First city action vs. an illegal hotel hailed as a major step forward

By Chris Lombardi

Signaling a more aggressive strategy on the part of city agencies and the mayor’s office against illegal hotels, the city’s corporate counsel last week got an injunction in connection with its first major lawsuit against a hotel owner.

The injunction, issued last Thursday, was the first solid result from a brief filed on Sept. 6 by City Corporate Counsel Michael Cardozo urging immediate action in a case being filed by the Department of Buildings (DOB) and Housing, Preservation and Development (HPD) against Jay Podolsky, the owner of three Upper West Side SRO buildings. Claiming severe potential “immediate harm,” since the buildings’ aged stairways and fire exits were not up to the much-higher standards required for a hotel, the city’s brief demanded that Podolsky and his company be prevented from renting any of the SRO’s units for transient use, and that any changes to the premises for such use be immediately stopped.

Cardozo got only some of what he asked for, however, because city laws governing such transactions are antiquated and ineffective. Under the injunction, or Temporary Restraining Order (TRO), a stop-work order was issued and no new transient rentals can be initiated, though current transient rentals can stand for the time being. The partial victory led the city agencies, legislators, advocates and city officials working on the issue to pledge that stronger laws were on the way.

“You shoot for the moon,” said Jason Post, spokesman for the Mayor’s Office on Special Enforcement, which drafted the brief and has been driving the city’s policy on the issue. “We didn’t know what the judge would do.”

The problem of illegal hotels in the city—especially in Manhattan—has been festering for many years but has only recently been the focus of organized efforts by legislators, advocates and city officials. With Manhattan apartment vacancy rates of less than 1 percent and an 85 percent occupancy rate for the city’s 75,000 hotel rooms, nightly rentals—even at “bargain” rates of $100–$150—can be far more profitable for building owners than even market-rate apartments, let alone rent-stabilized units. Consequently, an increasing number of rent-regulated buildings throughout the city are being targeted by corporations and real estate investment firms for conversion to transient hotels, albeit illegally.

Up until last year, with the creation of the Illegal Hotels Working Group, a coalition of advocates and legislators, the city approached the problem haphazardly, on a case-by-case basis, and was hamstrung by weak laws. The Working Group brought together HPD, DOB and the Mayor’s Office of Special Enforcement to develop a strategy and bolster enforcement. In the process, they discovered that current laws on the books let owners off with minimal fines, which amounted to a cost of doing business—or a slap on the wrist.

Last Thursday, the Working Group celebrated the milestone injunction at a press conference in front of one of the affected buildings, the St. Louis on West 94th Street, which is known colloquially as the “Candy Hostel.”

Before the press conference began, a pair of Parisian tourists exited the building, trailing their luggage behind them. The couple had found the hotel on the Internet, tourist Burton Louis told Chelsea Now: “They said it’s a new hotel.” Louis and his girlfriend, Marie Vidal, were satisfied with their week’s vacation. “The description of the room is exactly what it was. The price is good for New York, $75 a night. A little room, five sq. meters.”

Louis and Vidal’s story mirrors those reported for years by tourists who find these rooms on travel Websites like Expedia, or Websites run by bold building owners, like those at the Chelsmore, at 205 W. 15th St. In February, reports by Chelsea Now of the tourist traffic in the Chelsmore, a Chelsea Class A residential building, were confirmed by a letter from an anonymous resident, which read: “Did you say there have been ‘foreign tourists lately’? Try 25-plus years! P.S. We tried to stop this a long time ago.”

The Chelsmore’s previous violations and fines for illegal transient use do not appear to have dented business there. “We’re pretty busy,” the manager said over the phone. The building’s Website advertises reservations but is otherwise discreet, not mentioning “nightly rentals” or rates and billing itself as only “NYC Apartments.” But a simple phone call on Wednesday yielded a promise of $120 per night for a studio and $150 per night for a one-bedroom.

“It’s yet another scam for landlords to take residential housing away from people who want to live in New York,” said Assemblyman Richard Gottfried, who represents Chelsea. “Then the landlord can make more money catering to tourists.”

Gottfried, a founding member of the Illegal Hotels Working Group, knows whereof he speaks. He has constituents who lived in Herald Towers, where illegal hotel rentals were a prelude to an effort to force a co-op conversion, and The Chelsea, which has been leased by “Marriott ExecuStay” and has seen all but one of its rent-stabilized tenants driven out. (See this week’s column, On the Record).

“This litigation is a major step for the city,” Gottfried added.

The need for new laws to strengthen the city’s hand is agreed upon by all players. Advocates and city officials got only half of what they wanted from the injunction for one simple reason: The city laws governing transient use of Class A buildings, and the allowed penalties, are still quite muddy.

“Attacking illegal hotels involves aggressive enforcement and untangling a patchwork of legislation that gives rise to their creation,” Criminal Justice Coordinator John Feinblatt told Chelsea Now in February. And in March, City Councilmember Gale Brewer introduced a bill to increase the fine levied against illegal hotel operators to between $1,000 and $20,000. “Fines of only $800 and rare enforcement make these illegal hotels extremely profitable,” said Brewer at Thursday’s press conference.

Brewer’s bill is part of an overall package that mixes state and city legislation. Gottfried told Chelsea Now on Wednesday that it has taken a long time, but the Assembly now has some draft legislation that would prohibit daily rentals of rent-regulated units, strengthen the legal definition of “residential” use (to prevent for-profit corporations from signing leases), and allow city inspectors to enforce rent-stabilization and rent-control laws, all of which needs state approval.

“A lot of the clarifying and toughening to the city’s building code—that the city can do themselves,” added Gottfried. “And we’re looking forward to the Bloomberg Administration to come forward with their own plan.”

That plan is coming any day now, promised Jason Post, of the Mayor’s Office on Special Enforcement. After Chelsea Now called him about the TRO, Post wrote in an email: “To meet the needs of both residents and visitors, the City is developing a legislative solution that will simultaneously fix ambiguities in the law that harm the residential market and also develop new models of extended-stay housing.”

Such talk pleases John Raskin, of Housing Conservation Coordinators, one of the founders of the Illegal Hotels Working Group.

“We think the mayor is producing some smart legislation, though we haven’t seen the text yet, so we can’t comment on the specifics,” he said earlier this week. “But we’re anxious to get the bill drafted and before the City Council as soon as possible, because we think it’s a necessary component of solving the overall problem.”

Other members of the working group are just trying not to be too impatient.

“We can’t be slow to act in housing matters—it’s too important!” said Manhattan Borough President Scott Stringer during a phone conversation with Chelsea Now on Monday. “With all the affordable housing we’re losing—units leaving rent-stabilization, the loss of so many Mitchell-Lama units—stopping these hotels is imperative. I get calls every day, people asking me, ‘How can I continue to live here? I’ve lived here 30 years.’ Or young people who say, ‘I want to make a career here. I want to participate in the cultural life.’”

As for the city’s desire to protect “extended stays,” Stringer said gently, “These hotels will make out like bandits. We know that. But that can’t always be the only criteria for these decisions we make as a city.”