Preferential Rents Ripped Away, Tenants Confront Steep Rent Hikes

When Natasha Creese received her rent renewal lease in the mail last August, she just knew there had to be a mistake.

The landlord was upping the rent for the three-bedroom Crown Heights apartment she has shared with family members for the past 27 years by $1,112 a monthfor a one-year lease, or $1,148 a month for a two-year lease. She currently pays $991 a month plus utilities.

“I thought someone was losing their mind. I thought someone was smoking something when they made my stuff out,” said Creese, a 39-year-old, self-employed single mother who lives at 285 Schenectady Ave., a 35-unit building at the corner of Union Street.

But there was no mistake. 

When Creese spoke to the building manager for Renaissance Realty Group, the Coney Island-based real-estate firm that purchased the building in May through a limited liability company, he said the staggering 112 percent rent hike was more than justified.

“‘Crown Heights is the new Manhattan. It’s not like it was 20 years ago,’” Creese said she was told by the manager. He added, according to Creese, “‘I bought these buildings to make money.’”

The new lease kicked in Jan. 1, but Creese said she is still paying the old rental amount since her family can’t afford the new asking price. “I’m planning to fight this all the way to the end,” she said.

A preference revoked

Creese, along with several other tenants in her building, along with tenants at 1646 Union St., a 23-unit building across the street that Renaissance also purchased in May, are victims of having their  “preferential rents” yanked out from under them.

Preferential rents refer to rents that are lower than what the landlord of a rent-regulated apartment building could legally charge.

Some 17 tenants in the buildings now face eviction because of disputes over their new rental amounts.

Rachel Hannaford, an attorney with South Brooklyn Legal Services, which is representing six of the tenants facing eviction, said her agency has seen landlords revoke preferential rents before. “But I’ve never seen it in such a huge concentration of tenants,” she said. “It is a way that landlords in high-interest markets can turn over their apartments.”

Renaissance officials didn’t respond to several messages left at their offices.   

Preferential rents are offered for a number of reasons, the most common of which is it is the only way to rent out a building in one of the city’s grittier neighborhoods—that is, of course, before the gritty neighborhood turns into a real estate hot spot.

Sometimes preferential rents are tied to legal agreements. For example, the previous owner of 285 Schenectady and 1646 Union obtained a low-interest mortgage backed by the federal Department of Housing and Urban Development. In return for HUD backstopping the mortgage, the owner had to rent 20 percent of the units to low-income individuals. But that obligation ended in 2009 when the mortgage was paid off.

The two Crown Heights buildings remain covered by local rent regulation guidelines that restrict how much the legal rent can rise. But because of what some advocates would describe as porous rent regulations, those legal rents can be jarringly high. And once the preferential rate is revoked—which landlords for the most part are allowed to do when leases are being renewed—the new rate is based on the existing rent guidelines standard, not what the tenant is actually paying. 

So even though the city’s Rent Guidelines Board, much to the chagrin of the real estate community in the city, this year allowed only 1 percent increases on one-year leases and 2.7 percent hikes on two-year leases, Creese’s rental increase is being calculated as if she were currently paying $2,081 a month in rent, the legally allowable amount. She’s actually paying $991 a month. 

The new Manhattan ... or the new Bushwick

Renaissance owns several multi-family properties across the city, many in neighborhoods such as Crown Heights, Lefferts Gardens and Ocean Hill, that are, if not the new Manhattan, then within a few new cafes and organic markets of becoming the new Bushwick. 

Through corporate stand-ins, Renaissance scooped up 285 Schenectady Ave. and 1646 Union St., in May 2014 for $10.7 million, according to city records.

Jorge West, a second-floor tenant at 285 Schenectady, is being asked to shell out at least $425 more per month for the two-bedroom apartment he shares with his wife and son. He currently pays $1,385 a month plus utilities for the unit he has lived in for 18 years. The new lease that was set to start Jan. 1 pushes that rent to $1,810 a month for a one-year lease or $1,841 for a two-year lease. West has continued to pay his old rental amount.

“The landlord wants to get everyone out of this building,” said West, a tenant at the building for 18 years.

