Dean Michael Cahill
In many ways, COVID-19 has changed the way we live for both the immediate future and long-term. Brooklyn Law School Dean Michael Cahill has been sitting down with members of the Brooklyn Law School faculty to discuss the legal ramifications of our response to COVID-19 and what a post-pandemic world may look like. Here is the link to our discussion of the effect of the pandemic on the real estate market and beyond: https://youtu.be/j9DFBOsU3qw.
I was quoted in The Ledger (Florida) in Seeking Progress, City Upended Lives in Eliminating Moorehead Community. It opens,
After selecting Moorehead as the site of a new auditorium, Lakeland officials began efforts 50 years ago to inform residents, assess properties, make offers to owners and assist residents in finding new places to live.
Dividing the predominantly black neighborhood roughly in half, the city planned to acquire all of the eastern section north of Lime Street by 1971 and the remainder in 1972.
The campaign, which displaced 122 families, fit into a decades-long national phenomenon in which cities partially or completely removed minority neighborhoods for projects aimed at fostering urban renewal.
The American Housing Act of 1949, part of President Harry Truman’s “Fair Deal,” established the power of governments to seize private property for projects categorized as urban renewal. It also made federal funds available for such projects.
Though intended to replace substandard housing with better options, the Act spurred a flurry of activity that wound up displacing minorities, said David Reiss, a professor at Brooklyn Law School and academic program director of The Center for Urban Business Entrepreneurship. Cities used the program’s Title I funding to engage in what was sometimes called “Negro removal” or “slum clearance.”
Before the federal program was halted in 1974, some 2,500 urban renewal projects displaced about 1 million people nationwide, Reiss said.
“Two-thirds of those people were African-American, and if you think about African-Americans being 12 percent of the population, they were being displaced at a multiple, maybe at five times the rate of other Americans and particularly white Americans,” Reiss said. “So urban renewal really reshapes the urban fabric across the country.”
Property in minority communities tended to be cheaper to acquire, especially during the peak period of urban renewal, and Reiss said minorities also were less equipped to challenge authorities.
“It was structural racism on one level, where the majority would find it much easier to displace a black community than they would to displace a white community, although displacement wasn’t only in black communities — but as we see it’s overwhelmingly in black communities,” he said. “Because black communities were often poor, that would be another reason — being in a poor community would give you less political power to fight something like this.”
I answer that it can in CQ Researcher’s Historic Preservation: Can The Past Escape The Wrecking Ball?
Many people fail to realize that land use policies like historic preservation involve big trade-offs. The most important one is that if you want to protect existing structures from demolition and modification, you can’t replace them with bigger ones that could house more people. Consider:
Just because preservation comes at a cost does not mean it is bad. Much of our past is worth protecting. Some places benefit from maintaining their identities — think of the European cities that draw the most tourists year in and year out. But it is bad to deploy historic preservation indiscriminately, without evaluating the costs it imposes on current residents and potential future ones.
Cities that want to encourage entrepreneurship and affordable housing should deploy historic preservation and other restrictive land use tools thoughtfully. Otherwise, those cities will be inhabited by comparatively rich folks who complain about the sterility of their current lives and who are nostalgic for “the good old days” when cities were diverse and hotbeds of creativity.
If they fail to understand the trade-offs inherent in historic preservation, they won’t even understand that a part of the problem is the very policy they support to “protect” their vision of their community.
Realtor.com quoted me in 3 Most Mind-Boggling Housing Turf Wars Ever—and What They Can Teach Us All. It opens,
Welcome to turf wars! No, it’s not the latest reality TV show—it’s just a way to describe two (or more) parties insisting that a particular piece of property is their own.
Turf wars are as old as the hills, and the existence of people who could lay claim to them. And they’re at the center of some surprisingly fascinating stories of wealth, greed, and pettiness. It seems that no property is too small to inspire a bitter rivalry—including one about the size of a floor lamp—that could go unresolved for decades.
As proof, check out some of the strangest turf tales below, and the lessons we can all learn from them to avoid the same ugly fate.
1. The smallest land grab ever
In Manhattan on the corner of Christopher Street and 7th Avenue lies a 500-square-inch piece of private property in the shape of a triangle.
