Landlords Court Albany Democrats on Rent Laws

Thursday, August 7, 2008
Nicholas Confessore
New York Times

Anticipating a Democratic takeover of the New York State Senate this fall, real estate executives have begun courting Senate Democratic leaders, hoping to fend off what they expect will be aggressive efforts by tenant groups to revamp rent regulations next year.

The effort represents a significant new approach for real estate interests, which for years have been closely allied with the Senate's Republican majority. But after controlling the Senate for four decades, the Republicans now hold a bare one-seat majority and many strategists believe the Democrats are in a strong position to gain control of the chamber in November.

Looking to block or water down an array of pro-tenant measures, including the repeal of vacancy decontrol, that have won support in the Democratic-controlled Assembly, real estate industry executives have stepped up their campaign donations to the Senate Democratic leadership, a review of campaign-contribution records shows. They are also continuing to contribute to Republicans.

The review, made by the New York Public Interest Research Group at the request of The New York Times, found that a selection of major real estate developers, lobbyists and limited liability corporations gave more than $750,000 to the Senate Democratic leadership last year and this year. That is 15 times more than the roughly $48,000 that the same developers and companies gave to the Democratic leadership from 2005 to 2006.

For example, executives of the Benjamin Development Company and related firms, which own rent-regulated buildings, gave $76,000 to the Senate Democratic leadership and campaign committees in the current election cycle. During the previous cycle, that figure was $1,000. A spokesman for the company declined to comment on the change in contributions.

"If the State of New York makes drastic changes to housing regulation," which might include regulation of new buildings, "no residential developer will build another rental building in New York City," said Adam R. Rose, co-president of Rose Associates, which manages 22,000 apartments in the region. Mr. Rose has contributed more than $60,000 to the Democratic Senate leadership over the past year.

Industry officials are particularly worried about a measure strongly supported by rank-and-file Senate Democrats that would abolish vacancy decontrol, a law under which rent stabilized apartments are decontrolled and revert to market rents when the occupants move out, if the regulated rent exceeds $2,000 a month. The Assembly approved legislation to abolish vacancy decontrol as part of a package of pro-tenant bills it passed in May. Tenant groups have said that should the Democrats win the Senate this fall, abolishing vacancy decontrol will be among the first issues they and their Democratic allies will push for in the Senate next year.

"Clearly there's worry about it, because a number of the Democratic state senators have articulately discussed what they would like to do," said Steven Spinola, the president of the Real Estate Board of New York, a major industry trade group.

The analysis by the Public Interest Research Group - a self-described nonpartisan organization that has supported more restrictive campaign finance regulations - looked at contributions made during the 2008 election cycle by roughly 200 companies and individuals to the Senate Democrats' central campaign accounts; to Malcolm A. Smith of Queens, the Senate Democratic leader; and to Jeffrey D. Klein, the deputy Democratic leader, whose district covers parts of the Bronx and Westchester.

The review then examined what contributions the same people and companies gave during the 2006 cycle to the Senate Democrats' campaign committee and top leaders. At the time, David A. Paterson, now the governor, was the Senate minority leader, and Eric T. Schneiderman, a Manhattan Democrat, was his deputy.

While it was not a comprehensive look at the size and intent of campaign giving by the real estate industry - a large and diverse group with numerous political interests that are almost impossible to disentangle - the analysis does show a pronounced increase in donations to top Senate Democrats by real estate developers who have much to lose if tenant groups win the rent regulation debate.

"Campaign cash is like a drug, and the real estate industry are like heroin dealers," said Dan Cantor, executive director of the Working Families Party, which is leaning on Democrats to support a broad expansion of rent laws. "They have fed the Republicans' habit for decades, and now they are trying to hook the Senate Democrats."

Industry executives said that they did not plan to reduce their contributions to the Senate Republicans, who for many years have been their main defenders in Albany. In 1997, the Republicans pushed to end the decades-old rent regulation system, which has kept rents on hundreds of thousands of apartments below market rate. They failed to dismantle the system, but succeeded in making it easier for landlords to charge market rents for vacant units and to some higher-income tenants.

