Last December, The William Beaver House, located at the heart of New York’s Financial District, sat with 209 of its 320 units unsold—units priced from $900,000 to well over $2 million each. Unfortunately, while sales had gone well for the 47-story luxury building during the previous few years, the recent economic troubles let to a somewhat desperate situation for the owner of the lavish property.
Help arrived for the building in the form of CIM Group, a real estate investment company based in Los Angeles. Taking advantage of a very productive rental housing market, CIM bailed out the owner of William Beaver House and then offered the unsold units as one-year rentals, ranging from $3,200 to $8,500 per month.
Feeling the Pressure
As the housing market in many parts of the country has foundered, many developers have opted to—or been financially pressured to—convert portions of developments originally intended as condo units into rental properties. New York City hasn't been hit as hard as other markets, but the pace of new development and sales has definitely slowed, and some developers have shifted gears in order to remain profitable (and in some cases, just solvent) in the altered market.
“It’s legal to convert to a rental, unless it’s perpetuating sponsor control of the building, in which case the board does have a right to challenge the sponsor’s lack of sales,” says Bruce Cholst, a partner with the Manhattan-based law firm Rosen Livingston & Cholst. “In a newly constructed building, as long as the sponsor discloses up front that he reserves the right to not sell all apartments but rent some in perpetuity and may maintain control of the board in perpetuity, it is legal.”
In 2010, however, then-New York Governor David Paterson signed a bill that made short-term, 'vacation' apartment rentals of less than 30 days illegal in New York starting on May 1, 2011. The measure was drafted largely to prevent owners and tenants from renting out their apartments on a per-night basis. A recent article in The New York Times focused on this problem in San Francisco, where such conversions to tourist rentals are widespread, though largely illegal under San Francisco’s rent-control laws.