25,000 NYC tenants fight for their homes

The real estate crisis is far from over. Speculators who pulled together the biggest real estate deal ever done in the United States, who had hoped to double and even triple rents, now face default in New York’s sinking market. With the next decision day in mid-October, the following consequences are possible:

Some 25,000 tenants in 7,000 rent-regulated apartments in one housing development may face legal evictions.

Tenant protesters line the sidewalk on New York’s First Avenue in May 23, 2007. WW photo: G. Dunkel

Pension plans for state workers in California and Florida, invested in the real-estate deal, have already taken a hit and could be hurt more.

A key battle between tenants citywide and New York’s powerful landlords, already underway in the courts, has the potential of spilling into the streets.

The impending default of the Stuyvesant Town and Peter Cooper Village apartment complex must be viewed in the context of both the national collapse of the housing bubble and the struggle between landlords and tenants in New York City.

Built in 1947 by the Metropolitan Life Insurance Co. and held by them until 2006, STPC provided adequate apartments at moderate rents for decades, mainly to white- and blue-collar workers in stable jobs. STPC benefited from tax breaks from the city, in return for keeping the rents within limits. With the explosion in New York City rents and real-estate prices, Met Life finally put STPC on the market.

By promising a 20-percent return on investments, real-estate developer Tishman Speyer managed to put together a deal to buy Stuyvesant Town and Peter Cooper Village for $5.4 billion three years ago. This apartment complex’s 56 buildings with 11,277 apartments are located on 80 acres between 14th and 23rd Streets east of First Avenue on Manhattan’s east side. Tishman Speyer also put aside a reserve fund of $900 million.

Tishman Speyer, who some call “vulture capitalists,” put up only $56 million of its own money though it remained the managing partner. It used other people’s money.

Rents on these regulated apartments can be legally increased within limits when they turn over and when capital improvements are done on the property, and at regular intervals. Should the rent go above $2,000 per month and turn over, however, the landlord can then charge whatever the market will bear. Currently de-regulated two-bedroom Stuyvesant Town apartments are advertised starting at $3,304.

Tishman Speyer had planned to drive thousands of people from their homes and score big by doubling and even tripling the rent on these vacant apartments. Then the real-estate bubble burst, unemployment soared in New York and apartment rents dropped.

RealPoint LLC, a credit rating agency, estimates that STPC is now worth only $2.13 billion (realpoint.com). More than 60 percent of its apartments are still rent regulated. The economic slowdown and layoffs means that even market-rate tenants are asking for discounts—a few months rent-free, or a significant reduction in their rent, short-term leases for students and so on. According to the Deal Book blog of the Sept. 9 New York Times, “the existing rents cover less than half of the annual debt service on the loans.”

Some reports give the end of December as the drop-dead date for Tishman Speyer. Other industry analysts think the real-estate developer can hold out until February before defaulting on the deal.

Calpers, the pension fund for California public employees, a similar pension fund in Florida and a number of other smaller pension funds all have a stake in Stuyvesant Town and Peter Cooper Village. Pensioners are going to suffer because the managers of their retirement funds got caught up in the real estate bubble.

Will tenants fight back?

Most tenants in Stuyvesant Town and Peter Cooper Village are white–and blue-collar workers and professionals. Many are office workers, teachers, nurses and interns, and Teamsters, iron workers, elevator erectors, painters and so on. When tenants tried to collectively buy STPC in 2006, their main investment came from union pension funds. Tishman Speyer outdid the tenants’ bid of $4 billion.

If the mortgages on any rental property are foreclosed, leases legally can be rescinded and tenants evicted. Many people consider mass eviction an unlikely scenario at STPC. Right now it would mean emptying 7,000 apartments when there are not that many people looking who could afford market prices. While the apartments are unoccupied, they would collect no rent at all.

There would also be the practical and political problems of evicting 25,000 people in a hurry.

But even more important is that the tenants in Stuyvesant Town and Peter Cooper Village are well organized and tied to a broader tenant coalition throughout New York.

Currently, the tenants are waging a very sharp legal challenge to Tishman Speyer and the previous landlord, Met Life. Both the current and former owner accepted tax benefits known as J-51. A lower court unanimously ruled that by accepting these benefits, the landlord was required to keep the apartments regulated.

If this ruling is upheld by New York state’s highest court, Tishman Speyer and Met Life would have to refund hundreds of millions of dollars in rent overpayments and re-regulate thousands of apartments. A decision is expected by mid October.

Many other landlords in New York City also deregulated apartments under dubious conditions and may face the same challenge.

But the tenants don’t just rely on the courts and politicians. Right around the time of the sale, when rumors of mass evictions were swirling around the city, a broad coalition of tenant groups called a mass demonstration at Stuyvesant Town and Peter Cooper Village. Tenant groups from Manhattan communities like the Lower East Side, Chinatown and Harlem, came out in force to defend all tenants under attack by landlords. Tenant groups from Brooklyn and the Bronx, unions, homeless advocates and AIDS groups, who represent people with severe housing needs, also came out in large numbers.

A majority of tenants with regulated rents in the United States live in New York City. Ever since rent regulations were established here nearly 70 years ago, landlords have fought to have them abolished. Tenants have organized to defend and strengthen them. The tenants at Stuyvesant Town and Peter Cooper Village have shown they will fight to keep their homes and that the city’s tenants are with them.