Rats, Roaches, Leaks: Rent-Stabilized Building Owners Whose Bets Went Sour Delay Repairs

The 66-year-old tenant, who asked to remain anonymous, was smoking a cigarette outside the building. She’d moved to 1225 Sheridan Avenue, a rent-stabilized apartment building in the Bronx, just before the pandemic broke out. There were rats in her previous apartment, just a couple of blocks away. This was supposed to be better.

But since moving almost three years ago, she said, it’s been nothing but rotten conditions and shoddy repairs. Last November, the ceiling in her bedroom began to cave in because of a leak. And that’s after the ceiling in her kitchen and the one in her bathroom broke open, too.

“I call them all the time. Telling them about the leak. And they didn’t come,” she said. “They’re trying to put people in here just for the money. Because they don’t do no freaking repairs.”

Poor conditions are not uncommon in rent-stabilized buildings like hers.

1225 Sheridan and its neighbors, 1221 and 1231 Sheridan, are owned by a limited liability company called Sheridan Realty Holdings LLC, which bought them in 2016 — during a boom market.

Three years later, a new state law firmly limited how much landlords like Sheridan Realty Holdings can increase rent. Landlords who bought buildings as property values climbed steeply in the first two decades of the century now face the risk that their speculative investments will not pay off. And since they can’t hike rents, basic maintenance is often the first thing to go.

Rats. Roaches. Leaks that have gone unaddressed for years. Trash piling up in the hallways. Peeling lead paint. Vacated apartments in need of repair. For years, tenants have reported the dilapidation of their homes in Sheridan Realty’s buildings.

Since the onset of the pandemic, tenants say response times have only gotten longer. In 2020, Mike Silber was included in Public Advocate Jumaane Williams’s “Worst Landlord Watchlist,” which highlights property owners with the most code violations across all of their holdings. This past February, New York City Department of Housing Preservation and Development (HPD) launched a comprehensive case against the building’s owners, seeking immediate corrections for 148 outstanding violations at 1225 Sheridan Ave. dating back to 2016.

The LLC’s owners, Berel “Barry” Farkas and Menachem “Mike” Silber, declined to comment for this story, as did the buildings’ manager, Sol Paneth.

Over the last decade, ownership of the apartment buildings at 1221 and 1225 Sheridan passed through a series of LLCs at increasingly questionable prices.

In 2012, 1225 Sheridan was sold by “Pipe Dreams Realty IV Corp.,” one of the corporations with ties to “phantom landlord” Frank Palazzo, for over $4.2 million. Less than two years later, another owner bought both 1221 and 1225 Sheridan for $8.3 million.

Then in 2016, Sheridan Realty Holdings LLC, the current owners, bought both buildings for almost $11.5 million, or a bit over $106,000 per unit. That marked a 38 percent increase over two years — even though the tenants in the 108 mostly rent-stabilized apartments across the two buildings had barely changed. That year, the average rental income for rent-stabilized units in the Bronx was $966. And by the end of the year, tenants at 1221 and 1225 sued Silber demanding repairs.

The buildings are a prime example of real estate speculation, said Jacob Udell, director of research and data at the University Neighborhood Housing Program (UNHP), a local nonprofit developer.

“Someone once explained it to me as the ‘theory of the greater fool,’” he said. “If you buy a building at, say, $6 million — on some level, what you’re banking on is that a few years down the road, someone’s going to buy that building at $8 million, whether or not the fundamentals of the building justify that. As long as there’s someone willing to buy down the road, then you’re kind of golden.”

“Since the 1990s, there’s been this almost unabated rise in property values in New York City,” Udell explained. “I think what forms the core of speculation is the notion that that [increase] can continue and that a system which prioritizes real estate profit over the provision of safe, stable, and affordable homes can continue.”

A joint report by the Local Initiatives Support Corporation (LISC) and UNHPreleased in March outlines how speculation is linked to displacement and deregulation. The report found that between 2003 and 2020, “multifamily buildings were more likely to be resold at a higher price” in “lower-income, Black and Latinx neighborhoods seeing signs of gentrification.”

