A developer’s new idea to fix old Manhattan apartments could be spoiled by some of its tenants.
This winter, L+M Development Partners struck a deal to buy Knickerbocker Village, an 88-year-old housing complex in Two Bridges. Ron Moelis’ company, one of New York’s largest affordable housing developers, has promised to bring in new federal funds through Section 8 to pay for repairs and keep rents low for existing tenants.
The tenant association has reached an agreement with L+M, but some Knickerbockers aren’t playing ball.
In a lawsuit last week, the dissenting tenants are seeking to block the sale, arguing it would violate the little-known program that has kept rents low on the development’s 12 buildings for decades.
The newly formed Worried Tenants of Knickerbocker Village are suing the state’s Division of Homes and Community Renovation, which signed the agreement with L+M and the official Knickerbocker Village tenants association in February.
Behind the drama – and L+M’s investment strategy – is an unusual lease structure.
For nearly 90 years, the state has fixed rents for Knickerbocker’s 1,590 apartments per room, according to the lawsuit. Under L+M’s plan, rent for current tenants would remain at $264.34 per room. But the developer would fill vacant units at one of three price tiers based on the renters’ income — making a profit for L+M but violating the state’s Private Housing Financing Act, the dissenting tenants allege.
The suit alleges that the new pricing plan would encourage L+M to replace residents with higher-paying renters, as 40% of the units would go to families earning up to 130% of the area’s average income — about $156,000. for a family of three – and another 40% for AMI 100% households. The remaining 20% would go to low-income tenants.
Under the housing finance law that governs Knickerbocker Village, there is no cap on rent increases, but the state sets rents to cover the development’s operating costs. Before the recent rise in inflation, the state estimated that rents could rise between 8% and 12% in each of the next two years.
That’s lower than many New Yorkers are facing, but high for Knickerbocker Village. The tenants association concluded that the L+M agreement was the only way to protect existing tenants from these increases.
“Here we are, deciding whether current residents should accept two consecutive double-digit rent increases instead of agreeing to a sale with L+M,” said Shi Xing Yang, leader of the tenants association. “We didn’t want to displace existing tenants because many of them can’t afford that kind of rent increase, so we continued negotiations to see the best deal we could get for existing tenants.”
The deal they struck required L+M to freeze existing tenants’ rents for two years and then increase them no more than 2.5% a year until 2069 — the duration of a property tax rebate granted in 2019.
A spokesperson for L+M said rents have increased by 3.1% a year over the past two decades, on average. Dissenting tenants said the annual increase was 1.33% over 10 years.
The acquisition agreement states that the project needs at least $50 million in repairs over the next five years. The plan would grant Federal Section 8 vouchers for 397 apartments in Knickerbocker, allowing L+M to increase rents for those units to $574 per room. The federal subsidy would offset the costs to tenants and help pay for repairs.
Isabel Reyna Torres, a Knickerbocker resident for more than 20 years and leader of the tenants suing, disputes the need for vouchers. She points to the development’s $3 million annual tax break, passed by the City Council in 2019, which slashed nearly 90% of its annual tax bill, with the expectation that the money would go towards repairs.
Management had proposed increasing rents by 13% to pay for repairs. Torres says the tax break should free up enough money for that.
“We are concerned that they are bringing in these project-based vouchers,” Torres said. “If a place is already accessible, we don’t understand how project-based vouchers came into question.”
The answer is that Section 8 adds revenue from Washington, not tenants. L+M is using it to renovate thousands of New York City Housing Authority apartments that previously relied on a less reliable federal subsidy, Section 9.
For his part, Torres also disputes the repair estimates. “They say, ‘Oh, we need all these roofs. We need all these expenses. Absolutely not!”
The law does not explicitly state that rents must be rated uniformly by room. But Torres’ side says the rule has been interpreted that way for more than 85 years, and that switching to multiple rental lanes would violate that precedent.
In its lawsuit, the group says the current owner, Cherry Green Property Corp., has twice attempted to deregulate or restructure Knickerbocker Village to dismantle its rental structure. In 2002, the owner tried to dissolve Knickerbocker Village Incorporated, the owning corporation, but a judge ruled that the Private Housing Financing Act did not allow this. In 2017, the landlord reportedly met with tenants to discuss converting the project into a cooperative, but the state issued a cease and desist letter.
Two Bridges became a nexus of anti-development activity. Just blocks from Knickerbocker Village, L+M and the CIM Group planned a 72-story, 1,300-unit development that spent years in litigation from community activists who argued and two other projects needed City Council approval. The Chetrit Group bought the site for $78 million in April.
Before taking office, new District Council member Christopher Marte opposed Soho’s rezoning and a plan to replace a community garden with 123 units of affordable housing for the elderly.
“I don’t trust L&M as an owner,” Marte told Village Sun.
Housing and Community Renewal declined to comment, citing pending litigation.
Tenants fighting the L+M deal say the duly elected tenants’ association, which dropped its own lawsuit in reaching an agreement with L+M, failed to adequately inform and represent residents. It conducted its own door-slamming campaign and reported that more than half of residents were unaware that the sale was taking place.
“This is unacceptable and it is a disgrace to the governor, to the Division of Homes and Community Renewal, to any elected official who supports this agreement,” Torres said.
The official tenants association says it has done everything possible to get in touch with residents and that while the deal is not everything they wanted, it has outgrown the alternatives.
“My Chinese isn’t that good, but we try to explain as best we can that we’re protecting them,” Yang said.
Christina Zhang, another director of the tenants association, said she asked Torres how her group would prevent double-digit increases in rents if it stopped selling. “What are they going to take out of the hat?”