The backstory: In 1910, the city demolished a building owned by David Hess to build a subway, but the surveyors missed this small patch in their measurements. Later on, once this error was discovered, the city asked the Hesses to donate it, but the family refused.
For good measure, the family laid a mosaic reading, “Property of the Hess Estate Which Has Never Been Dedicated for Public Purposes.”
Per the New York Times, it’s “one of the smallest pieces left in private ownership as a result of the cutting through a few years ago of the Seventh Avenue extension. It has been assessed on the tax books for $100.”
In 1938 the family sold this parcel to the cigar shop a few feet behind it for $1,000.
Lesson learned: Land survey mistakes—or not bothering with a survey at all—can cost you big-time!
“If there’s any question about who owns what, it’s better to be safe than sorry and get a good survey done,” says David Reiss, a law professor at the Center for Urban Business Entrepreneurship at Brooklyn Law School.
On a more human level, we can learn this: “Spite is about as powerful as an immovable object,” says Reiss. “If you try to dislodge it, you will in all likelihood lose.”
The New York Law Journal quoted me in Upper West Side Skyscraper’s Future Uncertain After NY State Court Ruling. The story opens,
The development at 200 Amsterdam Ave. in Manhattan is slated to be the tallest building on the Upper West Side, with its 51 stories rivaling the skyscrapers located further downtown.
But whether this will ever happen has now become questionable, after a state court ruling that found city officials were wrong to follow an interpretation of city zoning law used by the developer to achieve the project’s awesome height.
Supreme Court Justice Franc Perry of Manhattan sided with local community groups looking to halt the building underway at the site. The plaintiffs—the Committee for Environmentally Sound Development and the Municipal Arts Society of New York—were joined by numerous local state and city elected officials in opposing what they say is not only an out-of-character monster development in the Manhattan neighborhood, but one that relied on a faulty zoning law interpretation to move forward.
“It is finally a declaration that zoning law means something and developers can’t make it up as they go along,” said Emery Celli Brinckerhoff & Abady name attorney Richard Emery, who represented the plaintiffs.
Since 1978, developers and city buildings officials have relied on the so-called Minkin Memo, named after the former head of the city’s Department of Buildings’ Irving Minkin, for guidance on what experts call an ambiguity in the city’s zoning law towards so-called tax lots. These are additional subdivisions of city real estate, which can overlap with or be included inside a zoning lot.
Under the Minkin memo, developers have been able to pull together extra vertical building rights that nearby property owners aren’t using, offering the opportunity to boost the size of a project such as 200 Amsterdam beyond what would normally be allowed.
“The zoning resolution is ambiguous about when a zoning lot can be formed from partial tax lot; it never deals with that problem,” said Stewart Sterk, the Mack Professor of Real Estate Law and director of the Center for Real Estate Law & Policy at the Cardozo School of Law.
Initially, city officials had no problem with the move. DOB issued a permit to the developers for a residential and community facility building at the site of the Lincoln Towers condos on the Upper West Side. The developers relied on the Minkin memo as the basis for the acquisition tax lots that combined partial and whole lots to provide the developers with the vertical building rights needed for their skyscraper.
Shortly after DOB green lighted the project, the Committee for Environmentally Sound Development challenged the DOB’s decision. The challenge snowballed, and soon seemingly every local elected official, from state Assemblyman Richard Gottfried to borough president Gale Brewer, were opposed to the plan. The project’s permit was appealed by both CESD and the Municipal Arts Society to the city’s Board of Standards and Appeals.
In March 208, DOB made an official about-face on the project. In a letter from assistant general counsel to the BSA, the department said the Minkin memo provided an incorrect interpretation and that zoning regulations did not in fact intend for zoning lots to consist of partial tax lots.
The BSA was not persuaded by the arguments and in July 2018 voted 3-1 not to grant the appeal, with one board member abstaining. The plaintiffs soon after pursued a review of the BSA’s decision in state Supreme Court.
In subjecting the developers’ permit to further review, Perry pointedly took issue with BSA view of the process.
“BSA found that the Subject Zoning lot is ‘unsubdivided,’ within the meaning of the [New York City Zoning Resolution], simply because Developer has declared it to be so,” the judge wrote.
Noting that the referenced law states that a zoning lot is defined by being “unsubdivided” within a single block, Perry said BSA’s interpretation would render the term “superfluous,” and run “afoul of elementary rules of statutory construction.”
