As a result of an investigation pertaining to bribery in the real estate industry, the Investigation Department of the Manhattan district attorney’s office uncovered a scheme to bypass safety and security protocols and install illegal gas meters in Brooklyn.
In an indictment unsealed on January 12, 2017, the seven defendants including a former employee of National Grid and six current employees were accused of enterprise corruption. In addition, 30 landlords, property managers and contractors were charged with commercial bribery and falsifying business records. Prosecutors have described the scheme as a “shadow utility company,” installing illegal gas meters for landlords who did not want to pay for licensed workers, follow safety rules or wait for New York City inspections.
During a press conference held on January 12, Eric Gonzalez, the acting Brooklyn district attorney stated that “[t]his is an unprecedented case in our opinion, showing that the hot real estate market in Brooklyn serves to feed criminal activity … this corruption within a major company is particularly alarming, given potential lethal consequences.”
Weldon “Al” Findlay, who worked for National Grid until 2010, used current employees led by Phoebe Bogan, 41, to create accounts for landlords and install the meters without proper inspections by Department of Buildings’ workers or master plumbers, investigators said.
As authorities have described, for several months last year, Mr. Findlay received phone calls or texts from landlords in gentrifying neighborhoods like Bushwick, Williamsburg and Bedford-Stuyvesant who wanted to skirt city regulations, and he charged them $1,300 to $2,500 for every illicit meter installed. Ms. Bogan, his primary accomplice, was a customer service representative at National Grid’s main office at One MetroTech Center in Brooklyn. Ms. Bogan served as a go-between between Mr. Findlay and the technicians who performed the illicit meter installations.
Inspectors with National Grid and the city’s Buildings Department have already checked the 33 locations involved in the investigation and confirmed that there are no risks to health and safety, a serious concern following the large gas explosion on Second Avenue in the East Village in Manhattan in 2015.
In a statement, National Grid said it had cooperated fully with the investigation and was also conducting its own inquiry. “National Grid has zero tolerance for unethical and illegal behavior,” the statement said. “The alleged misconduct, although limited, contradicts the dedication and professional values of our 15,000 hardworking men and women.”
Each of the 37 defendants in the case pleaded not guilty at arraignments in State Supreme Court in Brooklyn on Thursday.
It comes as no surprise that some residential tenants are illegally living in buildings not intended for residential use. Illegally living in a building however, does not leave you without rights. The “loft law,” part of the Multiple Dwelling Law passed in 1982, is designed to protect tenants illegally living in commercial or factory buildings. The loft law has two goals: to bring such buildings up to code for residential safety and fire purposes, and to protect the tenants who live there.
In its current form, the law allows qualifying tenants or landlords to apply to the New York City Loft Board to legalize their rental if it is located in a commercial or manufacturing building without a residential Certificate of Occupancy where three or more families have lived independently from one another for twelve consecutive months from January 1, 2008 through December 21, 2009. Such rentals must also have at least one window that faces a street, legal yard or legal courtyard, must be at least 400 square feet and may not be located in a basement, cellar, or in an industrial business zone (other than Greenpoint or Williamsburg, North Brooklyn and certain areas of the Long Island City industrial business zone).
In practice, the loft law is friendlier to tenants than it is to landlords. The process to legalize a building can take years and be rather costly, depending on what is required to bring the building up to code. Additionally, assuming successful legalization, a landlord may now have legal residential apartments to rent out, but those apartments may be subject to rent stabilization laws giving tenants more protections and limiting annual rent increases under the Rent Guidelines Board, which freezes rent increases to 0% between October 1, 2015 and September 30, 2016 for one-year renewal leases.
With all of that in mind, what is perhaps the greatest harm to landlords relates to rent collection. Under the law, if a building does not have a residential Certificate of Occupancy, the owner of the space cannot collect rent. Once a landlord obtains a residential Certificate of Occupancy, rent can be charged going forward, but the landlord is barred from seeking back-due rent – meaning you may end up footing the bill to bring your space within the law and have nothing to show for it.
72nd Street: Vik Muniz’s Perfect Strangers. A glass mosaic and laminated glass, fabricated by Franz Mayer of Munich. Photo Credit: Metropolitan Transportation Authority, sourced from MTAPhotos, CC Attribution 2.0 Generic.
After failed attempts during World War II and the 1970’s fiscal crisis, 10 years and $4.4 billion later Phase 1 of the Second Avenue Subway is officially up and running. The Metropolitan Transportation Authority states that this is the “biggest expansion of the subway system in 50 years”. Once completed, the line will stretch 8.5 miles along the East Side and is essentially an extension of the Q line. Presently, the Second Avenue Subway includes stations at 72nd, 86th and 96th Street. For Upper East Siders, this line aims to cut travel time by 10 minutes and reduce congestion on the Lexington Avenue line by 23,500 people daily. Not only does the line ease overcrowding, but the new art installations at 63rd, 72nd, 86th and 96th Street stations make the subway more aesthetically pleasing.
The Second Avenue subway line has already started to affect real estate on the Upper East Side. Nineteen new construction projects from 59th Street to 96th Street are taking advantage of the real estate opportunities. The Azure condominium complex has reported that buyers are increasingly more interested in the neighborhood due to the new subway line. Therefore, it expected that prices of real estate and closed sales will steadily increase in 2017. On the downside, this means residences and businesses could see a spike in rent prices.
So who will be moving into these buildings? Millennials have started to migrate to the Upper East Side between Third Avenue and York Avenue due to affordable pricing. In light of the new construction developments and increased area dynamic by way of the new Second Avenue Subway line, millennials are likely to develop a strong preference for residences on the Upper East Side.
Every year, your co-op, through the managing agent or board of directors, sends you an annual financial statement. For most co-op shareholders, there is a very real temptation to just ignore it. However, these statements, while unexciting, contain information valuable to you.
What are you paying for? Each annual financial statement typically contains numbers for the past two years so that you can compare your co-op’s finances from one year to the next. This makes it easy to spot big changes in expenditures. It also provides an opportunity to check the status of assessments to pay for capital improvements and unanticipated expenses, like facade repair. If you notice large expenditures that you were previously unaware of, or do not understand why a major repair is incomplete, you should make a note of it and ask your fellow shareholders/board members during the next meeting.
How much money does the building have? These statements also provide a way for shareholders to monitor their building’s income. Most buildings rely on monthly maintenance fees and commercial unit rent to pay bills. However, for buildings that rely on unpredictable sources of income like flip taxes to make up a deficit, it’s a sign that the building’s maintenance may not be high enough. If your building’s annual financial statements show a loss in most years, it should be a cause for concern. Relatedly, your building’s financial statement should also provide the status of the reserve fund, which is used to pay capital expenditures. In order to know whether your reserve fund is adequate, it is necessary to know something about your building’s condition so that you can anticipate expenses in the year to come.
How about that mortgage? Co-ops typically do not pay off a mortgage, as that would not benefit current shareholders, but you should pay attention to the interest rate and maturation date. A high interest mortgage that does not qualify for refinancing should be a cause for concern. If, however, your building refinances a high interest rate mortgage for a lower interest rate, it can and should use the proceeds to add to the reserve fund.
What else should I look for? Pay attention to information regarding attorneys fees paid, and whether a tax abatement is about to expire, which would mean an imminent increase in your monthly maintenance fees. Additionally, the annual financial statements should be prepared by independent accountants. If the statements are audited, the accountants should note whether the audit meets generally accepted accounting principles – GAAP standards. If your building’s statements do not meet GAAP standards, then they are not properly audited financials.