Downtown Express, February 5 - 11, 2010

Feds say Gluck is gouging I.P.N.

By Julie Shapiro

Tenants of Independence Plaza North have been arguing for years that their apartments should be rent-stabilized — and now U.S. Attorney Preet Bharara is taking up the cause.

Bharara’s office wants to recover tens of millions of dollars the federal government paid I.P.N. owner Laurence Gluck to support the Tribeca apartment complex’s low-income tenants. Bharara, in New York’s Southern District, also wants many of I.P.N.’s 1,339 apartments declared rent-stabilized.

Diane Lapson, president of the I.P.N. tenant association, sees the U.S. attorney’s case as support for a similar case the tenants brought several years ago, also arguing that their apartments should be rent-stabilized. That case is still pending.

“[The federal government] wouldn’t make a move like this if they thought there was a question about it,” Lapson said.

Stephen Meister, Gluck’s lawyer, disagreed, saying the U.S. attorney’s case was politically motivated. Meister also threatened to “make it my personal business” to make things worse for I.P.N. tenants if they win their case and are declared rent-stabilized.

The U.S. attorney’s complaint, filed in October of last year, echoes the tenants’ earlier case by arguing that many Independence Plaza apartments should be rent-stabilized because Gluck received a J-51 tax break. Not only should the apartments have been rent-stabilized while Gluck was getting the tax break, but the tenants should continue to be rent-stabilized until they move out, even though Gluck cancelled and repaid a portion of the tax break in 2006, the U.S. attorney’s office wrote in the Oct. 29 complaint.

The reason the U.S. attorney is involved is because the U.S. Dept. of Housing and Urban Development provides Section 8 subsidies to I.P.N.’s low income tenants. The subsidies started in 2004, when Gluck removed I.P.N. from the state’s Mitchell-Lama affordability program. Section 8 tenants pay no more than 30 percent of their income for their apartments, and HUD covers the rest. So between the two payments, Gluck has received the full market-rate rent for each Section 8 apartment every month since exiting Mitchell-Lama.

But now, the U.S. attorney is arguing that Gluck should have received much smaller federal subsidies, because the apartments should have been rent-stabilized, not market-rate.

“Substantial HUD monies were paid as rent to defendants to which they were not entitled,” the federal prosecutors wrote in a complaint filed last October. “In equity and good conscience, they should not retain the payments.”

Seth Miller, a lawyer for I.P.N.’s tenants, put it even more simply: “HUD is a little bit upset that they’ve been paying market-rate vouchers to Larry Gluck to the tune of tens of millions of dollars, when all the while they should have been paying a stabilized rate,” Miller said at a housing forum hosted by State Sen. Daniel Squadron last week.

While I.P.N. once had nearly 700 Section 8 apartments, the complex now has just fewer than 500, because some tenants lost their vouchers or moved away. Meister, Gluck’s lawyer, estimated that HUD has been paying Gluck at least $10 million a year since 2004.

HUD is now trying to reclaim much of that money, plus interest and fees. HUD did not comment or give an exact figure.

While I.P.N.’s tenants see the U.S. attorney’s case as a sign of support for their own bid to become rent-stabilized, Meister disagrees. Meister said the only reason the U.S. attorney decided to pursue the case was because of last year’s Stuyvesant Town decision, which tenants see as a favorable harbinger for Independence Plaza. The state’s highest court ruled last October that Stuyvesant Town’s owner illegally deregulated thousands of apartments. One week later, the U.S. attorney filed the complaint saying that apartments at Independence Plaza, too, were wrongly deregulated.

“They don’t want to be embarrassed,” Meister said of the federal government. If the I.P.N. tenants win their case, the U.S. attorney could look bad for not going after the Section 8 money, so the U.S. attorney filed the case, Meister said.

On the surface, the connection between Stuyvesant Town and I.P.N. is that both received J-51 tax breaks from the city. But Meister said it doesn’t make sense to apply the Stuy Town ruling to I.P.N. because Gluck’s tax break was much smaller and he discontinued and repaid it. Miller, the I.P.N. tenants’ attorney, argues that the cases are similar.

Either way, it does appear that the Stuy Town ruling prompted the U.S. attorney’s court action. Ed Rosner, an I.P.N. tenant, first filed a whistle-blower complaint with the federal government back in 2006, accusing Gluck of charging HUD too much for the Section 8 tenants. The U.S. attorney’s office decided not to pursue the exact complaint Rosner made, but filed a related complaint last October, one week after the Stuyvesant Town decision.

The U.S. attorney’s office, Rosner and Rosner’s lawyer declined to comment on the pending litigation.

Also pending is the tenants’ 2005 case against Gluck, which Judge Marcy Friedman deferred to the state Division of Housing and Community Renewal last year.

The D.H.C.R. has shown no sign of issuing a decision — “They’ve done nothing with it,” Meister said — so it’s possible that the more recent federal case could be decided first. D.H.C.R. did not respond to requests for comment.

In a phone interview this week, Meister, Gluck’s lawyer, made his most pointed statements to date saying the tenants will be worse off if they continue pursuing their case and become rent-stabilized.

“If [I.P.N. tenant lawyer Miller] wins and the building is stabilized, I’m going to make it my personal business to completely take the building to market,” Meister told Downtown Express. “Everyone gets screwed if Miller wins.”

Lapson said Meister’s comments amount to nothing more than scare tactics, since if the tenants win, they will be protected under rent-stabilization. Many tenants already have basic rent protections under a binding agreement they negotiated with Gluck in 2004, before they discovered the J-51 tax break.

“He continues to think that if he frightens us, we’re going to back off,” Lapson said. “No one’s backing off. We’ve been in this a long time.”

Losing either the tenants’ case or the federal one could put Gluck’s company in a dire position. If Gluck has to repay the tens of millions of dollars he has received from HUD, his company may be unable to meet mortgage payments and have to surrender the building — another potential echo of Stuyvesant Town at I.PN. Gluck’s company has recently defaulted on other properties, including the Riverton Houses in Harlem.

Meister said, “There may or may not be enough equity in [I.P.N.]” to cover a repayment to HUD.