Since DOB saw the light on the Minkin memo during the appeal process, the court said the department’s statutory basis for the issuance of the permit to begin with was undermined. BSA’s decision was nullified and vacated, and the board was directed to review the project’s permit application “in accordance with the plain language” of the zoning regulation and Perry’s order.
As Cordozo’s Sterk noted, the development at 200 Amsterdam was far from the first to use the Milkin memo to justify partial tax lot usage in a building plan. Perry’s decision has the ability to throw uncertainty around zoning and building issues into a business sector highly adverse to such things, Sterk said.
But just as important for Sterk is the question now of when a government agency becomes estopped from changing its mind after it’s already induced people to rely on its existing interpretation.
“That’s a big problem in this case, because clearly developers have put millions of dollars into this project in reliance on an existing interpretation,” he said.
Brooklyn Law School professor David Reiss, who is the research director of the school’s Center for Urban Business Entrepreneurship, said he saw the case as less of a “good guy vs. bad guy” dynamic as much as one of whether the assurances of government officials can be binding.
“There’s a reliance on government statements and government permissions,” Reiss said, while noting the project has already commenced.
Should the case stand, he predicted it would serve to rattle developers’ confidence in their dealings with the city going forward.
“It’s more uncertainty in a process that’s already pretty uncertain,” he said.
Realtor.com quoted me in ‘Help! My Luxury Rental Was Turned Into a College Dorm’. It opens,
Finally! After years of scraping by in cramped apartments in sketchy neighborhoods, you’ve made it—into a luxury rental with a doorman, concierge service, gym, bike room, and other posh amenities. It seems perfect.
Then you meet your neighbors, sunning themselves on the roof deck. Topless.
Sound like the opening to a Skinemax flick? On the contrary, it’s a reality for residents at The Azure, a new high-end apartment building in Brooklyn, NY.
“There were girls sunbathing topless up there,” one tenant with a child told the New York Post. “My wife was, like, ‘WTF?!’ There are a lot of families [here].”
You see, The Azure was facing significant vacancies, so the management company decided to rent out 30% of its units to King’s College, a liberal arts school in lower Manhattan. The result? Families who paid top dollar to live in a building with a business center, cold storage space for grocery deliveries, and other luxe features suddenly found themselves in what felt like a college dorm. A “dormdominium”! And you know what that probably means: late-night parties with eau de weed wafting through the halls and, um, some awkward bump-ins during rooftop barbecues with bikini-clad (or unclad) residents. And noise. Lots of noise.
“We bought into the luxury experience of the nice rooftop,” another tenant lamented. “We didn’t expect it to be packed with 18-year-olds.”
When luxury apartments turn into dorms: Why it happens
This rude awakening for well-heeled renters isn’t as unusual as you might think. It’s just what many luxury developers may find themselves doing now that the high-end rental market is softening, leaving empty apartments that must be filled to make ends meet.
“Building owners stuck with vacant properties will try to rent them to whoever they can within reason,” says Aaron Shmulewitz, a real estate attorney with Belkin Burden Wenig & Goldman in New York City. “When the economy goes bad, building owners have to scramble.”
Part of the problem is that a few years ago, the housing market was going so strong, developers got bullish on building—only to find themselves in a more sluggish market once their structures were complete.
“Opening a residential building is a many, many-year process,” says David Reiss, research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School. “You have to acquire the site, you have to get financing, perhaps you have to get zoning approvals, you have to get your plans approved … then you have to build it and then you have to market it. You’re talking about years of work.”
Many of these builders were likely banking on the possibility that rental demand would just keep going up and up—but they bet wrong.
“We have a large amount of supply that came into the market within a fairly short period of time,” says Edward Mermelstein, a real estate attorney with One and Only Holdings in New York City. “At the same time, the demand has waned substantially.”
How do college kids afford a luxury rental, anyway?
While luxury rentals in any other city might be hurting right about now, New York is well-positioned to solve this problem, thanks to its high student population and limited dorm space.
“Renting to college students in Manhattan or Brooklyn has always been a trend, as there’s a total of almost 250,000 active students on this small island,” says Michael Jeneralczuk, a real estate agent with REAL New York. “With that said, luxury apartments are usually outside of student budgets.”
