A $5,483 "affordable" 2-BR? At 38 Sixth & 535 Carlton, has Avanath legally gamed rent stabilization, violated an agreement, or something else? NYC HPD won't say.
When the housing lotteries for two "100% affordable" buildings 535 Carlton Ave. (link) and 38 Sixth Ave. (link) launched in 2016 and 2017, half the income-targeted, rent-stabilized apartments were in an upper middle-income "band," for households at 165% of Area Median Income (AMI).
Two-bedroom units in that category were to rent for $3,223 and $3,206, respectively. Rents were supposed to rise each year only by the annual amount set by the Rent Guidelines Board.
During the pandemic, many people with means left the city. When in February 2021 the New York City Housing Development Corporation sought to market remaining units at 165% AMI, two-bedroom apartments at both 535 Carlton and 38 Sixth were listed for $3,206, likely to avoid competing with each other.
A 71% increase?
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| From Apartments.com |
Now two-bedrooms at both buildings are listed, astoundingly, at $5,483, a 71% increase, by the current landlord, Avanath Capital Management, on Apartments.com.
This Listing has been verified by CoStar’s listing verification process, which combines internal screening and fraud detection technology.
A recent poster on Reddit, who's apparently on a waitlist for apartments at lower "bands," questioned whether the landlord was "likely to release these absurdly priced apartments to people in lower bands if they don't rent"?
One respondent said no, noting that, "If they offer a preferential rent for a rent stabilized apartment, it becomes the permanent rent."
(Well, that's what happens in many buildings, though I'm not sure that applies in this case.)
The original respondent restated confusion: how could a tax-advantaged building "charge such a high rate," especially since other "luxury buildings with similar income caps on income-restricted units are charging considerably less."
Well, perhaps Avanath--the California-based firm that bought both buildings in 2022--has figured out how to legally game the rent-stabilization system.
I can't be sure. Nor have I yet found anyone paying those rents.
The New York City Department of Housing Preservation and Development (HPD), given more than two months to look into it, wasn't able to give me an answer.
Curiously, as shown in the 535 Carlton screenshot above, Avanath seeks only a $3,531 deposit for a two-bedroom listed at $5,483, while at 38 Sixth it seeks a $3,302 deposit, as shown in the smaller screenshot.
“We’re certainly a for-profit company," said CEO Daryl Carter, on a podcast last year, "but I think our messaging and our focus can be a lot different."
What's going on?
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| From Apartments.com |
Perhaps it's violating an agreement. Or maybe it's something else.
I can't be sure. Nor have I yet found anyone paying those rents.
When I queried Avanath, as part of a wide-ranging article about 38 Sixth published last month by City Limits (Despite New Owner’s Promised Upgrades, ‘100% Affordable’ Atlantic Yards Building Endures Hot Water Outages, Broken Door, Even Bees), I didn't get answers to detailed questions.
"We are dedicated to remaining fully compliant with all federal, state, and local lease regulations," Avanath said.
The New York City Department of Housing Preservation and Development (HPD), given more than two months to look into it, wasn't able to give me an answer.
So this issue was omitted from my City Limits article, though--as that Reddit discussion suggests--it deserves sunlight. (By the way, conditions at the building, including lack of hot water, front door problems, and a roach infestation, have not improved, I'm told by tenants.)
What's going on with deposits?
Curiously, as shown in the 535 Carlton screenshot above, Avanath seeks only a $3,531 deposit for a two-bedroom listed at $5,483, while at 38 Sixth it seeks a $3,302 deposit, as shown in the smaller screenshot.
(Other two-bedroom units, bizarrely, are said to have a $1,705 deposit.)
At 535 Carlton, the landlord seeks a $2,256 deposit for a studio listed at $4,274 and a $2,850 deposit for a one-bedroom listed at $4,576. At 38 Sixth, it seeks a $2,784 deposit for "studios" listed at $4,274, which, given their square footage, are surely one-bedrooms.
Putting aside the inconsistency and sloppiness, the deposits sought, in the main, are closer to what the rents would be if they had simply risen thanks to increases based on rent stabilization.
Avanath practices
Avanath, as I wrote, is a private firm in growth mode, gaining institutional capital both because of its ability to produce significant profit, aiming for “strong risk-adjusted returns” in the low-to-mid teens, as well as the halo it gets from managing affordable housing.
