City and state government officials are cracking down on landlords who collect tax benefits for affordable housing incentives but don’t follow through on their obligations. This practice was one of the major criticisms of the 421-a tax incentive leveled by activists and city leaders in favor of repealing the rent laws that governed the incentive when they were up for renewal over the summer.
A two-year investigation by the New York State Attorney General’s office, which led to the creation of the Real Estate Tax Compliance Program back in August, found that 194 landlords controlling more than 1,400 units across New York City have been illegally collecting tax breaks for rent-stabilized apartments that they represented otherwise as market-rate units. This means that some landlords are effectively double dipping– on the one hand, profiting directly from tenants who didn’t realize the units they were renting are rent-stabilized and on the other hand, dodging taxes by taking advantage of the government’s assumption (and lack of oversight, for that matter) that the beneficiaries of the tax break were providing affordable housing units to the public.
The tax break, known as 421-a, was created in the 1970s to combat a drop in residential construction when the city was in the midst of economic crisis. Critics argue the program was designed when the housing market was struggling, not booming, and is therefore obsolete. Under 421-a, owners of residential developments do not have to pay for any increase in property taxes after construction so long as those developments provide a certain number of affordable units (there are a number of exceptions, however and the law has seen some changes over the years, too).
There have been various attempts to reign in 421-a and make it more difficult to win exemptions, but according to some officials, it remains an important source of affordable housing. Supporters of 421-a say that repealing it would only lessen incentives for private developers to build affordable housing, and would contribute to further depleting the affordable housing stock when there’s already a massive shortage. And perhaps most importantly, many in the powerful real estate industry have very obvious reasons for wanting 421-a to stick around.
This past summer Albany extended 421-a, with some minor changes, going against the criticism of activists and city leaders, who accused landlords of collecting benefits while denying rent-stabilized leases. The Brooklyn Real Estate summit in November attracted protestors from the Brooklyn Anti-Gentrification Network who continue to demand that 421-a be repealed. Legislators haven’t brought landlords to account, but the Attorney General has stepped up.
According to a statement released by the Attorney General, 128 landlords controlling those 1,823 units previously listed as market-rate condos will now list them as rent-stabilized and notify tenants of their rights. The move brings them in line with Section 421-a of the Real Property Tax Law, which requires owners of multi-family residential rental properties to register the units as rent stabilized in order to receive the tax exemption.
“Landlords of rental buildings who accept these tax incentives must follow through on their end of the bargain and offer rent-regulated leases to their tenants. That’s a central benefit of the 421-a law,” Attorney General Eric Schneiderman said in the statement. “The return of these apartments to rent stabilization will not only bring economic stability to the families that occupy them, but also honor the spirit of the law as it was intended.”
While the state is clearly taking decisive action to put a dent in these 421-a violations, a Propublica investigation released in November revealed that “in reality, state and New York City officials have tolerated the problem for years — and ignored pleas to investigate.” Furthermore, the non-profit investigative journalism outlet concluded that this 1,823 number released by Cuomo and Schneiderman doesn’t reflect how widespread the problem is, and that there are at the very least thousands more offenders: “Landlords have failed to register thousands of buildings for rent regulation, casting doubt on the legality of leases for about 50,000 apartments across the city.”
Propublica’s analysis included data that applies to nearly 15,000 apartments in New York City and “found that about 40 percent — or 5,500 buildings — weren’t listed as rent-stabilized, yet records show the owners are receiving more than $100 million in property tax reductions.”
Not every landlord who the Governor and Attorney General went after gave up without a fight; eighteen entered into settlements. Officials said they will collectively pay $5,086,653 into the City’s “Affordable Housing – AG Settlement Fund,” which will be used to fund housing developments for low-income families. Other non-compliant landlords will potentially face revocation of their tax benefits.
Among the more egregious offenders is Aron Kapelyus of Kai Construction (the guy who butchered the historic beaux arts building in Bed-Stuy). He controls 134 apartments in ten buildings throughout Williamsburg and Bedford-Stuyvesant and he “systematically deprived all his tenants in those buildings of rent-stabilized leases,” according to the statement. He will pay $103,500 into the settlement fund. Tenants living in these six buildings of his in Williamsburg will be provided rent-stabilized leases. (Kai Construction could not be reached for comment.) These include:
- 241 South 2nd Street in Williamsburg
- 208 South 3rd Street in Williamsburg
- 120 South 2nd Street in Williamsburg
- 337 Bedford Avenue in Williamsburg
- 442 South 5th Street in Williamsburg
- 147 Maujer Street in Williamsburg
Here are some additional North Brooklyn landlords who settled with the Attorney General, via the announcement:
— Charal Corporation, the developer of 131 Wythe Avenue in Williamsburg, will now provide rent-stabilized leases to the six families living there, and will also pay $6,000 into the fund.
— The developer of 271 Nassau Avenue in Greenpoint will provide eight families rent-stabilized leases and pay $8,000.
— 630 Metropolitan Avenue LLC, which owns the building at the same address in Williamsburg, will provide 10 families with rent-stabilized leases and pay $10,000.
— 782 Hart St. Realty Inc., which owns the building at 782 Hart Street in Bushwick, will provide 19 families rent-stabilized leases and pay $47,500.
Still, at least 52 landlords have not registered their units as rent-stabilized. The Attorney General has published a list of these landlords, and according to the Governor’s office, the Tenant Protection Unit will now begin “enforcement actions” to ensure compliance.
“We have zero tolerance for waste or abuse that costs New Yorkers vital affordable housing,” Mayor Bill de Blasio said in the statement. “We are using every tool we have to bring more affordable housing online, but we are equally focused on protecting the housing we already have.”
See the thumbnails below for a full list of the 52 allegedly non-compliant landlords and their properties published by the Office of the Attorney General.