I-Team: Money for nothing? Developer seeks affordability tax break for apartments that were previously Rent Stabilized

In exchange for a lucrative 40-year tax abatement, the new owners of an Upper East Side apartment building are promising something nearly unheard of:  a prime Manhattan residential property that will be 100 percent affordable.

But some long-time tenants of the building are now questioning the developer’s math – pointing out many apartments on the property were already subject to New York’s Rent Stabilization program before the new owner took over.  They also say any new income restrictions may not kick in for years.

“In totality, they’re not really adding many units,” said Luigi Racanelli, a tenant of 170 East 83rd Street who spoke up at a recent meeting of Manhattan Community Board 8.

Back in October, Douglaston Development, the purchaser of property on the corner of East 83^rd Street and Third Avenue, told Community Board members about the plan to place income restrictions on all 50 units in the building. 

“We’re going to commit to providing permanently affordable housing for 100 percent of the units within this building,” said Daniel Russo, Douglaston’s project manager. 

“It would do nothing but benefit the neighborhood by creating 50 units of affordable housing,” added Steven Charno, President of Douglaston Development.

But according to the last decade’s worth of tax records published by the NYC Department of Finance, the property already had between 38 and 41 apartments protected under New York’s Rent Stabilization program.  Rent Stabilization is a legal classification that results in some of the lowest rents in all of New York City.

Oksana Mironova, a policy analyst at Community Service Society, a nonprofit that advocates for affordable housing, said a property with lots of existing rent protections may not justify a tax break that could be worth tens of millions of dollars over four decades.

“If the building was just left alone, the Rent Stabilized units would still be affordable with the city not putting anything in,” Miranova said.

Siobhan Stocks-Lyons, a spokesperson for Douglaston, said the developer doesn’t know where the Department of Finance got its count of previously Rent Stabilized units, but insisted all of the apartments in the building would gain new affordability protections in the proposed deal.

“All units will immediately become subject to rent stabilization,” she wrote.  “Income restrictions will apply to all units upon turnover.  So that is a net increase of 50 units permanently subject to income restriction.”

Douglaston Development has declined to provide its own accounting of how many apartments in the building enjoyed Rent Stabilization protections before and after its purchase of the property.

Likewise, the New York State Department of Housing and Community Renewal (DHCR), which administers the state’s Rent Stabilization program, declined to share how many units in the building are currently protected by rent regulations.  DHCR says those numbers are protected by privacy rules.

In addition to preserving apartments that already enjoy rent protections, Douglaston Development is also promising to freeze the current rents in market-rate units.  When those market-rate tenants move out  – the owner would place new income restrictions on those apartments as well, making them available to NYC renters via a lottery.  According to recent rental listings, one of the market-rate 1-bedroom apartments in the building was advertised at around $6,500 per month.  One of the market-rate 3-bedroom apartments was advertised at about $8,500 per month.

Greg Harden, a tenant who currently occupies a Rent Stabilized unit in the building, said he believes his market-rate neighbors are likely to keep re-signing their leases under the deal because they’ll know doing so would protect them from higher housing costs .  If that happened, he said, today’s pricey rents would be preserved and future affordability provisions for market-rate units would be postponed.

“Very few of these apartments are likely to be available or turned over in the coming years,” Harden said which makes one wonder whether our taxes would be better used collecting real estate taxes on the building and then using those funds to distribute vouchers to needy families and renters?”

The tax break sought by Douglaston is called an Article 11 abatement which can exempt a landlord from up to 100 percent of its city property tax bill for four decades.  Multiplying the building’s current annual tax bill by 40 years would amount to more than $26 million dollars. 

New York City’s Department of Housing Preservation and Development must agree to the deal if the abatement is to be approved. 

Ilana Maier, an HPD spokesperson, said the Adams administration is currently evaluating the specifics of the project “with a goal to protect, preserve and improve affordability.”

She added, “The only thing set in stone, as with all preservation opportunities is that we will do everything in our power to keep tenants safe in affordable homes.”

If the Adams administration were to approve the tax break it would then go up for a City Council vote.

Council Member Keith Powers (D – Upper East Side), who represents the neighborhood where the project is planned, declined to say whether he supports the tax break or opposes it. 

“While this project is potentially beneficial to tackling the housing crisis, it is crucial that existing tenants are protected, well-informed, and receive the benefits of the final plan for the building,” Powers said.  “My office will continue to work with all parties to ensure that this works for everyone involved."

In tandem with its request for a property tax abatement on the affordable building, Douglaston also disclosed it is planning to build a luxury residential tower next door.  When the developer purchased 170 E 83^rd Street, the building existed as a 90-unit rental property that spanned an entire city block.  Douglaston says the prior owner delivered the building with apartments vacant on the south side of the block.   The vacant southern portion of the building has since been demolished – paving the way for construction of the luxury apartment building.

Mironova believes pairing the affordable housing project with a new luxury tower could actually work against the goal of more affordable rents, because square footage in the new building is likely to command top dollar.

“If you take this kind of deal and multiply it in a fictitious city, it would increase the rents,” she said.  “I do not think it’s a good deal for the city.”