MANHATTAN — As tenants increasingly fall victim to harassment by private equity landlords trying to force them out of their homes, City Council members are trying to expand safeguards for them.
The City Council introduced three bills on Monday to increase protections for tenants facing potential harassment from predatory equity owners — so called because they buy buildings at high prices assuming they can recoup their investment once rent-stabilized or rent-controlled units are de-regulated.
There are a number of ways these landlords try to push out tenants of rent-stabilized units in efforts to get market-rate prices, advocates say, including charging illegal fees on top of rent, neglecting building maintenance to allow physical conditions to deteriorate, or violating construction safety regulations which can create possibly dangerous situations for existing tenants.
There’s also an issue with these buildings being overleveraged and having a high debt-to-income ratio that could lead to building foreclosure.
“Tenants are more than ever fearful of gentrification, rising rents and displacement, and actions by predatory landlords and lenders are aiding these fears,” said Bronx City Councilman Ritchie Torres, who called the legislative package the first of its kind to confront predatory equity and give the city more information about the tactics used to push tenants out.
Here’s a breakdown of the legislation and its hurdles:
► Creating a landlord watch list
The Council is calling on the city’s Department of Housing Preservation and Development to create, maintain and publish a watch list of building owners who have engaged in practices associated with predatory equity landlords.
The legislation — introduced by Torres, along with councilmen Dan Garodnick and Jumaane Williams — would also require the Department of Finance to help HPD get financial information on the buildings.
HPD officials, however, did not embrace the proposed legislation, which they felt would require the agency to capture, analyze, monitor and maintain a complex set of data to pinpoint potentially bad apples.
“Not all owners who enter into overly optimistic or poor investments intend to, or do, disrupt the lives of tenants or engage in bad behavior. And even owners who intend to try to convert rent-regulated units to higher rents may stop short of engaging in harassment, neglect or other displacement tactics,” Vito Mustaciuolo, Deputy Commissioner for the Office of Enforcement and Neighborhood Services at HPD said at a City Council hearing on Monday.
Having to track financial info would be a financial burden to the agency, he said.
“Trying to make those predictions by tracking financial transactions in which HPD is not a party would be extremely difficult and costly,” he said, “and would be limited by data constraints, regulatory and jurisdictional complications, and the perils of predicting real estate markets in general.”
► Putting landlords on the defensive
In buildings with a high debt-to-income ratio, when tenants allege harassment, their claims will automatically gain more credibility in housing court under another bill, introduced by the same trio of councilmen.
Tenant allegations of harassing acts that caused or intended to cause them to vacate their apartments will be believed to be true unless a landlord can prove otherwise.
Again, HPD officials opposed the legislation because of the burden it would create, requiring many resources to calculate debt service coverage ratios each year for every building in the city with more than six units.
"The debt service coverage ratio alone does not tell you whether an owner is likely to engage in illegal or irresponsible behavior," Mustaciuolo said.
A building’s net operating costs could fluctuate widely if there are many vacancies or an unexpected increase in expenses, he noted.
“A landlord might buy a building with the goal of doing energy efficiency improvements, which would lower expenses over time,” he said. “The city should not disincentivize landlords from purchasing buildings with high operating expenses and trying to reduce those operating costs.”
► Expand the city’s ability to take over distressed buildings.
Under another law, introduced by Councilman Ben Kallos, HPD’s third-party transfer program — which allows the city to foreclose and sell distressed buildings to pre-qualified third parties — would be expanded to include buildings whose owners have incurred large numbers of unsatisfied building violations.
The legislation aims to put pressure on landlords who fail to address recurring building problems and fail to pay the fines incurred on those violations.
HPD officials have been working with the Council as part of a task force on how to reform the sales of distressed properties and said they hope to study the issue further based on the group’s findings.