But in interviews, industry executives, most of whom spoke on condition of anonymity because they did not want to anger Senate Republicans, said they believed that the Republicans might lose control of the Senate in November and that they must hedge their bets by supporting Democrats as well.

Real estate executives are "really scared," said one developer who has built residential properties in Manhattan. Explaining the increase in campaign giving to the Senate Democrats, he said, "They're just trying to make friends now that the Democrats are going to be in control."

Another executive said that the abolition of vacancy decontrol is "what everyone fears."

"We always knew that the Senate was there to block the bills that in our opinion were not responsible," the executive said. "If the Senate goes Democratic, I would hope that one of the houses remains responsible."

For those who are in the business of rent-regulated housing, any effort to change the rental laws carries enormous financial stakes. At least 130,000 rent-stabilized apartments in New York City will revert to market rates by 2015, given current trends, according to a report issued last year by Housing Here and Now, a group that favors more subsidized housing. In recent years, investment firms have bought up thousands of rent-regulated apartments, which could return billions of dollars in profits if they convert to market-rates - money that would evaporate if vacancy decontrol is abolished.

Rent stabilization is in effect in New York City and in some suburban communities and some upstate cities.

It is not surprising that the new money is flowing most visibly to the Senate Democratic leaders and campaign committees. Rank-and-file Senate Democrats are overwhelmingly in favor of abolishing vacancy decontrol, among other pro-tenant measures. In May, all but three of the 29 Senate Democrats signed a "Dear Colleague" letter pledging support for a bill that would repeal vacancy decontrol for rent-stabilized and rent-controlled apartments and bring additional units under rent regulation.

But in Albany, power is heavily centralized, with the leaders of the Senate and the Assembly having almost untrammeled control over the fate of legislation. Should Mr. Smith become majority leader next year, the fate of vacancy decontrol in the Senate could be largely his to decide. Governor Paterson has taken no position on the legislative package, a spokesman said.

Neither Mr. Smith nor Mr. Klein signed the May letter. Mr. Smith said he does not sign such letters and declined to say whether he would bring a package of pro-tenant bills approved by the Assembly to the Senate floor if he becomes majority leader.

"Both the tenant groups and the real estate industry are important segments of the future viability of the city and New York State, and both of their concerns will be dealt with fairly," Mr. Smith said in an interview. He said it was premature to say how the Democrats might proceed on rent regulation if they won the Senate.

Mr. Klein said, "I think when we take the majority, we have to take a look at what we knew to do between protecting tenants' rights and making sure landlords can make a profit. We have to find a middle ground."

Senator Smith said that real estate interests "have been supportive, but they really have not asked for anything at this point."

As they have in the past, real estate donors are taking advantage of a quirk in campaign finance laws that allows them to give far above the limits for individual donors by moving money through dozens of limited liability corporations, most of them corresponding to specific buildings or properties. One owner of rent-stabilized apartments, S.W. Management, based in New Rochelle, appeared to have made donations through 50 different such corporations, all to Mr. Klein.

Industry officials said that some of the increase in contributions can be attributed to Eliot Spitzer, who as governor was active in trying to flip control of the Senate and urged many of his own donors to give money to Senate Democrats, too. Mr. Spitzer's family is in the real estate business.

Moreover, both Senators Smith and Klein are broadly viewed as less liberal than Mr. Paterson and Mr. Schneiderman and more receptive to the real estate industry. In some cases, the two men, who were elected to their leadership positions in early 2007, are simply raising more money from longtime supporters.

Now, even as real estate executives court him, Mr. Smith faces pressure from tenant activists and the Working Families Party, which provided pivotal manpower for Democratic Senate campaigns in recent years.

Michael McKee, treasurer of the Tenants Political Action Committee, said that Mr. Smith had privately promised his group that a bill to abolish vacancy decontrol would at least come to the floor if Democrats won the Senate.

But Mr. Smith, in the interview, declined to say what he would do with such a bill, although he suggested he would follow the will of his conference.

Frank Ricci, the director of government affairs for the Rent Stabilization Association, an industry trade group, suggested that if Mr. Smith became leader, he would be open to arguments that ending vacancy control would place an undue financial burden on landlords and depress the real estate market.

"When you're put in a leadership position where you have to make decisions and you can't be reckless, people change," Mr. Ricci said.

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