How Both The Co-Op As Well As The Holder Of Unsold Shares Benefit From Filing For The Major Capital Improvement
At 3410 De Reimer Ave, Bronx, NY (left), Westchester Property Management Group, with manager Alex Solovyev, contracted for a building-wide window replacement job. The building includes 49 rent stabilized, sponsor owned apartments. Windows were installed by Tindel Windows, architectural & engineering services were provided by Ivan Brice Architecture. Work was completed circa 2/2014; Ed Tristram Associates was hired on 08/27/2015 to secure the MCI. The MCI was submitted for work totaling $1,289,575.00, which equals a $14.28 per room rent increase. The MCI Tax Abatement for Mark Terrace Owners Corp was approved on 10/18/2016 for $143,286.11.
The Financial Background
THE RENT INCREASE. A rent increase in an unsold shareholding is more valuable to its owner than even a rent increase in a rent stabilized building because the value of the holding is affected so strongly by its cash flow — the “carry.” These increases are a permanent part of the base regulated rent. Also, all units in the building tend to be worth more if the unsold shareholding has positive carry because it makes the entire building more financially stable.
THE MCI ABATEMENT. This is a credit on the property taxes, equal to 1/9 of the cost of the work. It is received all in one year, and unlike the J-51 program does not contain special requirements and rules that can become a catch-22.
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When the NYS legislature renewed rent regulations effective July 2015, there were some significant changes that affect co-ops and condos.
If a co-op/condo has an unsold shareholding with one or more rent controlled and/or rent-stabilized apartments and the holder of unsold shares obtains an MCI rent increase order, now there is a significant financial benefit for the building as well — a large credit on property taxes.
Example: Cooperative has 55 units, gets a $400,000 exterior restoration job. The Holder of Unsold Shares has 6 rent stabilized apartments, and applies for and gets a rent increase. (That’s a minor benefit for the building since improved cash flow on an unsold shareholding increases the value of all apartments.) Now the building can also get a one-time tax abatement of $151,888.89 — 22% of the cost of the work.
This is not a J-51 abatement (which sometimes come with many strings attached) but a new “MCI Abatement” arranged by NYC Dept of Finance and the NYC Housing Division (DHCR). It goes to the building — not the Holder of Unsold Shares — since the improvement was paid for by the building through special assessments, mortgage proceeds, etc.
In the last 25 years, Ed Tristram Associates has arranged over 1,000 MCI rent increases , as a consultant to owners and managers of rental buildings and unsold share holdings. Call us at 212-979-8720 with questions about what’s eligible, time requirements, how the math works, etc.
The adoption of the HSTPA of 2019 has altered the laws regarding preferential rents. At this time, any rent regulated tenant who has a preferential rent keeps the preferential rent as their base legal rent for the entire time of their tenancy. When they move out permanently, the rent may possibly be increased if “the legal regulated
rent upon which these increases are based must be written in the vacancy or renewal lease in which the preferential rent was first charged and in all subsequent renewal leases.” Registering the rent is not enough, it must also be written down in the lease. This may have a catastrophic impact on the value of a multi-family building and we suggest that all owners examine the tax assessments for their buildings. All residential buildings are valued by their rental income or the estimated value of rental income for similar apartments. Some neighborhoods may have lower comparable rents so co-ops and condos should consider challenging their assessment.
Additional information can be found in DHCR Fact Sheet #40 which is available on DHCR’s website Fact Sheet 40
Ed Tristram Associates welcomes new sales and marketing associate Steve Monosson. Along with fellow new hiree George Baez, Ed Tristram Associates is ready to fully conquer the New York MCI world.