It is 7:45 am, and 18 real-estate professionals are gathered around a conference table in downtown Manhattan, a hairbreadth from Wall Street. They are agents, insurers, asset managers, investors—there is even an architect who uses her allotted 30 seconds of introduction to mention her knack for creating spaces with high-end finishes on economical budgets. Everyone is here to listen to Simon Moule speak.
The topic, as described by the invitation, is “making sense of NYC Rent Stabilization Laws,” and Moule is a guru when it comes to understanding what he describes as “millions of rules.” The people in this room seek understanding with a specific endgame in mind: increasing capitalization of a building, if not a portfolio of buildings. As the lawyer who introduces Moule puts it: “If you know the rent laws, that’s where the juice is. You can really squeeze as much as possible out of a building.”
The Rent Regulation Reform Act of 1993 is a central feature of New York State’s rental code. It allows for the deregulation of rent-stabilized apartments. New York City has nearly 1 million such apartments, accounting for just under half of the available units in all five boroughs. That number is falling quickly, however, as New York’s high-end housing market continues to balloon from the heat of global capital.
Over the past 30 years, 231,000 units have been released from rent regulation. Between 2002 and 2014, the number of rental units that were affordable for the working poor fell by 27 percent, according to a Furman Center study.
The deregulation of these apartments has become one of the most disruptive forces in the city, as tenants scramble to keep their homes and landlords maneuver to get rid of them. In some cases, landlords seek merely to push individual units into the luxury rental market. But often the goal is to empty a building of renters altogether. As one Brooklyn landlord, who would only speak to me under the pseudonym of Ephraim, explained it: “We don’t usually buy buildings with tenants…. They actually bring down the value of the property almost 60 or 70 percent.”
So for Ephraim and the people gathered to hear Moule speak, the urgent question is: How do you get around rent regulations?
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A few days after the breakfast meeting, Moule is seated in a coffee shop offering $3 drip, just south of Union Square. “In the hot areas, people are buying buildings and flipping them,” he explains to me, “playing musical chairs with the price.”
Moule has amassed more than 20 years of familiarity with the state rental code, and savvy investors come to him to understand how the mind-numbing legislative jargon applies to the buildings they want to buy. “Almost nobody realizes that the true value of a building isn’t the bricks and mortar,” he says. “The true value is the cash flow and the amount of debt you take on when you buy the building, and those are determined by the rent roll—and the rent roll is determined by the rent-stabilization laws. So many people miss that essence.”