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The new rules on rent-stabilized apartments were intended to increase the number of affordable rentals in the city, so included in the reforms was a measure to make it harder for landlords to convert their rental buildings to condos. This was an important change by lawmakers who anticipated landlords might try to sell off rental buildings where they saw they could no longer increase their profits through destabilization.
As a result, the chance of buying your rental has gone from small to minimal but if conversions do take place, the discounts might be steeper.
The reason: Landlords now need 51 percent of tenants to agree to buy their units in order for it to be converted to a condominium. This is up from 15 percent previously. In addition, tenants who don’t agree to buy will be allowed to stay on.
Converting a building to a condo may be close to impossible but landlords won't stand by and watch their profits shrink. Some say rental tenants may be offered their units well below market sales price by landlords who want to sell up. Sam Himmelstein, a partner at Himmelstein, McConnell, Gribben Donaghue & Joseph (and a Brick Underground sponsor) says if the threatened conversions do take place landlords "will have to lower the prices more than they would have before," but says because of the higher percentage requirements to take the building from rental to condo, "they are probably going to sell more of the apartments [in the building]."
J'Nell Simmons, CEO of the networking site, LandlordsNY, says many of her members are "debating whether to hold or sell." Likewise, Phil Tucker, a partner in the condo and co-op law group at Herrick, Feinstein says he's heard talk of owners lowering prices in order for their rental buildings to convert to condos.
Lawmakers certainly didn't intend for some tenants to get cut-price units while the city lost rental inventory, but that may be an unintended consequence of the rule change. Himmelstein points out "the market-rate tenants in these buildings have more of an incentive to buy" if they are given the chance. That's because market-rate tenants "are more vulnerable, they could be evicted at any time, but the stabilized tenants, if they don’t buy, are there for life." Market-rate tenants may also be in a better financial position to buy.
Himmelstein says "it could lead to some interesting marketing," as landlords try to meet the conversion requirements of having 51 percent of the apartments purchased by tenants in occupancy.
"This does set up the possibility of winners and losers by chance in the market," says Tucker. He says smaller landlords have been hit by a "sledgehammer" by the rent reforms and while the larger institutional landlords might be able to wait it out and see how the market responds, the smaller mom-and-pop outfits are going to have a much tougher time.
He points out there's also the possibility of smaller rental buildings selling up wholesale to institutional landlords with the result being the city loses many of its smaller local operators. "That's a policy question as to what's better for the tenants and potential buyers—if it's a local mom and pop owner or a larger insitutional owner," says Tucker.
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