Testimony: Ben May

The following testimony was read by Ben May, a tenant in Washington Heights whose building was purchased by multi-billion dollar real estate investment trust:

Although I am testifying on behalf of tenants, ironically I find myself actually representing a group of landlords who are not present today. My landlords are John Harrison Streicker and his daughter Margaret Streicker-Porres. Mr. Streicker founded his real estate company, Sentinel, in 1969 and grew it into the $4.5 billion company that it is today. Sentinel owns properties in 28 states, around 10% of which are in the Northeast of the United States. Ms. Streicker-Porres founded Newcastle Realty Services, our management company and one of almost 500 subsidiaries of Sentinel, in 2004. Today Newcastle manages $400m (according to their website) worth of Sentinel's assets in the New York city area. 

When our building was purchased, for under $10 million two years ago, Newcastle promptly took away every preferential rent, and raised the rents on every non-regulated unit in our building substantially. As a result, around a dozen tenants moved out. All of those units were gut renovated and all have been since filled, at prices in most cases double or more than the prior monthly rents. In one particular case, an elderly couple in a rent controlled unit, the rent quadrupled for the new tenants. Our building of around 50 units now has approximately a half dozen one- and two-bedroom units remaining that are rent stabilized, which range in price from $900/mo to just under $2000/mo. 

I sympathize with the plight of the small landlords who have testified here today. I think however that the board may be getting a skewed picture of reality when it is the small landlords that testify and those like my landlords are not present to tell their stories. I ask that the board consider all landlords in New York City, and keep in mind that there are a large number of large, rich, powerful, and intelligent landlords in addition to the small resource-poor ones that have spoken here today. 

Finally, I find it very interesting to hear from landlords today that the only thing the board should consider is the incomes from regulated units. As far as I know, with the exception of condominiums and coops, when landlords buy and sell buildings, they are buying and selling all the units in a building simultaneously. So it seems strange to me to not consider the income of the entire building, rather than individual apartments, since the unit of ownership is the whole building, not just individual apartments within that building. 

I ask that the board consider increases on the low end of the proposed range.

Testimony: Sam Stein, Tenants & Neighbors

On Thursday, June 13th, over 100 tenants testified against the Rent Guidelines Board's unusually high preliminary guidelines (3.25% - 6.25% for one year leases, and 5% - 9.5% for two year leases), as well as their decision to jettison an outer borough hearing. We heard from apartment tenants and SRO tenants, long term residents and relative newcomers, young and old, representing diverse communities of regulated tenants from around the city. Across these differences, there was a unified message: the RGB's proposed increases are way too high. In today's economy, tenants simply cannot afford them. The board must reconsider, and reject these unwarranted increases.

We will be posting the testimonies of a few tenants who spoke out that day, starting with Tenants & Neighbors' Rent Regulation Campaign Coordinator (and rent stabilized tenant) Sam Stein. Want to share your testimony with us? Please email a copy to sstein@tandn.org.

Good morning. Thank you to Chairman Kimmel for holding this hearing today, and to all of you for hearing the testimony of rent stabilized tenants about the proposed guidelines for renewal lease increases. My name is Sam Stein, and I am an organizer at New York State Tenants & Neighbors, a grassroots organization that helps renters preserve at-risk affordable housing and strengthen tenants’ rights in New York. We represent approximately 2500 tenants, most of whom are rent stabilized, almost all of whom have low or moderate incomes, and many of whom are elderly people on fixed incomes. I am also a tenant in a rent stabilized apartment in Queens. 

As a representative of my organization and our members, I have attended every public meeting that this board has held over the past 4 months, and read each report that the board staff has ably produced. Based on the information presented to the board by both staff and invited experts, as well as my experience counseling rent stabilized tenants from around the city, I believe the preliminary guidelines this board has approved are far too high. 

• As the Income and Affordability report showed, tenants are facing dire economic conditions, with unemployment rising again, wages declining, and nearly a third of rent stabilized tenants city-wide putting half their income towards rent.  

• As the Income and Expense study reported, landlord’s net operating incomes have risen for the 7^th consecutive year. 

• As the Mortgage Survey showed, the market for rent stabilized buildings remains strong, even in light of a national housing crisis. 

• According the RGB’s “Changes” report, at least 9,499 apartments left rent stabilization last year. That is a staggering number: it’s more New Yorkers than complained about bed bugs at the peak of that crisis; it’s more New Yorkers than were killed by cigarettes last year; it’s more New Yorkers than are on the organ donor waiting lists. It’s an ongoing crisis in this city, and one that the RGB must take into account as it considers an abnormally high preliminary range of rent increases. 

I’d like to address the public members, because how you choose to vote is of the utmost importance. Mr. Kimmel, Ms. Levy-Odom, Ms. Moore, Ms. Shine, and Mr. Wenk: on April 30^th, you voted for a preliminary guideline of 3.25% to 6.25% for one-year leases, and 5% to 9.5% for two-year leases. We believe this entire range is above the level many tenants can afford, and beyond the need of most landlords. Additionally, the proposed guidelines under consideration today would send many apartments over the vacancy decontrol threshold, setting them up to leave rent stabilization when the current tenant leaves. This would impact not just the rent stabilized tenants we and our allied organizations represent; it would also disrupt the stability and change the character of the these tenants' communities, and would have broader implications for our city as a whole. As you are representatives of the public- of the New Yorkers who care deeply about their neighbors and about the communities in which they live- I would like to ask you each, personally, to vote for a significantly lower adjustment this year than what was approved at the preliminary vote. Additionally, if a proviso targeting lower rent apartments is once again introduced this year, I ask you to reject it. As data from the Community Service Society has shown time and again, these provisos disproportionately fall on the backs of the poorest, oldest and most long-term of rent stabilized tenants. The tenants we represent, and many others, simply cannot afford these kinds of increases. 

