April 30, 2006

At Manhattan House, the first and perhaps the grandest white brick building on the Upper East Side, every day seems to be moving day. One by one, scores of residents, most of them affluent and many of them elderly, are packing up their things and moving on — and not willingly. 

The building, a block-square rental complex with five 20-story towers, where Grace Kelly and Benny Goodman once rented, is being turned into a condominium in the most expensive rental-to-condo conversion to date, valued at perhaps $1.1 billion, according to the proposed offering plan. It is one of more than 60 pending condominium conversion projects in Manhattan listed by the New York State attorney general's office, involving more than 7,000 condominium units. These projects, the first large wave of condominium conversions in New York in 20 years, are cutting into the supply of rental apartments, driving rents higher, and ushering in a wrenching period of uncertainty for many existing tenants. In the 1980's, tenants facing condo conversion banded together and negotiated large discounts from developers on the sale prices of their individual apartments, and became condo owners. But now, with rent stabilization laws weakened, landlords are taking a tougher stand, evicting market-rate tenants and offering only tiny discounts on the sale prices to rent-stabilized tenants, who are allowed to continue renting after a conversion.

Tenants say they are being rushed out so that the new purchasers can sell the apartments at the highest possible prices, and then pay off their mortgages.
"People are so frightened in this building," said Gail Amsterdam, who lives in Manhattan House and is trying to keep her mother and uncle in their market-rate apartments when their leases expire. "I don't understand why nobody is standing up for elderly people who cannot stand up for themselves." Landlords defend the changes by saying that they are obeying the law, and that they have the right to convert buildings. 

"If people are unhappy with the change, I can't help that," said N. Richard Kalikow, one of the buyers of Manhattan House. "They have rights. We have rights. Everybody is going to pursue their rights. This is a free country." Although soaring condo prices feature prominently in dinner conversation, New York remains a renter city. Three-quarters of all households in Manhattan rent. About half of the apartments being converted are in a handful of large buildings. Among them are Manhattan House, on East 66th Street and Second Avenue with 583 apartments; the 50-story Sheffield with 852 apartments on West 57th Street; River Terrace with 410 apartments on East 72nd Street and the East River; and 25 Broad Street, a landmark former office tower in the financial district, with 345 apartments. Many of these buildings were sold last year, some at record prices.

The rights of market-rate tenants in conversions is to some extent uncharted territory, despite a law adopted in the 1980's devised to give both market-rate and stabilized tenants bargaining power in conversions.  Although market-rate tenants in condo conversions are not usually entitled to renew their leases, owners are not permitted to empty buildings of market-rate tenants before a conversion plan is filed, or to evict or impose exorbitant rent increases on them after the conversion take place. But, owners say, they are allowed to evict market-rate tenants during the time a conversion plan works its way through the approval process. Tenant lawyers are challenging this interpretation in a series of eviction cases pending in Housing Court. At the same time, tenants are lobbying elected officials for help.

At Manhattan House, two developers, Mr. Kalikow and Jeremiah O'Connor, paid $623 million, an average of more than $1 million per apartment, and obtained more than $750 million in financing to buy and upgrade the building, and cover their conversion costs. The price was the highest paid for a Manhattan rental complex, according to brokers. But Mr. Kalikow said the price was not too high, and he disputed contentions by tenants that the project's high cost put him under pressure to harass tenants and empty the building. Mr. Kalikow said that even if the broader market remained flat, he expected prices at Manhattan House to rise over time because of the shortage of high-quality condominiums on the East Side. Their filings with the attorney general show that they expect to receive about $1,500 a square foot for the condominiums, or about $1.5 million for a typical one-bedroom unit, though an analysis by Standard & Poor's estimated that prices will average about 20 percent less.He plans to refurbish the building, restoring the casement windows that were included in the original modernist design, and installing central air conditioning in each apartment, he said. Although Mr. Kalikow said he converted more than 7,000 apartments during the 1980's, this is his first project during the current wave of conversions.

