If old buildings have outdated, unsafe electrical systems, why don’t landlords upgrade them?
Because some don’t have $1 million or more on hand, or the ability to borrow it.
In a piece about an increase in Bronx apartment building fires caused by faulty wiring, Gothamist noted that “owners can apply for rent increases through the state’s Major Capital Improvements program if they demonstrate they made significant upgrades to the full building electrical system.”
But rent increases for MCI’s were capped at 2 percent by the 2019 Housing Stability and Tenant Protection Act. That’s not always enough to finance such a project.
The New York Apartment Association walked me through what it would take to rewire a 75-unit Bronx building including a new service entrance, electrical mains, risers, common areas, and panels in each apartment.
The cost, about $1.5 million, is recoverable via rent hikes over 150 months. That’s $10,000 per month, or $133 per apartment. But landlords aren’t allowed to jack up the rents that much right away.
Under the 2019 rent law, the maximum increase for an MCI is 2 percent per year, which for a $1,000-a-month unit is just $20. To get to $133 would take seven years (or three years for a $2,500-a-month unit).
Eventually, the building-wide rent increase would reach the $10,000 limit. But the monthly payment for a 15-year, $1.5 million loan would be about $12,700. Even when all the rent hikes were phased in, they still wouldn’t cover the loan payments.
Increases to base rent by the Rent Guidelines Board would make those MCI increases bigger. After a while, they might be enough to cover the loan payments.
“But all this is somewhat moot,” an NYAA spokesperson said. “The buildings in distress, and at risk of fires, have no access to capital. The banks won’t lend them the money and their buildings lack reserves.”
Under the old rent law, MCI rent hikes were capped at 6 percent or 15 percent. Yet even elected officials aware of the risks in these old buildings seem to draw no connection to the 2019 rent law. Nor do they even consider the idea that tenants should pay enough rent to fund new wiring.
Instead, politicians reflexively look to the government for a solution.
“Can we look at ourselves in the mirror and confidently say that we are maximizing our resources and doing everything possible to address these fatal trends?” Council member Pierina Sanchez said, according to Gothamist.
What we’re thinking about: The Mamdani administration is working on a plan to reduce buildings’ insurance premiums, yet is urging tenants to report violations, which can increase those premiums.
Insurance companies review property records kept by city agencies to evaluate risk when issuing or renewing policies.
“Open violations can have a negative impact on property insurance, resulting in higher premiums, potential coverage gaps, or even policy cancellation,” property insurance broker Stu Cohen warned his clients this week.
Cohen said owners and property managers should check HPD and the Building Information System every six months. Clearing violations can take a while, by which time it might be too late to avoid a cancellation or rate hike.
Some violations, such as for lead-based paint, mold and pests, require paper certifications to be notarized and submitted to the city by the deadline listed on the violation notice.
Mamdani’s insurance pilot program, meanwhile, may have an extremely limited impact. It aims to issue policies to only 20,000 of the city’s 3.7 million homes next year and just 100,000 in 2030. Send your thoughts to eengquist@therealdeal.com.
A thing we’ve learned: Getting a copy of filed plans from the Department of Buildings takes 14 steps and requires visiting the agency in person and waiting in line — twice.
Elsewhere…
Longtime real estate lawyer Stuart Saft is among many experts aghast at the mechanism that state officials came up with to collect the new pied-à-terre tax from co-op units worth $5 million or more.
Co-op boards will have to collect the tax from shareholders who the city or state thinks owe it. “This means that boards could be required to fund litigation to fight with their shareholders to get the money paid, and New York City can sue the co-op if [city officials] do not believe that the co-op has acted aggressively to collect it,” the attorney said.
Unpaid tax would result in a lien on the building.
“I cannot imagine how this is going to work,” Saft added. “The city will be guessing as to who owes the tax, how much the tax will be, and how it is going to be collected. This is going to result in a great deal of litigation between boards and shareholders.”
Saft predicts the tax will be assessed against some owners who have moved out of the state but kept their New York homes not just for occasional visits but because selling would trigger a huge capital gains tax. Some of these owners may be house-rich, cash-poor retirees unable to pay the annual levy, he said.
Closing time
Residential: The most expensive residential sale recorded Thursday was $36.3 million for a 4,878-square-foot, sponsor-sale condominium unit at 50 West 66th Street in Lincoln Square. Janice Chang with Douglas Elliman had the listing.
Commercial: The most expensive commercial transaction was two properties sold by Cohen Brothers Realty to Empire State Realty Trust for a combined $113.6 million: 112-120 34th Street for $52.3 million and 1400 Broadway for $61.3 million.
New to the Market: In Chelsea, the highest price for a residential property hitting the market was $16.5 million for a 3,141-square-foot condominium unit at 500 West 18th Street. CORE’s Shaun Osher and Ariana Mace have the listing.
Breaking Ground: The largest new building permit filed was for a proposed 29,318-square-foot, 27-unit project at 611 West 181st Street in Washington Heights. De-Jan Lu of DJLU Architect filed the permit on behalf of Moses Kupferstein.
— Matthew Elo
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