Affordability Protections Replaced by Ten-Year Cap on Rent Increases
The Battery Park City Authority (BPCA) announced on Wednesday an agreement with the LeFrak Organization (operator of Gateway Plaza, the community’s largest residential complex) that will roll back affordability guarantees for the dwindling cohort of tenants who have been protected for decades by caps on rent increases.
According to a statement by the Gateway Plaza Tenants Association (GPTA), the deal will limit rent hikes to 2.5 percent per year (for one-year lease renewals) and 3.78 percent (for two-year renewals) through 2030 for the roughly 600 households that were previously covered by a program known as “quasi-rent stabilization” (QRS). That plan mandated that rents for Gateway residents who were protected could not be raised by more than the increase allowed for rent-stabilized apartments elsewhere in the five boroughs by the City’s Rent Guidelines Board (RGB).
This arrangement is likely to disappoint Gateway residents and affordable housing advocates for several reasons. Chief among them is that if the QRS agreement had been extended, covered residents of Gateway Plaza would likely be facing significantly smaller rent hikes.
For example, two weeks ago, the RGB approved increases of zero percent for one-year lease renewals and zero percent for the first year of two-year renewals, followed by one percent in the second year of the renewed lease, for rent-stabilized units throughout the City in the coming year. While the RGB approved slightly higher increases in 2019 (1.5 percent for one-year leases and 2.5 percent for two-year renewals), it similarly imposed zero-percent increases multiple times in recent years, most recently for one-year renewals in 2015 and 2016. Indeed, the last time RGB approved rent increases larger than those enshrined in the new Gateway deal was 2013, when hikes of 4 percent and 7.75 percent (for one- and two-year renewals) were okayed.
Overall, for the years 2010 through 2020, the RGB approved average increases of 1.6 percent and 3.4 percent (for one- and two-year renewals). Viewed in this context, Gateway tenants covered by the new agreement appear likely to pay substantially more over its lifetime than they would have if the earlier QRS accord had been extended.
As a case in point, a hypothetical Gateway household (previously protected by the QRS agreement) currently paying $2,000 per month and renewing its lease ten times (for one year each) in the coming decade would face a total outlay of $261,586.20 in rent if quasi-rent stabilization had been preserved, and the average RGB-approved increase for one-year renewals over the last ten years (of 1.56 percent) were continued in the decade to come. If the same resident renewed his or her lease five times (for two years each) during the same period (and the ten-year RGB average increase of 3.4 percent were continued), that dwelling’s total rent would be $265,617.84.
But, under the new Gateway deal, this same household will face total rent outlays of $275,601.96 (renewing its lease ten times, for one year each) and $268,595.76 (renewing its lease five times, for two years each). Such a resident will end up paying $14,015.76 more over lifetime of this agreement (for ten one-year renewals) or $2,977.92 more (for five, two-year renewals).
In exchange for offering less affordability to residents, LeFrak is being richly rewarded. Chief among the inducements that the developer is receiving from the BPCA is a delay on the “fair market value reset” date contained in its ground lease. This is a function of the exotic nature of property ownership in Battery Park City, where homeowners, landlords, and developers do not own outright the acreage they occupy, but instead lease the space (through the year 2069), in exchange for yearly payments of ground rent, as well as so-called “payments in lieu of taxes” (PILOT), remitted to the BPCA.
Gateway’s lease with the BPCA originally stipulated that its ground rent would increase to eight percent of the property’s fair market value in 2040, but this date has now been pushed back until 2045. To estimate the magnitude of this benefit, it is necessary to assess (at least in broad terms) the overall value of the complex. One measure used by real estate professionals is the gross rent multiplier (GRM)— a figure (based on recent sales of comparable properties) by which a building’s rent roll can be magnified to yield a rough approximation of a sales price.
Court documents related to a recent class-action suit against the LeFrak Organization estimate that the developer collected approximately $512 million in rent from Gateway residents during the period covered by the lawsuit, between April 2008 and the present. This appears to mean that LeFrak’s annual rent roll for Gateway Plaza is approximately $42.6 million. The current gross rent multiplier for apartment buildings in Manhattan is 13.8, according to an April report from the real estate consulting firm Ariel Property Advisors. Multiplying Gateway’s rental income by the current GRM yields a valuation of $570,840,000 for the complex. Therefore, Gateway’s ground rent, if assessed at eight percent of the property’s value today, could jump to $45,667,200 per year.
