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Despite Three Vacancies, Process for RGB Order No. 50 Gets Underway

Coming off of a modest rent increase in 2017, the 50th deliberations of the City Rent Guidelines Board (RGB) officially began as the Board met for the first meeting of 2018 on March 8th.

Prior to the meeting, RSA was well aware of two vacancies on the Board. Owner Member Mary Serafy, who worked with Owner Member Scott Walsh the last two years, submitted her resignation at the end of 2017. Public Member Helen Schaub, who was an original appointee by Mayor Bill de Blasio in 2014, also submitted her resignation before the holiday season.

What came as a surprise to RSA was the resignation of Tenant Member Harvey Epstein one week prior to the Board’s first meeting. As you may recall, Mr. Epstein served on the Board since 2013 and was the last appointee to the Board by Mayor Michael Bloomberg during his last year in office. Mr. Epstein will be remembered for his leadership with tenant activists and for scrutinizing property owners during their testimony at public hearings throughout the boroughs.

Mr. Epstein’s resignation comes as a result of his candidacy for the vacant State Assembly seat in the 74th District, which represents parts of, but not limited to, the Lower East Side, Union Square, Stuyvesant Town, Peter Cooper Village. There will be a special election for the vacant seat on April 24th.

Nevertheless, the Board held their first meeting despite these resignations with only five Board Members present at the meeting. Mayor Bill de Blasio is expected to fill these vacancies by the next meeting, which is tentatively scheduled to take place on April 5th (please see accompanying schedule for upcoming meetings).

At the meeting on March 8th, the Board released the 2018 Income and Expense (I&E) Report. The annual report is based on Real Property Income and Expense (RPIE) Statements filed by owners with the Department of Finance (DOF). According to the report, owner net operating income (NOI) increased by 4.4%. Although this is a far cry from the 10.8% increase in NOI that the Board calculated in last year’s I&E report, we expect the vast majority of the Board to use the increase in NOI, the twelfth straight year NOI has increased, to make an argument against owners asking for reasonable rent increases.

Although several of the Public Members have favored tenant-related issues during the de Blasio Administration, we certainly expect, at a minimum, that Tenant Member Sheila Garcia and the incoming Tenant Member to use the increase in NOI to assert that owner profitability continues to increase.

However, the Board must take into consideration that despite two consecutive rent freezes for one-year leases in 2015 and 2016, a vast majority of tenants signed two-year leases, for which the Board approved 2% increases in both years. Keep in mind that this is something that even Mayor de Blasio endorsed after the second rent freeze, citing the unpredictability of future RGB deliberations.

Additionally, it is very possible that owners with tenants who have preferential rents, or even market rate apartments, were forced to raise these particular rents in order to recoup the losses from the zero increases on one-year leases. According to the 2017 Housing and Vacancy Survey (HVS), median rents for stabilized apartments increased by 2.6% between 2014 and 2017, while median rents for free market rents increased by 10% during that time period. Increased operating costs, particular property taxes, have put some owners in these situations where additional income was needed to make up for increased costs. These types of scenarios have resulted in an increase in rents citywide.

The Board must also understand that the I&E report exaggerates NOI by failing to account for the expenses of building-wide improvements (which can run into hundreds of thousands of dollars) while including income that may be generated by those expenses.

The Board is expected to release the 2018 Price Index of Operating Costs (PIOC) at their meeting on April 5th. The numbers calculated by that report will allow RSA to mold our argument for this year’s deliberations. Last year, the PIOC was 6.2%, the largest price index since 2014. This year, as a result of increased property taxes and other operating costs, we expect that the PIOC will once again provide a strong basis for RSA to make a case for appropriate rent increases.

On April 21st, RSA will give invited testimony to the Board where we will make our case for higher increases than last year. The following week on April 26th, the Board will hold its Preliminary Vote at The Great Hall at Cooper Union at 7 East 7th Street at 7:00 p.m. As always, owners are invited to join RSA as the Board will set a range for guidelines that they will use to determine final guidelines at the end of June.

We will keep you apprised in upcoming editions of the RSA Reporter on when and where the public hearings will be held in June prior to the Final Vote. 

Click Here for the 2018 RGB Meetings & Hearings Schedule


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