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| Looking south at 38 Sixth Ave. Photo/Norman Oder |
Avanath, as I wrote, is a private firm in growth mode, gaining institutional capital both because of its ability to produce significant profit, aiming for “strong risk-adjusted returns” in the low-to-mid teens, as well as the halo it gets from managing affordable housing.
“We’re certainly a for-profit company," said CEO Daryl Carter, on a podcast last year, "but I think our messaging and our focus can be a lot different."
"Y'know, we've had, in certain markets, 12-13% increases in Area Median Income, where we could push the rent by that," he continued. "But we typically do that over a couple of years. You don’t want to lose good residents.”
How they might be doing it
How could one-bedroom Unit 1602 at 38 Sixth, initially leased (and in 2021 re-leased--see screenshot at right) at $2,663—and with pandemic discounts lowered to a net effective rent of $2,219—now list for $4,274, a 60% increase?
Oddly enough, at Avanath's only similar building in Brooklyn, 7 DeKalb, it's listing a one-bedroom at $3,702.
Rising not by rent guidelines
According to my unofficial reading of the underlying 38 Sixth regulatory agreement, described further below, is that the legal rent can rise only by the vacancy lease increase permitted by Rent Stabilization, rather than re-set at the new AMI. (535 Carlton has a similar agreement.)
However, the elevated rents for 38 Sixth and 535 Carlton are still being published on Apartments.com. Units are no longer listed on StreetEasy.
That doesn’t seem to be the strategy here. After all, the increases in AMI in New York have been even more dramatic. For a four-person household, in 2016, 100% of AMI was $90,600. In 2024, it had risen to $155,300, a 71% increase over time. (Remember that percentage.)
Except in this case, the rents have risen dramatically over just two years.
Market-rate units?
The firm's 2022 press release, upon acquiring the buildings (as regurgitated in various industry publications), hinted at the company's aggressive strategy, misleadingly citing 38 Sixth and 535 Carlton as “comprising 601 Affordable and market-rate residential and commercial units.”
Actually, the only market-rate space is retail. Was that a message to investors that the rent-regulated units might deliver returns akin to market-rate ones? (If so, could these current apartment advertisements be decoys, aimed not at actual tenants, but at investors, and the real rents reflect the deposits?)
Or was it the same sloppiness that led Avanath, in its initial websites for the buildings, to locate them in Pacific Heights--a neighborhood in San Francisco--rather than Prospect Heights?
Or to label the buildings as "Barclays I" (plausible for arena-adjacent 38 Sixth) and "Barclays II" (not plausible for 535 Carlton, more than one long block away)?
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| February 2021 ad |
How could one-bedroom Unit 1602 at 38 Sixth, initially leased (and in 2021 re-leased--see screenshot at right) at $2,663—and with pandemic discounts lowered to a net effective rent of $2,219—now list for $4,274, a 60% increase?
Well, Area Median Income (AMI) has risen sharply.
According to HPD, under 2023 AMI figures, a one-bedroom at 165% AMI could rent for up to $4,370. The 2024 AMI ceiling rose to $4,805.
Can a landlord in this case re-set rents, upon vacancy, near 30% of their income at the current AMI for that upper middle-income category, as Avanath seems to have done?
Can a landlord in this case re-set rents, upon vacancy, near 30% of their income at the current AMI for that upper middle-income category, as Avanath seems to have done?
If so, that would be a lucrative strategy in a location where rent levels surf rising AMI.
The 7 DeKalb comparison
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| From Apartments.com |
Oddly enough, at Avanath's only similar building in Brooklyn, 7 DeKalb, it's listing a one-bedroom at $3,702.
It's unclear if that's a rent-stabilized affordable unit or a market-rate one, but the former is more likely.
Of that building's 251 units, 80% are affordable, and the maximum rent for a below-market one-bedroom, as of 2015 lease-up, was $2,038, for those at 165% AMI. It presumably should've have risen only incrementally.
Before Avanath's acquisition was announced in January 2023, one-bedrooms, likely market-rate, were listed on StreetEasy, in summer 2022, at $3,371 and $4,031.
Today, that $3,702 rent sought is $572, or 13.4%, below the $4,274 Avanath is purportedly seeking for comparable units at 38 Sixth and 535 Carlton. Why would anyone choose the latter two?
