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The search for affordable housing in New York often feels like a fruitless one: just as one subsidized development gets built, another one is lost to the whims of real estate investors looking to cash in on a booming market. Take the popular 80/20 program, in which developers get coveted tax breaks and financing in exchange for setting aside a fifth of their buildings for low- and middle-income tenants. After 30 years, the restrictions expire, and all too often landlords take the whole thing condo, selling off the apartments at high prices. The affordable units disappear.
In an effort to preserve that precious 20 percent, the New York Attorney General’s office introduced a new policy last week that would let building owners convert their market-rate rentals (i.e. the 80 percent) to condos or co-ops, so long as they pledged to permanently preserve the affordable 20 percent as rentals for people making 60 percent or less than the area median income—currently about $50,300 for a four-person household, the New York Times reported.
Market-rate renters would get a 90-day window in which to purchase their apartments before anyone else at an insider rate. If the landlord planned to convert only part of the building—presumably in cases where market-rate tenants opted not to buy—it would be done under a “noneviction plan,” so both market-rate and 20-percenter tenants could stay indefinitely. (Or at least, that seems to be the case; the policy memo itself isn't crystal clear on the situation for market-rate tenants, but the Times reports that they'd be able to stay until they chose to leave.) The resulting building would be a mix of rentals and condos, with all the residents sharing the same management. And landlords would first have to get a sign off from the relevant government agencies before making any of the above changes to the building's ownership structure.
The policy, which went into effect last Friday (and is available here), would apply to hundreds of buildings across the city, though it’s unclear exactly how many apartments the change would cover.
We can see how the AG’s plan is a boon for building owners who want to capitalize on a heated real estate market—they don’t have to wait for decades to sell those rental apartments as condos—and it’s a cost-free way for the city to preserve affordable housing. But what does it mean for renters who get an opportunity to buy their apartments? We spoke to Kevin McConnell, a tenants' rights attorney at Himmelstein McConnell Gribben Donoghue & Joseph, to find out.
For the 20-percenters:
Unlike rent-stabilized tenants, who typically get a chance to purchase their apartments if their building gets turned into condos or co-ops, the 20-percenter tenants in these buildings wouldn’t have a chance to buy, even at an insider price, since those units would be preserved as affordable rentals, McConnell notes. But given that prices might be out of reach for low- and middle-income tenants anyway, this might not be such a loss.
Separately, it’s unclear whether landlord harassment would be more or less of a problem in these kinds of conversions. On the one hand, since building owners have no incentive to kick out affordable tenants (they can’t convert those units regardless), there’d be less pressure to evict them. On the other hand, one of the attorney general’s methods of preventing affordable tenants from getting harassed (or having their services cut), is to get a court order preventing the building owner from selling the apartment where the victimized tenant lives. But if a landlord can't convert the apartment anyway—since it's being preserved as affordable housing—then this route wouldn’t be an option, and there may be less of a check on landlords, McConnell says.
Still, one of the things the landlord has to submit before getting approval for any conversion is a plan for how the condo or co-op board will be structured “to ensure that the interests of both unit owners and income-restricted tenants are adequately represented,” the policy memo says. We hope that means the affordable tenants wouldn’t be shown the (poor) door.
For the 80-percenters:
In some respects, it seems like the market-rate renters in these buildings have the most to gain, since they get the chance to buy their apartments at a discount. But not so fast, says McConnell. In practice, the “insider prices” offered to market-rate tenants are often not that much less than what your average outside buyer would pay, McConnell says. Landlords have little incentive to give market-rate renters a deal—they can simply opt not to renew their leases, and get them out.
It's unclear exactly how this will work under the new policy, since it seems like 80-percenters would have the right to stay in their apartments, almost like rent-stabilized tenants. “Like most conversions involving entire buildings,” the Times says, “partial conversions would be done under noneviction plans that would give tenants the right to remain in their apartments until they chose to leave voluntarily.”
Indeed, for rent-stabilized tenants, whose leases must be renewed, the discount can sometimes be as much as 40 to 55 percent, McConnell says. However, it varies: in other cases, it can be as little as 5 or 10 percent, as we’ve reported before.
“Since most tenants are not being offered any kind of discount, any kind of low prices in conversions, the right to purchase at an insider price might be so ephemeral, it might just not exist,” McConnell says.
One other consideration, however, would be the added difficulty of getting a mortgage in one of these buildings. Banks are often wary of lending to buyers in buildings where the developer maintains control over a big chunk of apartments, also known as sponsor-owned units. In this case, 20 percent of apartments would be owned by the sponsor, so it might be harder to find a home loan.