These estimations are necessarily very conservative, because they are based on current rental income, which is likely to be much higher in the year 2040. But even using today’s numbers means that LeFrak stands to save as much as $228,336,000 in the five years that its ground rent will now be delayed in rising to eight percent of the property’s fair market value.
In the meantime, LeFrak currently pays ground rent of $305,440 per year, according to a bond offering prospectus for debt issued by the BPCA last year. This comes to 99.4 percent discount relative to what the developer would be paying if assessed at eight percent of the property’s fair market value today. This is also a minute fraction of the annual ground rent paid by other (much smaller) residential buildings in Battery Park City—both rental and condominium—which are struggling to remain financially viable in the face of relentlessly increasing costs.
The annual ground rent that LeFrak pays to the BPCA was scheduled to increase to 8.125 percent of the rent roll in 2023, but this has been changed by the agreement announced on Wednesday to require payments of 10.75 percent of “effective gross income.” This distinction may redound to LeFrak’s benefit, in spite of the nominally higher percentage rate. Effective gross income is usually defined as the total rent roll, minus costs such as repairs. Because Gateway is the oldest building complex in Battery Park City (nearing its half-century anniversary), and because the property was constructed as cheaply as possible, it is likely soon to need very expensive upgrades and capital improvements. Subtracting these costs (which may run to many tens of millions of dollars) could mean that LeFrak will pay less in ground rent, even on the 10.75 percent baseline, than the developer would have under the original terms of 8.125 percent. Indeed, the BPCA’s statement announcing the deal refers to a codicil that, “requires a minimum capital investment in the complex during this period,” but does not specify what that amount is.
Finally, the BPCA’s statement also says that LeFrak has agreed to pay approximately “$13 million in owed commercial real estate taxes over the next three years.” Why paying property taxes that are already owed—and being allowed to do so over three years—counts as a concession remains unclear.
There are multiple other contexts in which Gateway residents and affordable housing advocates are likely to find the new Gateway deal discouraging. First, the agreement ignores a call issued by the Gateway Plaza Tenants Association (GPTA), Community Board 1 (CB1), and multiple elected officials to offer affordability protections for all Gateway residents, rather than the 600 or so households currently receiving them. This coalition called for any new rent stabilization regime to protect all current and future Gateway tenants for the life of the new agreement. That would have marked a return to the long-standing status quo, under which all apartments in the complex were protected for the life of such an agreement. This precedent was followed by a series of pacts, starting in 1987, and continuing with successor accords in 1995 and 2005.
That universality was eliminated in the 2009 agreement, which protected only tenants living in Gateway as of the date that deal went into effect. Since then, churn and attrition among tenants have resulted in roughly two-thirds of Gateway’s 1700-plus households receiving no affordability protections at all.
Second, the same coalition demanded that new affordability measures at Gateway apply for as long as the landlord derived any benefit from such a deal. But, as noted above, a minority of residents will receive limits on rent increases only through 2030, while LeFrak will continue to reap dividends through 2045.
“The new deal is not perfect, but it continues significant protections to those long-term tenants who have lived at Gateway since 2009,” the GPTA said in its announcement, adding that, “we are disappointed that the deal did not provide stabilization for all current tenants. We are also disappointed by the decision to permit annual rent increases for ‘stabilized’ tenants based on fixed percentage rates. The RGB takes account of current economic conditions in setting its rates. RGB renewal rates in recent years have been below 2.5 percent and in fact are zero percent for the coming year, due to the pandemic. Notwithstanding the new agreement’s 2.5 percent rent cap, GPTA believes that during the coming pandemic year all Gateway tenants should be offered renewals at zero percent. There are many Gateway tenants who are suffering job and income loss due to the pandemic; they will be particularly hard hit by any rent increase at this time.”
In the BPCA’s announcement of the agreement, Authority president B.J. Jones called the deal, “an important first step in our continuing efforts to preserve and even expand affordability and certainty in Battery Park City.”
Governors Island Reopens for Truncated Season, as Momentous Decisions Loom
On Wednesday, July 15, Governors Island opened for the summer season—a milestone originally scheduled for May 1, but delayed due to the pandemic coronavirus.
The offerings at the park—which has come to be regarded by Lower Manhattan residents as one of the crown jewels of open space in the community—have been modified and scaled back to facilitate social distancing, and thus mitigate the risk of spreading the COVID-19, the deadly illness caused by the coronavirus.
