Line in the sand: progressive lawyering, "master communities," and a battle for affordable housing in New York City.

• Author: Brescia, Raymond H.

In the fall of 2006, a real estate group led by the father and son team of Jerry and Rob Speyer completed the largest residential real estate deal in U.S. history. For $5.4 billion, this team purchased the twin housing developments of Stuyvesant Town and Peter Cooper Village, located on the East Side of Manhattan. A small village made up of approximately twenty thousand residents, the complexes were built during the Second World War by the Metropolitan Life Insurance Company as a place where returning servicemen could settle down, start families, and build community. As a booming metropolis grew up around the properties, it became a middle-class enclave within a shining city of steel and glass. When they ultimately decided to put the complexes up for sale, the sellers of the properties touted the potential of the properties to be the "city's most prominent market-rate master community." (1) The Speyers and their partners took the bait. Once the investment group completed the purchase of the complexes, they sought to create an income-generating machine by replacing middle-class tenants with wealthier ones seeking a Manhattan address and willing to pay market rents.

In fact, as part of their business plan, the new landlords sought to displace thousands of rent-regulated tenants so that market rents--Manhattan market rents--could be charged in the units vacated by outgoing tenants. Led by a crusading elected official, who just happened to be a resident of the complexes, the members of the complexes' tenant association, supported by a host of lawyers from different sectors of the bar, pursued a range of legal avenues to resist the landlords' efforts to convert thousands of units from affordable housing into luxury, market-rate housing.

In many ways, the purchase of the properties at the height of the real estate market, and the subsequent campaign to pursue a high rate of return on the investment to satisfy the debt burden on the properties, is another example of the distortions created by the era of easy credit, which held out the promise of fabulous returns on investment fueled by that credit. (2) Much of the scholarship on the financial crisis focuses on the impact of the rise and collapse of an overheated home mortgage market on the broader financial system. (3) What occurred in Stuyvesant Town and Peter Cooper Village is a symptom of that broader phenomenon, but one that occurred in the rental market, not the home mortgage market. It is a tale of irrational exuberance and aggressive speculation; but the ultimate demise of the landlords' efforts also tells a different story: one of a tenant association, an elected official, and a loose network of attorneys who, together, fought back the attempts of the landlords to displace thousands of rent regulated tenants, not with bulldozers, but trumped up legal claims and an aggressive business plan.

The landlords' efforts were ultimately halted by a recent decision of New York's Court of Appeals, Roberts v. Tishman Speyer Properties, L.P., (4) which will be highlighted in detail in this article. In that decision, the tenants won a resounding victory that not only barred the landlord from lifting rent regulations on many apartments, but also held that thousands of previously unregulated units will likely have to return to rent regulation. (5) But this legal victory, as important as it is for those tenants affected by it, tells only one part of the story. The battle for Stuyvesant Town and Peter Cooper Village has been fought not only in the Court of Appeals, but also in hundreds of smaller skirmishes waged in New York City's housing court. There, members of the private bar, together with legal services attorneys, have utilized a range of services--from community education and brief advice to negotiations and full representation--to support the tenants in their attempts to resist the landlords' campaign to turn as many of the complexes' units into market rate apartments as possible. Through this coordinated and comprehensive effort, the landlords now teeter on the brink of insolvency, their plans for market rate profits dashed on the steps of not only the state's highest court, but also one of its "lowest": the Housing Part of the Civil Court of the City of New York.

This article is organized as follows: Part I provides the context for the landlords' campaign to deregulate Stuyvesant Town and Peter Cooper Village; reviews the history of the construction of the complexes; and offers an overview of rent regulations in New York City, the erosion of regulated apartments and affordable housing in the city, and the rise of the phenomenon of what some have called "predatory equity": an influx of investment dollars into the multiunit residential housing market in New York City that was driven by speculation and a desire for rapid and steep financial returns on those funds. Part II provides a brief overview of the scholarship of progressive lawyering for social change, and attempts to place this review of the legal campaign to stop the landlords' efforts to deregulate the complexes within that broader scholarship. Part III outlines the elements of this legal campaign, from the brief advice provided by the attorneys involved with the campaign, to the litigation services they offered: from affirmative, impact litigation, to defensive, eviction prevention work. Part IV offers an overview and analysis of the Roberts litigation described above. Finally, Part V provides an empirical assessment of the success of the legal campaign in light of the scholarship described in Part II. Part V also includes some questions for future legal campaigns, whether in the housing or other contexts.