Bushwick and Bed-Stuy in Brooklyn, East Tremont and Belmont in The Bronx, and Morningside and Hamilton Heights in Manhattan saw the greatest rent increases, according to a Rent Guidelines Board study, while also seeing landlords’ profits rise. Those are the same neighborhoods where the LISC report found the most speculation.

Landlords have two primary ways to boost a building’s profits and justify higher values: raise rents or slash costs.

Until 2019, loopholes in rent stabilization laws allowed landlords to deregulate buildings and hike rents upon an apartment’s vacancy through methods like making repairs or capital improvements. But the Housing Stability and Tenant Protection Act (HSTPA) passed that year, shutting off many of those avenues. The 2021 NYC Housing Vacancy Survey estimates that more than more than 15,000 units would have had rent high enough to qualify for vacancy decontrol had the law not been enacted.

“Pre-HSTPA, the places where there was a large rent gap, landlords would be refinancing their mortgages, pulling out equity, and assuming that they could close that rent gap and pay back that debt,” said Sam Stein, a housing analyst at the Community Service Society, referring to gaps between actual and potentially achievable rents. “Now, they can’t close that rent gap through increased rents. They seek to close it through decreased investment in the building.”

Tenants at 1225 Sheridan estimate that at least seven apartments in the building are currently vacant and in need of repairs. More than 88,000 rent-regulated apartments were vacant at one point last year, according to numbers shared with THE CITY by the city housing agency. Landlords argue that the recent rent law has made it impossible to charge rents high enough to justify making repairs on vacant units that had longtime tenants.

“They can’t deregulate tenants in the same way, they don’t have the same power as to evict. So they’re seeing their business models slowly becoming untenable,” said Arielle Hersh, a project associate with the Urban Homesteading Assistance Board (UHAB), a nonprofit that helps low-income tenants buy their homes. “And I think it’s been really clear, at least in some of the buildings that I’m working with, that the landlord stopped all investment in the building as sort of a retaliatory result.”

That dynamic has been especially acute in the Bronx. “A lot of landlords invested prominently in overleveraged buildings in the Bronx with the expectation that they would take those units out of rent stabilization,” said Jessica Bellinder, supervising attorney with a Legal Aid Society initiative that works with tenant groups and housing advocates to preserve affordable housing in the city.

“Those tenants have rents that are hard for landlords to sustain, especially when they’re overleveraged the way they are,” she said. “Because if you buy these buildings at these inflated prices, there’s no way to make the money you need to pay off your debt and maintain the building on the rent rolls that existed at the time the property was purchased.”

‘The Rents Don’t Justify This’

Tax data obtained by New York Focus documents the decline in spending at 1221 and 1225 Sheridan Ave.

In 2017, each of the two buildings cost Silber and Farkas, the owners, about $400,000 in expenses, including about $99,000 in maintenance, and earned them about $500,000 in rental income.

By the year between June 2020 and June 2021, the most recent data available, rental income had increased to close to $700,000 from each building — as the owners filed 29 nonpayment proceedings, asking tenants in court to pay their rent or be evicted. But expenses on each building had decreased to under $300,000, most of it toward real estate taxes, with only about $23,000 invested in maintenance and repairs.

What gives? To finance the $11.5 million purchase of 1221 and 1225 Sheridan Ave., Sheridan Realty took out a $10 million mortgage. That adds about $300,000 in annual mortgage payments on each building.

To Stein, those numbers are evidence of a bet gone wrong.

“If it weren’t speculation, what the hell would they be doing?” he said. “The rents don’t justify this.”

He added: “They would have to increase the rent or decrease the maintenance, and they can’t increase the rent anymore.”

Experts say maintenance is often first to go when a landlord is strapped for cash. A JP Morgan Chase report found that many landlords deferred maintenance in 2020 as rental income declined when tenants failed to pay or moved out during the pandemic.

Between June 2020 and June 2021, even as the pandemic forced tenants to spend more time at home, the landlords spent about $37 a month per apartment across the two buildings.

“This is a ridiculously low amount to spend on a building,” Udell said. The most recent Rent Guidelines Board financial study found that the average Bronx maintenance expense in 2020 was $147 per month.

