StuyTown Lawsuit Costs = Higher Rents for Others

Lease Surprise in Stuyvesant Town NY REAL ESTATE RESIDENTIALUpdated February 6, 2013, 9:01 p.m. ET http://online.wsj.com/article/SB10001424127887323452204578288493809362834.html?mod=googlenews_wsj By LAURA KUSISTO People put up with a lot for a Manhattan apartment. The unbelievable rents, the tiny closets, those pushy agents. Thousands of Stuyvesant Town and Peter Cooper Village residents are... [more]

Lease Surprise in Stuyvesant Town NY REAL ESTATE RESIDENTIALUpdated February 6, 2013, 9:01 p.m. ET http://online.wsj.com/article/SB10001424127887323452204578288493809362834.html?mod=googlenews_wsj By LAURA KUSISTO People put up with a lot for a Manhattan apartment. The unbelievable rents, the tiny closets, those pushy agents. Thousands of Stuyvesant Town and Peter Cooper Village residents are waking up now to a more uncommon quandary: a clause that allows their landlord to increase the rent in the middle of their lease. About 40% of the 11,200 units in the historic East Side complex could see the rent go up—by $1,500 in some cases—because of a provision tucked into leases as part of a tenant lawsuit settlement. The possibility of the mid-lease rent hike wasn't hidden, but some tenants who signed it said they didn't notice, or said real-estate agents told them it wouldn't happen. Many residents of Stuyvesant Town and Peter Cooper Village, above, could see mid-lease rent increases. . The complex's owners could begin moving to raise the rent in April, when the settlement is expected to be completed. Local officials and tenant advocates have begun to mobilize against the prospect, calling on CWCapital Asset Management, the firm running the complex for investors, to commit to leaving the apartments' monthly prices alone until leases are up for renewal. "We are deeply skeptical of the legality of such a right, if exercised, and urge you not to take advantage of it," said the Jan. 25 letter signed by a group of politicians led by City Council Member Daniel Garodnick, who lives in the complex. Also signing were Sen. Charles Schumer, Rep. Carolyn Maloney, City Council Speaker Christine Quinn, Public Advocate Bill de Blasio and Manhattan Borough President Scott Stringer. A CW spokesman said the firm couldn't comment because the settlement hasn't been finished. People familiar with the firm's thinking said CW hasn't made a final decision about whether to increase rents. The people said the company expects to have a clear direction in the next 60 days. Kristine Sirna, a 29-year-old risk analyst who signed a lease in October 2009 for a one-bedroom for $2,600 a month, said her rent could go up to $3,500., which she likely couldn't afford. "I can't be spending such an exorbitant amount," she said. Renter advocates said the rent-increase clause wasn't a common issue, if only because one of the most basic elements of tenant protection in a lease is the prohibition against hiking the price midstream. "What tenant would be satisfied with a lease that has an escape clause for the landlord at any point?" said Victor Bach, a senior housing policy analyst for the Community Service Society, a tenant advocacy group. The lease provision has surfaced as an issue after a tumultuous six year legal battle that began shortly after real-estate titan, Tishman Speyer Properties LP, purchased the 56-building complex on behalf of a group of investors for $5.4 billion in 2006 in one of the biggest real-estate deals in New York history. In an effort to recoup the investment, Tishman Speyer began aggressively converting the rent-regulated apartments of Stuyvesant and Peter Cooper—long considered middle-class havens sheltered from Manhattan real-estate trends—in to luxury, market-rate units. Tenants paying market rates filed a lawsuit saying a tax break the owners received prevented them from taking those units out of rent stabilization. The tenants won in appellate court in 2009, and, as the two parties negotiated a deal on how much back rent the plaintiffs were owed, the owners agreed to charge lower rents. Some one-bedroom units that went for $4,000 a month saw rents go down by anything from $600 to several thousand dollars a month. In November, a tentative $68.8 million agreement was struck. One provision maintained CW's right to raise rents in the middle of a tenants' lease. Tenants were informed by letter, but some said they don't recall it. Others said they were reassured by leasing agents that they wouldn't be subject to mid-lease increases. "The rent is very unlikely to be raised mid-lease, and would only come from a court order," wrote a leasing agent in an email to a tenant reviewed by The Wall Street Journal. "It is not something the landlord would choose to do." There are reasons why such an increase could be impractical. For instance, few landlords would want deal with potentially thousands of apartments turning over all at once. Some residents said they knew about the potential increase when they signed leases but didn't think much about under the stress of a Manhattan apartment search, the horrors of which are well-known: reams of paperwork, cash deposits and the pressure to make a decision immediately. Jane Fox, a 68-year-old retiree, said she had never experienced anything like getting an apartment in New York when she and her husband moved from Washington, D.C., and signed a two-year lease in May 2012 for a one-bedroom apartment in Peter Cooper Village. "It was all new to me and very, very crazy," Ms. Fox said. She added: "In Washington, you either looked in the Washington Post or someone put a sign up they had something to rent. You either like it or you don't. There's no real-estate agent involved." The couple's apartment costs $3,400 a month now but could go up 59% to about $5,400 a month. Ms. Fox said the rent-increase clause was tucked into a 30- to 40-page document between passages about lead paint and air conditioning. "We asked about it, and they said not to worry about," Ms. Fox said. "We'd given notice to our landlord, and it was a little bit late." A version of this article appeared February 7, 2013, on page A17 in the U.S. edition of The Wall Street Journal, with the headline: Lease Surprise in Stuyvesant Town. [less]