In the last few months, more than 60 tenants have moved out, and according to a list circulated by tenants in mid-April, another 16 were to move out by the end of April. Four others were being vacated after renters had died.  Most days, boxes and sofas are wheeled down to trucks backed into loading bays, next to the tulips and daffodils blooming in the garden on East 65th Street near Second Avenue. Passenger elevators are often backed up, tenants say, as the freight elevators are overloaded. "Are you staying or leaving?" one elderly man asked another in the elevator, and received a resigned shrug in response. Eve W. Paul, a lawyer and former general counsel to the Planned Parenthood Federation of America, said her $4,450-a-month apartment has a lease that runs out in two months, and she is troubled by the idea of moving because the apartment is a link to her late husband, who developed a brain tumor after they moved in four years ago, and then died. "We did everything together," said Ms. Paul, who is in her 70's. "It feels very wrenching to have to leave all of the things that we chose together."

Tenants forced to find new places are facing a shortage of good rentals. When Peggy Johnson, an advertising executive, moved out of the Sheffield on West 57th Street last month, she had to pay $200 more a month for an apartment with "60 percent of the space," she said. The vacancy rate in Manhattan rental apartments fell from a peak of 3.8 percent in 2002, to 1.5 percent last year, and then fell again in March to 0.75 percent, according to figures calculated by Citi Habitats."It is a great time to be a landlord," said Jack Levy, senior managing director of Rose Associates, which manages 30,000 apartments. Rents had lagged in the last few years, even as condominium prices climbed higher and higher. Builders turned planned rental projects into condominiums and even long-term owners of rental buildings, like the New York Life Insurance Company, which built Manhattan House in 1951 and owned it until last year, decided to sell at the high prices offered by condo-converters. Some tenants are refusing to look for new places and are fighting instead. At Manhattan House, several hundred tenants put money into a legal fund, and have hired David Rozenholc, a tenant lawyer who specializes in battling developers on behalf of holdout tenants.

Samuel J. Himmelstein and Kevin R. McConnell, the lawyers for tenants at the Sheffield, cited legislative memos from the 1980's that suggest that the Legislature intended to protect market-rate tenants, along with other tenants throughout the conversion process." They have depopulated the building by telling people you have to move," said Nancy Rovelli, an insurance broker who heads the tenants association at the Sheffield and is facing an eviction hearing in May. Kent Swig, a principal in the group that purchased the Sheffield for $418 million and 25 Broad Street for more than $200 million, both last year, declined to discuss any pending litigation. He said he would like to negotiate with the tenants, but under state law he was barred from doing so until a conversion plan was approved." The law puts everybody at a disadvantage because it prevents communication," he said. 

At Manhattan House, Patricia Lynch, a writer and former television news producer, thought she would be protected during a conversion because she had lived in a rent-stabilized apartment in the building since 1975. She pays about $2,000 a month for a two-bedroom unit with a fireplace and a small balcony. But after the building was sold, Ms. Lynch received a notice that her lease would not be renewed. The new building owners said that she was not entitled to a rent-stabilized lease because she lived in Southampton, where she has a country house and keeps her car, rather than in the Manhattan apartment, which she contends is her main residence. She has put together a thick packet of documents — voting, tax and jury records and even a letter from the Southampton assessor — to support her contention that her primary residence was at Manhattan House. She also said that other tenants had received similar notices. "This is a really stupid allegation but stupidity isn't what it's about," she said. "It's about malicious harassment that will cost me money to defend."  The landlord, Mr. Kalikow, said that he was acting within his rights.

Ms. Amsterdam, who runs an executive search business and whose own Manhattan House apartment is rent-stabilized, found that the developer for the conversion in her building has provided no special consideration for elderly tenants.  Her mother, Elizabeth, 89, and her uncle, Martin Burwick, 96, moved into separate market-rate apartments in the building, so they could be near her. Her mother received a notice offering her a lease renewal at $4,400 per month, 63 percent above her rent of $2,700, what she said was well above market-rate rents for apartments in the neighborhood.  In order to stay, she would have to agree to be relocated to another apartment in the building on 15 days notice. Her daughter has compiled a thick file of letters to elected officials, but few answers. Her uncle, Mr. Burwick, who has round-the-clock nursing care paid for by Medicaid, was not offered a lease extension. He has been told that he must leave his apartment by June 30. Mr. Kalikow said he was not aware of the case. Ms. Amsterdam plans to fight any move to evict her uncle. But in the conflict between market forces and sentimental attachment, Ms. Paul has surrendered to the market. Last week she told her neighbors that she was resigning from the tenants group and would soon be moving out.

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