The New York Court of Appeals today dealt another blow to Tishman Speyer Properties and BlackRock Inc. in the Stuyvesant Town-Peter Cooper Village fiasco. The Court ruled the firms are liable for damages to tenants for deregulating their rent while continuing to claim tax credits. Last week, I mentioned what a disaster the venture to convert the large Manhattan housing complex has turned out to be. Today's ruling makes matters even worse for the fate of the project.
The Wall Street Journal provides some detail. It says that the court ruled that the new ownership
converted rent-regulated units while receiving tax benefits from New York City. The ruling, which sets the stage for potential refunds and damages to tenants, is a major defeat for the ownership group but a victory for the tens of thousands of New York City residents living in rent-regulated apartments.
So now, on top of falling rents and lackluster demand, Tishman and Blackrock will be on the hook for paying tenants damages. And the ruling is final, as it cannot be appealed. Needless to say, unless the venture receives some incredibly positive surprise news, then the deal is likely doomed. In fact, according to WSJ, the even the owners agree:
The defendants have predicted "dire financial consequences ... for themselves and the New York City real estate industry" from the ruling, the court stated.
But this ruling could potentially have consequences for the broader rent-stabilized market in New York. The WSJ explains:
While the ruling didn't determine whether the prior overcharging would be refunded to tenants, the decision could affect numerous Big Apple landlords who would be forced to restabilize or lower rents, said Alexander Schmidt, a partner representing the tenants with Wolf Haldenstein Adler Freeman & Herz LLP.
I followed up with Schmidt to better understand what the ruling means for everybody else. He explained that the Real Estate Board of New York said that there could be as many as 4,000 to 6,000 rentals that could be affected. If a landlord is receiving the tax benefits of having rent stabilized apartments, but has deregulated those apartments, then the tenants may be eligible to receive damages.
Just what those renters might get wasn't determined by the Appeals court, but will be considered by a lower court. The remedy would plausibly include a reimbursement or refund to give tenants back the difference for what the rent stabilized price should have been. Landlords might also have to lower the rents back to the stabilized rates going forward.