The loans on the three Sheridan properties later got packaged into mortgage-backed securities sold to investors, via the Federal Home Loan Mortgage Corporation, better known as Freddie Mac. In 2017, the three buildings were included on a watchlist of buildings with heightened risk of default. A Freddie Mac spokesperson said strict guidelines ensure owners maintain their property and pay their mortgages. “We take tenant concerns and issues raised by local housing agencies seriously,” the spokesperson said.

Paying for Bad Bets

When some landlords hear about maintenance problems, they’re inclined to say, “We told you so.”

Building owners had predicted the 2019 law could lead rent-stabilized housing to “gradually fall into disrepair” by discouraging landlords from investing in their buildings.

Tenant advocates say it shouldn’t fall to tenants to pay for landlords’ bad bets, and that it’s illegal to refuse to make necessary repairs.

“We say, ‘You all speculated. You’re losing your bets, doesn’t mean you can disinvest in your buildings.’ Just because you maximized your debt based on the idea that you could get out of this system that you bought your building in, doesn’t make that an expense,” Stein said.

Tenant advocates have called for solutions like converting distressed properties to social housing and expanding tenant protection laws, over increasing rent on burdened tenants.

“There was this moment in 2021 where there’s kind of an idea in ether that things were gonna get better somehow,” said Oksana Mironova, the Community Service Society report’s co-author. But with the eviction moratorium ending around the same time as pandemic-era tenant relief programs, with rents going up, and the state legislature not extending direct relief to tenants or bills like Good Cause and Right to Counsel, Mironova says the atmosphere suggests “we’re in a moment of retrenchment.”

“I feel like we’re in a worse place than we were before,” she said.

This year, the Rent Guidelines Board raised rents on regulated units by 3.25 percent for one-year leases, the highest increases in almost a decade, as landlords claimed rising costs, high property taxes, and inflation necessitated higher rents.

‘Nothing Happens’

Inadequate maintenance can leave tenants with inconsistent heat, hot water, mice, rats, roaches, mold, and leaks — all of which can lead to worse problems if they’re not addressed.

One tenant on Sheridan Avenue who was part of the 2016 lawsuit said that conditions have gotten even more dire during the pandemic. The owners have barely made repairs and haven’t bothered fixing up vacated apartments, she said.

Tenants in the buildings have filed a combined total of nearly 3,000 complaints and 2,900 violations with HPD since the owners behind Sheridan Realty Holdings LLC purchased the buildings in 2016, according to data on New York City’s Open Data Portal and the Displacement Alert Portal by the Association for Neighborhood and Housing Development.

Most of these violations concerned problems the city requires landlords to address within 30 days, like broken plaster and leaking faucets. About 10 percent required attention within 24 hours, like lack of heat or hot water, peeling lead paint, and major leaks.

Tenants say those requirements were rarely met.

Musulin Thomas, 33, said she can barely get anyone on the phone. Since moving into her first floor studio apartment in 2016, she said she’s had nothing but problems.

“I had leaks, my foot fell through the floor. My son caught lead when he was two, from a window pane and now he has to go to speech therapy. The pipes are ridiculous. I have mold,” she said. “I’ve been asking if they could give me a better apartment. [They say,] ‘I ain’t got no apartments,’ but there’s so many apartments that’s vacant in here that’s not fixed!”

But it’s too hard to find an affordable apartment anywhere else, Thomas said.

“I just gave birth to twins,” she said. “I’m still here.”

Francisco Feliz, 64, has lived on Sheridan Avenue for more than a decade. Leaks have plagued his first-floor apartment for years, he said. There’s the one behind his elderly father’s bed that seems to come simultaneously from outside and from the radiator’s pipes, rendering the vinyl flooring spongy, some of it chipping off. The leak in his kitchen has thankfully been fixed. But there’s still the one in his bedroom: Water used to run down one wall, so he moved his bed to one side until someone came to patch it over. Soon enough, it was happening on the other side, too.

“I complain, I complain — nothing,” he said. “You call and they don’t do anything. Nothing happens.”