Illegal hotel operator is gone — but so are rent-regulated units

Linda Rosenthal wants an investigation of the rents being charged for former illegal hotel units.

Linda Rosenthal wants an investigation of the rents being charged for former illegal hotel units.

By SAM SPOKONY  |  Even though one of the city’s illegal hotel kingpins has now been shut down, housing advocates say that the resulting loss of rent-stabilized apartments is still a major problem.

A year after the city filed a lawsuit against Smart Apartments — also known as Hotel Toshi — for violating a state law that bans tourist rentals of less than 30 days in residential apartments, Mayor Bloomberg announced on Nov. 19 that a settlement had been reached.

Smart Apartments will pay a $1 million penalty to the city, and is now permanently prevented from doing business in the Big Apple, according to a statement released that day.

The city’s lawsuit cited about 50 buildings in Manhattan and Brooklyn that contained units used by Smart Apartments as illegal hotel rooms. Seventeen of those buildings are located in the Downtown Manhattan area — 14th St. and below — according to a list released by the Mayor’s Office.

This newspaper learned last week that, in at least one of those buildings, apartments that were formerly rent-stabilized — and which were, for years, used by Smart Apartments as illegal hotel units — are now being leased by the landlord for market rate rents.

“Our landlord was completely in cahoots with [Smart Apartments],” said a resident of 79 Clinton St., one of the buildings cited in the lawsuit, who requested anonymity for fear of reprisal from the landlord. “Before [Smart Apartments] came in, the whole building was rent-stabilized,” the tenant said. “Then, they started using five of the apartments as illegal hotel rooms. And now that the illegal hotels are gone, we know that all those units now have tenants who are paying market rate.”

Gilman Management Corporation, the owner of 79 Clinton St., did not respond to a request for comment.

Housing advocates believe that landlords are now capitalizing off their association with Smart Apartments — which allowed them to use residential units for years without listing a legal tenant — by illegally deregulating apartments that were once rent-stabilized.

Those advocates are also criticizing the state’s department of Homes and Community Renewal — which oversees rent regulation — for not launching an investigation into these allegedly illegal practices by the landlords.

“What we’re seeing is landlords using the vagueness of H.C.R. regulations to install illegal hotels in rent-stabilized units,” said Tom Cayler, who leads the West Side Neighborhood Alliance’s Illegal Hotel Committee. “And if the landlords get caught, it’s actually a win-win situation for them, because even though they no longer have an illegal hotel unit, they now have a free market unit. And H.C.R. is doing nothing to rectify it. They have no interest, as far as I can see, in re-regulating units that were used for illegal hotels.”

Cayler added that he believes many units across the city have been unlawfully deregulated as a result of illegal hotel use, and that the full impact of this practice will not be revealed until a thorough investigation is conducted.

H.C.R. did not respond to a request for comment.

State Assemblymember Linda Rosenthal, whose district covers parts of Hell’s Kitchen and the Upper West Side, has also been pushing H.C.R. to investigate this issue, after learning that 89 rent-regulated apartments in a W. 73rd St. building may have been unlawfully deregulated through illegal hotel use.

In a July 2012 letter to H.C.R., Rosenthal asked the state agency to examine the rent histories of each unit in the building, to determine which had been illegally deregulated and to “aggressively enforce” rent regulations for those units.

Rosenthal followed that up with another letter this past January, but never got a response from H.C.R. in writing, she said.

Instead, an H.C.R. representative reportedly told her that investigating the allegedly illegal deregulations was not a priority for the agency at that time.

“I thought it was such a wasted opportunity,” said Rosenthal, speaking last week. “When all those units suddenly became deregulated after the illegal hotel operation was gone, it was a perfect time for [H.C.R.] to step in and recapture them. There are just too many New Yorkers in need of affordable housing for this to be overlooked.”

Rosenthal continued to call on H.C.R. to launch an investigation, especially now that Smart Apartments has officially been shut down.

“I would love for H.C.R. to take a stronger stand on this now,” she said. “It’s such a simple case to make, but it just requires some effort.”

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14 Responses to Illegal hotel operator is gone — but so are rent-regulated units

  1. Georgette Fleischer

    Thank you for this helpful and informative article. Little Italy has been decimated of affordable housing by this black market activity of illegal hotel rentals, in some cases with the collusion of landlords, and many of us wonder when our electeds will step forward to do something about it.

    Community Board 2 held a special meeting on November 4th about the fate of the Elizabeth Street Garden, one of the precious few open green spaces in our area that is being eyed for affordable senior housing by Councilmember Chin. If the illegal hotel rentals were ended we would have a treasure trove of residential units that could be re-purposed, to their original intended purpose: affordable housing. Ground-floor units could be offered on a first-rights basis to the elderly who may have trouble with stairs.

    I have not heard that adage in awhile that seems ready made for this situation: Housing for People, Not for Profit.

  2. Good. The more units get pulled out of regulation, the better off the city is. It's too bad Pataki didn't crush rent regulation when he could. But then again, that's not what the landlords wanted.

    • i couldn't agree with you more! Get rid of this scam and the freeloaders that hoard them for generations.. They are ruining it for the middle income people in NYC just as much as the Billionaires.

    • You market-rent-paying suckers sound a tad jealous. Poor babies.

      Constantly spiteful of all those who great a break in life, but never complaining about the profiteers on the supply-end side.

      As if an old-timer getting affordable rent affects your rent in the slightest, when sad ones like you fail to see it is the landlord's greed that is raising your rent.