While a luxury rental might be outside of any individual student’s budget, a larger group of students can make it work. According to the Post, the King’s College students are paying a combined $6,000 per month for a two-bedroom apartment housing four people, which comes to $1,500 per person. This is more affordable than trying to rent alone; even a studio apartment at The Azure starts at $2,399 per month, according to the building’s website.
Meanwhile, the nonstudent rate for a two-bedroom apartment at The Azure starts at $3,391 per month. So by renting to King’s College students, the building is also making almost twice as much per apartment. So, at least for these two parties, it’s a win-win.
“It’s an opportunity to fill vacant apartments and collect rent,” says Becki Danchik, a real estate agent with Warburg Realty in New York City.
Given that the luxury rental market is slowing down nationwide, does this mean renters across the country might expect college-aged neighbors soon, too?
According to Reiss, it depends on development levels. In Los Angeles, construction has stalled, so apartments are filling up. Seattle, on the other hand, is facing similar issues as New York City.
“Seattle has had a construction boom, which means there are a lot of empty apartments,” says Reiss. “You face a similar situation where landlords are going to look to find some way to rent those out and make their money back.”
Bloomberg Law quoted me in Banks Look to Narrow Exams Under Community Reinvestment Act. It opens,
Banks see an opening to limit the types of violations that could lead to a Community Reinvestment Act downgrade as federal regulators begin rewriting rules under the 1977 law.
Banks say regulators have improperly used consumer fair lending and other violations involving credit cards or other financial products to evaluate compliance with the law meant to increase lending and investment to lower-income communities.
“When a bank violates a consumer protection law, there is no shortage of enforcement agencies and legal regimes available to seek redress and punishment. Adding the CRA to that long list thus has little marginal benefit, and risks diluting and undermining the CRA’s core purpose of promoting community reinvestment,” the Bank Policy Institute, a leading bank lobbying group, said in a Nov. 19 comment letter to the Office of the Comptroller of the Currency.
The OCC set the stage for a CRA rewrite in August by releasing an advanced notice of proposed rulemaking. The Federal Reserve and Federal Deposit Insurance Corp. have signaled a desire to sign on to a joint proposal.
With that momentum building, banks are taking their shot to limit the types of enforcement actions included in CRA reviews. They want CRA reviews to focus on mortgages, small business and other community development investments.
The question of how non-CRA-related violations apply to banks’ community lending reviews is not merely a theoretical exercise.
Wells Fargo & Co. saw its CRA grade downgraded two levels to “needs to improve”in March 2017 following the revelation of the fake accounts it generated for consumers. Several states and municipalities cut off business with the bank in response.
CRA exam cycles run three years for large national banks and can run longer for smaller banks that perform well. Banks receive one of four grades—outstanding, satisfactory, needs to improve or substantial noncompliance—and a poor grade can restrict their merger and branch expansion plans.
OCC, Treasury Leading Push
The Trump administration, led by Treasury Secretary Steven Mnuchin and Comptroller of the Currency Joseph Otting, has been pushing for the latest CRA revision.
Both of those officials ran into CRA trouble when they tried to sell OneWest Bank to CIT Group Inc. Mnuchin was OneWest’s chairman and Otting its chief executive.
The Treasury Department released a report on “modernizing the CRA” in April. Included in that report is a call to not allow fair lending enforcement investigations from the Consumer Financial Protection Bureau and other regulators to slow down CRA reviews.
Otting went farther, issuing a bulletin on Aug. 15 highlighting that his agency’s examiners will no longer take into account non-CRA lending violations when assessing a bank’s CRA compliance.
The FDIC and the Fed have not yet followed suit. But banks want the three agencies to set a common policy on dealing with non-CRA related enforcement actions in their community lending reviews.
“Regulators should develop consistent policies clarifying that CRA will not be used as a general enforcement tool,” the American Bankers Association said in a Nov. 15 comment letter.
There is some merit to the idea, according to David Reiss, a professor at Brooklyn Law School and the research director at the Center for Urban Business Entrepreneurship.
“It’s delinking fair lending concerns, which are regulated elsewhere, from CRA concerns. From an industry perspective that may make a lot of sense,” he said in a Nov. 30 phone interview.
The proposal, taken in a vacuum, may be reasonable. But in the context of broader attempts to weaken the CRA, it should be viewed more skeptically.