Moreover, a one-bedroom in the condo building 550 Vanderbilt, built at a far higher budget than the Atlantic Yards/Pacific Park rental buildings, lists for $4,500, not so far off.
Rising not by rent guidelines
According to my unofficial reading of the underlying 38 Sixth regulatory agreement, described further below, is that the legal rent can rise only by the vacancy lease increase permitted by Rent Stabilization, rather than re-set at the new AMI. (535 Carlton has a similar agreement.)
Otherwise, wouldn't that be bad public policy, encouraging vacancies in order to raise rents?
Somewhat relatedly, the legislature has banned vacancy decontrol, in which rents vaulted past a threshold, thanks to MCIs (major capital improvements) and IAIs (individual apartment increases), could go to market rate,
The Rent Guidelines Board's most recent increase, on a one-year lease, was 3%, and previous increases were mostly well below that.
As of June 15, Avanath was advertising elevated rents on the websites for 38 Sixth and 535 Carlton, according to the Internet Archive. See example in the screenshot below.
Now the 38 Sixth and 535 Carlton websites say "Call for availability," segmenting out the "Tax Code" (low-income) and "Non Tax Code (moderate- and middle-income units).
Was that because of my inquiry?
However, the elevated rents for 38 Sixth and 535 Carlton are still being published on Apartments.com. Units are no longer listed on StreetEasy.
Looking at the document
Can a landlord in this case re-set rents, for a vacant unit, at 30% of current Area Median Income (AMI)?
According to my reading of the regulatory agreement, they can only raise them by RGB guidelines:
Can a landlord in this case re-set rents, for a vacant unit, at 30% of current Area Median Income (AMI)?
According to my reading of the regulatory agreement, they can only raise them by RGB guidelines:
Exception for Certain Vacancy Lease Increases. Upon vacancy of an Income-Restricted Unit, if the Legal Rent is less than 30% of the Applicable AMI Limit (adjusted for a monthly rent), then the Mortgagor may increase the Legal Rent by the lesser of (1) the vacancy lease increase permitted by Rent Stabilization and (2) the amount required to increase the Legal Rent up to 30% of the Applicable AMI Limit (adjusted for a monthly rent)
(Emphases added)
That's not a well-drafted paragraph because I'm pretty sure the word "and" should be "or." After all, "the lesser" means a choice between one option, not combine the two.If not, then it looks like they can increase the rent to 30% of the current AMI limit.
Note that the Legal Rent is defined as that listed in Schedule B, i.e., what was in the Housing Connect Lottery ad (which relied on a slightly adjusted number, thanks to a regulatory update), increased in accordance with rent stabilization.
For Tax Code Units, at 40% and 60% of AMI, the Actual Rents, considered preferential rents, were set at 37% and 57% of AMI. For Non-Tax Code Units, at 100%, 145%, and165% of AMI, the Actual Rent and Legal Rent were the same.
Lease renewals
For Tax Code units, the initial Actual Rent should not exceed the least of the Legal Rent, Actual Rent, or 30% of the Applicable AMI Limit, according to the document.
Upon lease renewal, the new Actual Rent shall not exceed the least of the Legal Rent, the prior Actual Rent increased by Rent Stabilization, or 30% of the AMI limit. Upon vacancy, the Actual Rent for the new tenant should not exceed the lesser of the Legal Rent or 30% of the AMI limit.
For Non-Tax Code units, the language is similar. The regulatory agreement states:
Upon vacancy of a Non-Tax Code Income-Restricted Unit, the Actual Rent for the new Eligible Tenant shall not exceed the lesser of 1) the Legal Rent; and 2) an amount that is the greater of (x) the Actual Rent that would have been permitted upon lease renewal for the prior tenant and (y) 30% of the Applicable AMI Limit (adjusted for a monthly rent).
In the above paragraph, I suspect that "and" means "or," because they have to choose an alternative. If not, then it looks like they can increase the rent to 30% of the current AMI limit.
For those units, the lease offers a 2% Floor. Upon lease renewal or vacancy, if the percentage increase allowed under Rent Stabilization is 2% or greater, but an Actual Rent at 30% of the Applicable AMI Limit would restrict the rent increase to a percentage increase that less than 2%, then rent could be raised by 2%.
Similar documents apply to the sibling "100% affordable" building 535 Carlton.
Given the queries posted on Reddit, and the confusion engendered, shouldn't city agencies look into this?
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