1. BACKGROUND: STUYVESANT TOWN, PETER COOPER VILLAGE, AND RENT REGULATIONS IN NEW YORK CITY

   1. Birth of a Development

      Stuyvesant Town and Peter Cooper Village were built in the 1940s to provide affordable rental housing to returning World War II veterans, among other things. Supported by tax breaks, subsidies and New York City's master builder, Robert Moses, the Metropolitan Life Insurance Company (now MetLife) developed the buildings to great fanfare. Built in the East Side of Manhattan, just above the Lower East Side, the complexes rose as "towers-in-the-park," a modern approach to urban planning that was anathema to such critics as Jane Jacobs. (6)

      No stranger to the courts, the complexes were embroiled in litigation from their creation. First, displaced tenants filed eminent domain claims to challenge the condemnation of the existing properties for private development (7) (foreshadowing the fight over the use of eminent domain for private use that culminated in the Supreme Court's decision on point from earlier in this decade), (8) Second, once the properties were built and occupied, the developers were sued in the late 1940s for their discriminatory policies that excluded African-Americans from the buildings. (9) Built before the enactment of the Fair Housing Act, (10) and carrying out discrimination without the use of private covenants that would have been illegal under the Equal Protection Clause of the U.S. Constitution, (11) this discrimination was upheld as lawful by New York's highest court. (12)

      After the expiration of the initial tax benefits that helped MetLife construct the buildings, with the total cost to taxpayers of those benefits likely exceeding the cost of construction, (13) MetLife obtained additional tax benefits from New York State through the so-called "J-51" tax benefit, to help fund repairs at the complexes. (14) One of the conditions of this tax program is that buildings receiving benefits from it are subject to rent regulations during the life of the benefits, which typically last twenty-five years. (15) But the J-51 benefits were not the only reason the complexes were subject to New York City's rent regulations, as the following discussion shows. The question of whether the complexes were subject to rent regulations, or exemptions to those regulations, would ultimately become the issue that worked its way through the courts, leading to the Roberts decision, discussed in greater depth in Part IV, infra.

   2. Rent Regulations in New York City

      There are two types of rent regulations in New York City: rent control and rent stabilization. Roughly half of the city's multi-unit housing is covered by one of these rent regulatory regimes. (16) Rent control, which covers fewer than one-hundred thousand rental units in the city, applies to apartments in buildings with three or more units that were constructed or converted to residential use prior to February 1, 1947, and have been occupied continuously by the same tenant or his or her lawful successor since July 1, 1971. (17) Rent stabilization, on the other hand, applies to buildings built before 1974 that contain six or more residential units in them. (18) Since the buildings in the Peter Cooper/Stuyvesant Town developments all have six or more residential units and were constructed prior to 1971, they are subject to the city's rent regulations.

      There are many reasons why units might become exempt from rent regulations, or why a family might lose the rent regulatory status of the apartment in which it resides. For the purposes of this discussion, I will refer to just a handful of these reasons, because they are germane to the Peter Cooper/Stuyvesant Town controversy: luxury decontrol, high rent/high income decontrol, and non-primary residency.

      One of the amendments to the rent rules adopted by the New York State Legislature in the 1990s included mechanisms through which landlords could remove apartments from rent regulation. The main political point the reformers attempted to make was that rent regulations should neither solely benefit the wealthy nor continue to be imposed on units where the rent is already high. As a result, the legislature created two mechanisms through which landlords could exempt certain units from...