Adm. Rev. Docket No.: BH430350RO

                                   STATE OF NEW YORK
                            OFFICE OF RENT ADMINISTRATION
                                     GERTZ PLAZA
                               92-31 UNION HALL STREET
                               JAMAICA, NEW YORK 11433

          APPEAL OF                               DOCKET NO. BH430350RO
                LAURENCE GINSBERG,                DISTRICT RENT              
                                  PETITIONER  :   DOCKET NO. LC000116-OE &   
                                                  TENANTS: VARIOUS


          On August 26, 1987, the above-named petitioner-owner filed a 
          Petition for Administrative Review of an order issued on July 22, 
          1987 by the Rent Administrator, Gertz Plaza, Jamaica, New York, 
          concerning the housing accommodations known as Various apartments 
          at 1214-1216 First Avenue and 1220 First Avenue (which is also 
          known as 400 East 66 Street), New York, New York, wherein the 
          Administrator denied the owner's application under 
          9NYCRR2524.5(a)(2) [application for leave to refuse to offer rent 
          stabilized tenants renewal leases and to recover possession based 
          on the proposed demolition of the building] and 9NYCRR2204.8 
          [application for certificate of eviction as to rent controlled 
          tenants based on the proposed demolition of the building]; upon a 
          finding that a return of 8.5% could be realized from the subject 
          building which contained rent controlled tenants (1220 First 
          Avenue) and, therefore, certificates of eviction could not,
          under the Sound Housing Law, be issued as to said rent controlled 
          tenants; and upon a finding that the owner's application as to the 
          rent stabilized tenants in 1214-1216 First Avenue  and 1220 First 
          Avenue would have to be denied as that application was based on a 
          plan under which all of the subject buildings would be demolished 
          and replaced by a single structure. 

          The Commissioner has reviewed all the evidence in the record and 
          has carefully considered that portion of the record relevant to the 
          issues raised by the Petition.

          In the Petition the owner's sole objection, in substance, is that 
          in the calculation of the return that could be realized on 1220 
          First Avenue, the owner was not given credit for depreciation and 
          interest as operating expenses.

          Adm. Rev. Docket No.: BH430350RO

          Various tenants have answered the Petition opposing it.

          The Commissioner is of the opinion that the Petition should be 

          The Commissioner finds that it is the well established practice in 
          the performance of Sound Housing audits to disallow depreciation 
          and interest as operating expenses in the calculation of the  
          return that can be realized on a particular building. The 
          Commissioner further finds that that practice is reasonable and in 
          keeping with the Sound Housing Law. 

          The essence of the Sound Housing Law test is whether or not a 
          building has any chance of yielding a return of at least 8.5%, at 
          the real cost of operating it. Depreciation is not an actual out of 
          pocket expense and the interest attributed to a building may merely 
          reflect an owner's vigorous efforts to turn equity into cash by 
          mortgaging the building; there is no necessary correlation between 
          the amount of a mortgage on a building (or the interest paid 
          thereunder) and the costs that must be incurred in order to operate 
          that building. 

          THEREFORE, in accordance with all of the applicable laws and 
          regulations, it is

          ORDERED, that this Petition be, and the same hereby is, denied, and 
          that the order of the Administrator be, and the same hereby is, 


                                             JOSEPH A. D'AGOSTA
                                             Acting Deputy Commissioner

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