  3. But you fail to understand something. Middle income people in NYC won't be able to afford to live
    in those apartments either if the landlords have their way about it. Besides which, it's hardly a scam
    to get consideration with rent if someone has lived in an apartment for forty years and has put up with
    things you wouldn't believe during that time.

  4. The 89 apartments are now occupied by market-rate tenants happy to be able to rent a place in NYC, and undoubtedly, the pressure from those tenants to maintain basic services will ensure that the the landlord maintains the building, and the existing rent regulated tenants will benefit from the extra money kicked in.

    Had these been rent-regulated, it is likely that the landlord would have condo-ed the building — depriving ALL of us the opportunity to rent an apartment at any price.

    It seems pointless to re-regulate these apartments — it would be a massive windfall for the existing tenants, and would do absolutely nothing to improve housing affordability. It would also enourage lls to warehouse apartments. It would get Linda Rosenthal more locked in votes, which is probably why she's encouraging it.

    Let's face it — we've got more people who want to live here than there are apartments, and right now, existing tenants often have insanely good deals on more space than they actually need. This benefits the politicians and the existing tenants who pay $1000 for a 2-br. but does nothing for the rest of us.

  5. Here's a 38 year old rent controlled tenant paying $542 for a 4 bedroom 1600 sq ft coop just off of central park west. http://www.elliman.com/new-york-city/37-west-93-s

    We'd all take that if we could get it, but we can't, since most of our grandparents didn't rent apartments prior to 1971.

    The fact is that politicians such as Ms. Rosenthal are talking out of both sides of their mouth. They claim to want 'affordable housing', but they also support landmarking (which makes housing less affordable), restrictive zoning (which forces developers to pay off politicians to get variances), and rent regulations, which allow certain lucky tenants to get a lifetime lease without regard to earning capacity or alternative assets.

    The 93 new tenants picked this place over whatever else they could find, so, in effect, they are somewhat happy. If they aren't, they can leave. AT a minimum, the rest of us get the increased tax revenue paid by the higher rent roll, which benefits the entire city far more than rent regulations do.

    • If a market rate renter doesn't like how the LL treats them, or how the building is maintained, they can do what regulated tenants can't. They can just leave, and find another market rate apartment. Their already paying market rent, so they don't get any discount for staying. So the LLs have to treat them well, or they'll lose a tenant (who isn't getting a discount) and likely lose at least a month's rent before they can find another tenant (and likely have to put money into the unit to make it rentable.)

      It's the stabilized renters who have to slug it out with the LLs, because they can't get their ridiculously discounted rent anywhere else.

      • Now, I'm even more sad for market rate renters. I mean, who wants to move every year or 2. It must be horrible for the kids.

        I'm sure that the LL cares far less about losing a month or 2 in rent, peanuts to them, if it keeps the next tenant's mouth shut. You are a fool if can't see that the power is in the hands of the suppliers, but not the demanders.

        • Then if you don't want to move every few years, buy something.

          One of the big problems with the NYC real estate market is this concept the a rental apartment should be a long term home. In the rest of the country, people rent until they figure out where they want to live, then buy a property there. NYC with it's asinine rent laws turned what should be short term housing into a new form of pseudo-ownership for tenants. This was a huge mistake.

          And, no, landlords never want to lose market rate tenants, and have vacancies, it end up being very expensive for them, especially if it happens in a lot of units.

  6. Here's a 38 year old rent controlled tenant paying $542 for a 4 bedroom 1600 sq ft coop just off of central park west. http://www.elliman.com/new-york-city/37-west-93-s

    We'd all take that if we could get it, but we can't, since most of our grandparents didn't rent apartments prior to 1971.

    The fact is that politicians such as Ms. Rosenthal are talking out of both sides of their mouth. They claim to want 'affordable housing', but they also support landmarking (which makes housing less affordable), restrictive zoning (which forces developers to pay off politicians to get variances), and rent regulations, which allow certain lucky tenants to get a lifetime lease without regard to earning capacity or alternative assets.

    The 93 new tenants picked this place over whatever else they could find, so, in effect, they are somewhat happy. If they aren't, they can leave. AT a minimum, the rest of us get the increased tax revenue paid by the higher rent roll, which benefits the entire city far more than rent regulations do.

    • Please tell us that you think this 38yr old is the rule, not an extreme exception, to rent laws. I bet you could find a needle in a haystack, too.

      • Granted, that that's an extreme example, but there's a substantial body of research that shows that rent regulations south of 96th street produce under-used apartments (1-2 people in a 2-br) at a greater than $1000/month discount to market value (i.e. $3-4000 per year in forgone tax revenue) and that the beneficiaries are whiter and richer than the city as a whole.

        This process forces the market -rate tenants into outlying areas and long commutes. Adding 93 housing units near many employers and rentable by people who have jobs is a good thing for the city.

  7. Fascinating that even with the undisputed reality of obscene income inequality that anyone can argue for yet more decreases in protections for working, middle and poor.
    The middle class can no longer afford to align itself with the interests of the wealthy. As it dwindles into a smaller and smaller sector it is long past time to make common cause with the interests of the majority of people who work for a living (or would like to).
    Rent regulations help a neighborhood maintain its stability, assure tenants of the right to renew their lease (only a judge can evict you), protect you (yes even you) if you become disabled or if your income drops (you can apply to get help with rent), allow you to organize a tenant association without fear of eviction, and insure that you can request a rent reduction if the owner cuts services. It's collective bargaining for renters and without it all tenants are made more vulnerable.

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