We urge the board to consider holding rents still in 2013. If you determine that this is not possible, we encourage the board to consider the lowest possible rent increase, and ask you to remember the tenants who testify here today, and the hundreds of thousands more who this rent increase would affect.

Analysis: Income & Expense study and the Price Index of Operating Costs

Last week, the Rent Guidelines Board released two studies on economic conditions for landlords: the Income and Expense (I&E) study and the Price Index of Operating Costs (PIOC).

The I&E study is culled from documents submitted by landlords to the NYC Department of Finance in the form of Real Property Incomeand Expense (RPIE) statements. The data in this study is therefore considered to be a fairly reliable and accurate accounting of landlords incomes- from rents and other sources- and expenses in the form of operations and maintenance costs. Looking at the two together yields the “Net Operating Income”, a marker of how much money landlords are making off of their property in a year. The study presents both a snapshot of this past year’s income and expense balance (the “cross-sectional analysis”), as well as a year-to-year comparison (the “longitudinal analysis”).

The Price Index of Operating Costs (PIOC) is a figure the RGB staff creates each year based on a “basket of goods and services used in the operation and maintenance of rent stabilized apartment buildings.” This “basket” is similar to those used by the bureau of labor statistics to calculate the generalized cost of living adjustment, but it is particular to the economics of rent stabilized building ownership. The staff collects data on items like oil and gas costs, property taxes, insurance, and more, and weighs them in their sample relative to their importance as a percentage of total operating and maintenance expenses. The result of the PIOC is a single percentage, which attempts to show the change in prices for items used to operate a building in New York City.

In many ways, the I&E is the superior measure of landlord’s costs because it covers both incomes and expenses, it is based on a large and fairly reliable data set, and it measures not just the prices of goods but the exchanges in goods and services that landlords actually made. While the PIOC measures prices, it does not exactly measure costs. Landlords still have a degree of choice in the operations of their building, and can choose the most cost-efficient mechanisms options available. The I&E measures the costs landlords actually took on, not just the prices of the goods available to them.

The 2013 Income and Expense report, which is based on 2011 filings, depicts a thriving market for landlords. Rental income has risen 4.4% from the previous year, and net operating incomes (incomes minus expenses) grew 5.6%. This is the 7^th consecutive year of rising NOI, in a period of severe economic recession. Not only are rent stabilized landlords doing well in an otherwise sick economy, but their profits have risen dramatically over time. In inflation adjusted dollars, NOI has risen 21.6% since 1990. NOI in Brooklyn has sky-rocketed over the same period, rising 59%. In short, with income rising faster than expenses, rent stabilized building owners continue to realize a healthy profit, while many tenants struggle through a punishing economy.

The Income and Expense report also depicts a growing trend: preferential rents. While rent stabilization is generally understood to result in below market rents, the opposite is actually the case in a growing portion of the city. For the 4^th consecutive year, the “collectible rent” in rent stabilized apartments is lower than the “legal regulated rent”. The most likely reason for this trend (depicted below) is that after years of RGB rent increases, rent stabilized rents have surpassed market levels in many neighborhoods, and landlords are offering apartments at lower “preferential rents.” This growing portion of landlords needs no rent increase from the RGB to meet its expenses; in fact, they are already shorting themselves a significant share of their allowable rents. This topsy-turvy market, in which regulated landlords are voluntarily lowering actual rents while theoretical rents rise, is reason enough to question the inevitability of annual RGB rent increases.

The declining share of registered rents collected suggests that
ever-rising regulated rents are outpacing market forces.
(Trend oval added by RGBlog.)

The RGB’s 2013 Price Index of Operating Costs presents a picture of rising prices for goods purchased by landlords. The PIOC inched up 5.9% this year, due largely to increases both in generalized fuel costs and in the amount of fuel landlords used in this relatively cold and rainy winter. Insurance costs also rose, possibly as a result of hurricane Sandy.

It’s important to note, however, that the PIOC is a measure of prices, not costs per se. While prices and costs are of course related, there are many things a landlord, just like any business owner or market consumer, can do to keep costs low as prices rise. Nonprofit building owners all over the city have found ways to keep costs as low as possible, while only raising rents as a last resort. Often these cost efficiencies also result in environmental benefits, and are subsidized by the state, providing even lower costs.

If you look closely at the data, there are two factors that influence the PIOC far more than others: fuel costs and taxes. While these are facts of life for property owners everywhere, they are not immutable expenses. Fuel costs can be brought down with energy efficiencies, many of which can be paid for through NYSERDA grants and other public funds (as well as MCI rent increases). Tax abatements and exemptions are also available to landlords through the J-51 program, which paid out over a quarter billion dollars in tax credits last year.

While prices may be rising, we have to ask: what are landlords doing to keep costs low? The PIOC is a measure of prices, but it is just one factor in consideration for the Rent Guidelines Board.