read this and respond.''
Village Voice, May 20, 1997
Those words were inked in black felt-tip pen across the top of a landlord's missive that wound up in the hands of Towers & Tenements. The letter's author, 35-year-old Andrew Berrien Jones, is the fairly unhappy owner of an eight-unit building in the West Village. We present his arguments--and a few of our own--as a microcosm of the battle now raging over rent laws.
(Jones's text appears in bold, as he wrote it.)
The Fat Cat Greedy Landlord: I am a small property owner. My building is my home. It is my only real estate. It is a four story brownstone. I occupy the first, second, and fourth story.
Indeed, Jones became the owner of the 1840s-era building--actually a Greek Revival townhouse--in July 1994. He paid $387,000 for the 3000-square-foot brick building, and got a $262,000 mortgage from the seller, who had owned the building for 10 years, according to city records. The building, at 317 West 11th Street, is prime property, located within the Greenwich Village Historic District, and has a back garden.
The amount Jones paid makes brokers breathless. ''That's a great price,'' exclaimed one who deals regularly with West Village residential sales. ''He could double his price now, conservatively.''
You'll Love Living Here: The third floor has 2 rent-controlled apartments. The average rent is $178 per month. Yes, even in a prime neighborhood, New York State believes that certain ''desirable'' people pay less per month than what you and I pay for one night in a hotel.
Jones says he bought the 150-plus-year-old building because he's interested in historic preservation and hoped to be able to make the entire house his. He emphatically did not want to be a landlord. Yet he purchased the building even though he knew that two rent-controlled tenants were living there. In fact, the tenants have lived there for 29 and 40 years respectively.
Jones, a lawyer by training who works at a bond rating agency and who is listed in the Social Register, opted to invest his money in a building partly occupied by tenants with statutory rights. ''I had some understanding of the law,'' Jones told the Voice, ''and I thought there was an automatic 7.5 per cent increase and that the owner was entitled to an 8.5 per cent return.''
That is generally true. If rents remain static and unusually low, as in Jones's building, it is typically because the landlord has not applied for hikes or has building-code violations. One of Jones's tenants says her rent--which has gone from $127 in 1994 to $177 now, for 283 square feet--is low because during parts of the 1970s and 1980s, the landlord provided little heat and hot water. It is up to the state's Division of Housing and Community Renewal (DHCR) to permit or deny rent hikes for rent-controlled apartments.
Jones could appeal to DHCR for a hardship increase, but says he's unlikely to do so partly because he presumes the agency would rule against him since he has use of most of the building. ''I can't get a fair deal'' from the agency, he says. DHCR did not return repeated calls.
Shortly after buying the building, Jones moved to evict third-floor tenant Madeline Kripke. Court papers show that in March 1996, he sent Kripke a notice giving her about a month to stop using her apartment as her place of business, or move out. Kripke is an antiquarian book seller who has lived in the building since 1968. By late April, Jones gave Kripke a notice that he would not renew her tenancy, which expired that June 30.
In court papers, Kripke argued that Jones, and previous owners, ''accepted rent with full knowledge of [her] conduct and actions'' within her apartment. She and Jones ended up settling on terms that included Kripke's maintaining another business address, not storing books in the hallway, and removing resale books from her premises. Jones has a copy of Kripke's keys and is allowed to inspect the apartment twice a year for five minutes each time.
In an interview, Kripke told the Voice that she now has her books in storage. When her business was at her home, she said she had a maximum of 10 customers a year come to her apartment, as most of her business was mail order and because she specialized not only in antique books, but in lexicography. Her customers included ''distinguished, elderly professors'' and even a famous national columnist.
Have a Free Lunch: By contrast, my expenses allocable to each apartment equal $547 per month. Therefore, from an economic perspective, I transfer a net amount of $369 ($547-$178) per month to each tenant. In effect, Rent Control forces me to subsidize my tenants with income from my day job. I get to pay the tenants $738 (2X$369) per month for the privelege of having them live in the middle of my house.
Jones told the Voice his building costs him between $44,000 and $48,000 a year. His mortgage, he said, is $20,960; taxes are around $10,000; utilities just under $5000; the super $2200 a year; with legal fees and insurance varying. He's spent about $2000 a year on apartment repairs, and about $2500 on minor building repairs, like repainting the facade to meet the landmarks code.