Jessica Wolff, a tenant organizer with the Urban Homesteading Assistance Board, an advocacy group working with several of the tenants, has reviewed the renewal leases of 15 tenants at the two buildings and said most of the rent hikes range from 50 to 100 percent.  

Due to the frequency of gun battles in the streets, they used to call the neighborhood around 285 Schenectady “Dodge City,” according to Creese.

“Nobody would live in this neighborhood,” she said. “My mother’s slogan was, ‘You’re not living outside, you’re living inside.’”

Creese and other tenants say they came to the neighborhood when no one else would, and they’re angry that now the neighborhood is on the upswing, they are the ones being pushed out. “We (the tenants) built this building. We took care of it,” said West. “And now, we are the ones you want to get rid of?”

But the tenants are hardly living in luxury. There’s a water leak in the ceiling of West’s living room that he said hasn’t been addressed for a more than year. The windows in the apartment are so drafty that he’s encased each of them in plastic sheathing.

According to the city’s Department of Housing, Preservation and Development Office of Code Enforcement, 285 Schenectady has 146 outstanding code violations, including 19 Class C violations, the most serious kind. These include violations for no hot water, lead paint, a leaky roof and no window guards.

At 1646 Union, there are 187 outstanding violations, including 18 Class C violations whose fixes are all overdue, according to code enforcement. These C violations include mold, a broken lobby door, rats in two apartments, a concealed water leak, a missing or defective window guard and broken windows, according to city officials.  

But with gentrification galloping across Central Brooklyn, these apartments are now hot commodities and landlords are looking to cash in.

Are there alternatives?

Frank Ricci, a spokesman for Rent Stabilization Association, the landlord lobby group, empathizes with tenants facing “exorbitant” rent hikes, but said property owners in the city, especially the owners of Class 2 buildings (properties with more than three units) have been rocked in recent years by hefty tax hikes and increases in water and sewer rates.

“These are the most overtaxed properties,” he said. “Way out of whack in comparison to other properties.” 

Ricci, who says he was not familiar with Renaissance or the properties in question, does believe there should be an alternative to doubling someone’s rent.

Several cities around the nation, including Boston and Philadelphia, he said, have adopted a system whereby the legally allowable rental rate is phased in over some period of time. “To us it’s a good solution,” said Ricci. “That would be my recommendation and what we would consider the best practice in these situations.”

To keep long-term term tenants and long-term property owners in place, Ricci proposes the city freezes property taxes in some neighborhoods. 

A matter for the courts

Whether Renaissance can unilaterally revoke the “preferential rents” tenants have been paying at 285 Schnectady and 1646 Union is an open question that will likely be settled in housing court.

Hannaford, the attorney at South Brooklyn Legal Services, believes the state Department of Homes and Community Renewal (DHCR), the agency that oversees rent-regulated properties, would have to sign off on any rent hikes.

A city housing agency spokesman also believes DHCR has to weigh in. His opinion is based on the agreement the previous landlord made to receive the HUD-backed mortgage.

The relevant clause in that agreement reads, in part: “In the event the HUD consent is not required, Mortgagor shall obtain the approval of the government agency having jurisdiction over rent regulation and registration before making a change in rent.” That “government agency” would be the DHCR, the city spokesman said.

It remains murky, however, whether this clause extends to a new owner, and if it applies beyond the 12 low-income apartments the HUD deal ensured. 

DHCR didn’t return several phone calls seeking clarification on the matter.

In the meantime, the tenants are mounting a battle to stay in their homes. They held a rally in November with Brooklyn Borough President Eric Adams and City Councilwoman Laurie Cumbo. Several now have legal representation, and several court hearings are on the docket this month.

Adams told City Limits he is “working with a coalition of local elected officials to see how best to ensure these tenants can stay in their apartments affordably … All options are on the table, including the possibility of legislative remedies.”

For West, the 285 Schenectady tenant, this is a fight that came to his doorstep and he’s not backing down.

“We have to go to court. We have to do what we got to do,” he said. “I’m going to fight them.”

This story was reported by City Limits, which City & State is partnering with to cover crucial housing policy stories in 2015.