Federal Loan Program Bails Out Local Small (and Not-So-Small) Businesses
(Editor’s Note: This is the first in an occasional series of stories detailing the impact of federal bailout funds on Lower Manhattan businesses.)
The federal Paycheck Protection Program (PPP) has disbursed more than $600 billion in roughly 4.9 million loans to business around the nation, in response to the economic slowdown triggered by the pandemic coronavirus. In Battery Park City’s three zip codes, 285 businesses and non-profit organizations received loans totaling more than $10 million, based on the possibility of saving more than 2,900 jobs, according to data recently released by the federal government’s Small Business Administration (SBA).
Astrophotographer Mihail Minkov’s Star Catcher placed first in the International Dark Sky Association’s “Connecting to the Dark” category of IDA’s first annual photography competition, “Capture the Dark”. Minkov accompanied the photograph with this statement: “I have a four-year-old daughter. She is fascinated by the planets, stars and the Milky Way. So I decided to make her part of the process and try to show her what it’s like to be out under the dark sky, and see the beauty of the night sky. I hope that one day she will remember that and this memory will make her care for the planet and the night sky.”
These starry summer nights, the picture could be of you or me or children in our care.
On a recent sojourn in the countryside, facing southeast over a meadow alight with blinking, streaming fireflies, I looked up to discover bright planet Jupiter close above the horizon. Barred owls exchanged their hooting bark “who cooks for you?” It was just before 10 o’clock. Today, the 13th, Jupiter (-2.73 magnitude) rises at 8:23pm; an hour earlier on the 26th. To Jupiter’s left, dimmer Saturn (0.12 m) rises at 8:43pm on the 13th; nearly an hour earlier on the 26th. Allow about an hour after sunset for bright celestial objects to be visible and an hour and a half to two hours after sunset for dimmer stars and constellations.
Whether stargazing from a window or setting out at nightfall, find a clear view to the southeast horizon. Or wait for the celestial show to come to you. The planets and stars are moving from east to west. Around midnight, the planets show up in the south; before dawn, southwest.
Above and to the left of the planets find the great Summer Triangle: Altair (0.75 m) appears 20 degrees above Jupiter; brighter Vega (0.00 m) a 30 degree leap above Altair and dimmer Deneb (1.25 m) a stretch to the left of Vega. Search out a bright star to the right of Vega, in the southwest, it is golden Arcturus (-0.07 m).
The star-like object the child in the photograph looks to could also be planet Venus, the third brightest object in Earth’s skies, after the Sun and moon. See Venus (-4.47 m), now the Morning Star, in the east between about 3:30am and 4:50am.
Finalists Announced in Design Competition to Improve Pedestrian Access to Brooklyn Bridge
On some weekends, as many as 15,000 pedestrians and 3,600 cyclists compete with each other and souvenir vendors for as little as 10 feet of width on the deck of the Brooklyn Bridge, creating an unpleasant and potentially unsafe bottleneck.
The City Council and the Van Alen Institute (a New York nonprofit architectural organization, dedicated to improving design in the public realm) have named the shortlist of contenders in a contest that aims incubate fresh ideas for better pedestrian access to the Brooklyn Bridge.
Local Traffic Monitoring Device is Part of City-Wide Expansion
A work crew installs a new traffic monitoring device at the corner of West and West Thames Streets.
Lower Manhattan residents may soon be slightly safer, if lighter in the pocket, thanks to a new traffic monitoring device that has been installed at the corner of West Street and West Thames Street. The camera and radar unit, mounted on a silver pole, combines red light monitoring with speed enforcement for vehicles proceeding south along Route 9A (West Street).
Open Space Advocate Wants City Hall Park Returned to Community
A local advocate for Lower Manhattan open spaces is sounding the alarm about City Hall Park, which has recently been closed and cordoned off by police, while the park’s paved plaza (near Chambers and Centre Streets) has been taken over by Occupy City Hall protestors.
Lower Manhattan resident Skip Blumberg, the founder and president of Friends of City Hall Park (FCHP), says, “our park is closed, commandeered by the NYPD inside the fences and by the occupying protestors on the Northeast Plaza. The park has suffered littering and destruction by irresponsible individuals within those groups, with trash thrown over the fence by both.”
Fine artist and long time Downtown resident Adele H. Rahte has spent the stay-at-home period designing and creating these fabric collages representing the people in our community as a special form of thank you to the essential workers of our community and city for keeping us safe.
On display during the month of July at the Tribeca Community Window Gallery located at 160 West Broadway.