If you can’t poison the water…
…then offer amenities to your market-rate tenants and not offer access to the rent regulated tenants. Not surprisingly, this is what’s going on in New York City.
Mr. Reilly’s building, the Windermere West End, a luxury rental, is one of several in the city that prohibit rent-regulated tenants from using new services like gyms, playrooms and rooftop gardens. Some co-op and condo buildings have similar restrictions.
Developers say amenities are a marketing tool to lure high-paying tenants. And they say rent-regulation rules make offering them to such tenants problematical.
It’s no secret that developers/landlords that own multifamily units in Manhattan want as many of the units at or close to market rate as possible (as the article shows, the gap between the average rent-regulated unit and the market rent in Manhattan is substantial – it’s enormous upside). If landlords had the ability to force rent-regulated tenants out, they would. However…
Developers point to rules governing rent-regulated leases as a reason for restrictions. If a developer offers a gym to a rent-regulated tenant and later decides to remove it, the landlord would have to get permission from theDivision of Housing and Community Renewal, the state agency that oversees rent rules. Otherwise, tenants could be entitled to a rent reduction and reinstatement of the service.
Not that I expect sympathy for landlords, but it does put them into a difficult situation. On one hand, in order to attract tenants to their buildings and away from competing buildings, landlords need to provide market-level amenities for their tenants since those amenities are priced into the cost of their rent. However, with respect to rent-regulated units, so long as the tenants remain in places, all future rent increases are determined by the Rent Guidelines Board. Landlords can’t add to the rent based on new amenities. Therefore, the rent regulated tenants are getting two things for free: 1) use of an amenity and 2) the legal right to fight for a rent reduction and/or reinstatement of the service in the event that a landlord decides to remove an amenity without the permission from the DHCR. It becomes a regulatory headache on top of all the other regulatory requirements associated with owning apartments in NYC.
I can’t say I support what the landlords are doing because, in principle, I would rather all residents have equal access to facilities; however, I completely understand it. I would take the same course of action. Giving residents what is effectively a free amenity and then putting them in a position where their rent can be reduced if I decide not to offer it to them? No thanks.