Assuming a price of $48,000 a year, each unit should cost $500 a month. Since he's getting a monthly average of $178 in rent, Jones argues that he's subsidizing his tenants. But it's also possible that they are subsidizing him--without the rental income, low as it may be, Jones would carry the full house himself. What Jones sees as a subsidy could also be viewed as income of $4272 a year--which would just about pay his utility bills, or take a bite out of his taxes.
In effect, Jones is paying $3000 a month to live in 2250 square feet of space in the West Village. Judging from recent Times ads, Jones's own ''rent'' is below par for his neighborhood, where brokers are showing, for example, a 3000-square-foot duplex for $7500, a townhouse duplex for $4000, and a deal of a 2000-square-foot loft for $3500. Add Jones's equity, the tax benefits from mortgage payments, and the fact that he has exclusive rights to the garden, and the picture looks even rosier for the landlord.
I'll even pay your taxes: Every year my real estate taxes increase approximately 6%, but my rent increase from 1995 to 1996 was only 3 percent. And for 1997, my increase was ZERO.
More than rent controls, taxes are the bane of a landlord's life, according to a 1994 survey by the city's Rent Guidelines Board. In Jones's case, his initial tax bill in 1995 was about $9000, he says; it's now up to over $10,000. The small rent hike Jones cites refers to DHCR's 1995 decision to raise by 3 per cent the Maximum Base Rent, which is one component of a complicated formula used to determine hikes in rent-controlled apartments. The MBR is the highest rent that can be charged for a rent-controlled apartment, and few apartments ever reach their MBR. It is the MBR that is supposed to yield a landlord an 8.5 per cent return. DHCR determines the MBR every two years; when it set it at 3 per cent in 1995, a group of landlords sued. An appellate judge last week decided that issue in favor of the landlords, opening the door to a higher MBR. Some owners are now anticipating the MBR may soar above 30 per cent.
Have another free lunch: Not only am I trapped into negative monthly cashflow, the rent control system has denied me a fair return on any additional investment in the building. I have invested over $150,000 in my building--but to date the DHCR has only approved a gross rent increase of around $60 a year. This is not exactly a fair return. Finally, the DHCR has denied me a rent increase for restoration of the stoop of my building, which lies in a Landmark district.
Jones says he spent the bulk of the $150,000 on the roof and to reinforce the center of the house, where the bathrooms are located. Originally, the building was a single-family home; in the 1920s, Jones says, it was divided into eight apartments, with a bathroom installed in each. ''The interior of the building was collapsing, and I had to install huge beams with steel plates and reroute plumbing,'' Jones says.
DHCR denied him a rent hike for those improvements under its Major Capital Improvements policy, arguing that the costs could only be passed on to tenants if Jones completely replaced all steel beams, ''including footing and foundation''--which Jones says is impossible since the house is wood framed. Jones says he installed a new water heater and mailboxes--a cost he says DHCR did allow him to pass on to tenants.
DHCR denied Jones's request to add to the rent the costs of installing a period railing near the stoop. The goal of the capital-improvements program is to compensate landlords for improving services to a building; ornamental ironwork would not be considered such.
To all those legislators who support rent control: If these tenants are so worthy of being subsidized, let the state subsidize them. Don't put the burden on us wage-earning taxpayers who are trying to invest in our city.
Let's return to Jones's own stated plan: ''My goal,'' he told the Voice, ''was not to make money but to restore this Greek Revival townhouse. I wanted a single-family house, but for short term was willing to live with tenants. I don't want to be a landlord. I didn't want to when I bought it, and now I really don't want to.''
Fair enough; but then why buy a building with tenants in place?
As for his hopes for the rent-regulation battle, Jones would like to see landlords of rent-controlled apartments get a right that those with rent-stabilized units already have: The ability to claim an occupied apartment for personal use.
While Jones was not shy about sending his letter to various media, including The Manhattan Spirit and Channel Five, and inviting the Voice to photograph his townhouse, he declined to be in the picture himself. ''There's some fringes of the tenant movement I'd rather not have be familiar with me,'' Jones explained.