Conversion Of A Rental Developer
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WHEN the State Legislature adjourned late last month without resolving the issues surrounding rent increases to cover major building improvements, Herman I. Kraus, one of the few developers of moderately priced rental housing in the city, decided to go into the condominium conversion business. ”Rental housing is tomorrow’s dinosaur,” he said. Earlier this month, Mr. Kraus, president of Kraus Enterprises, distributed a condominium offering plan to tenants at Regents Park Gardens, a development with 320 apartments in 14 two-story buildings in the Kew Gardens Hills section of Queens. He said he had also intended to hold three other large Queens developments as long-term investments in rental property, but he now plans to convert them as well. The problem, he said, is that rent regulations may be changed so that he could not him to raise rents enough to recover the millions of dollars he borrowed to renovate the properties. If he cannot recover enough to cover debt service on the construction loans and provide a 6 to 8 percent profit, he will convert the properties to repay the debt and make a quick profit. Tenants faced with large rent increases to pay for buildingwide improvements may not agree with Mr. Kraus’s business tactics or his decision to convert, but many landlords are similarly re-evaluating their investments because of the uncertainty surrounding allowable rent increases for major capital improvements - the major capital improvement, or M.C.I., allowance. As it stands now, the state Division of Housing and Community Renewal, which oversees rent regulation in the city, is planning to reduce the maximum annual rent increases allowable for major capital improvements to 6 percent from 15 percent. The agency’s action was prompted by a tenant lawsuit, pending in State Supreme Court in Manhattan, that contends regulatory agencies have been misinterpreting state housing law for 15 years. More : query.nytimes.com |