Testimony of New York City Comptroller Brad Lander Before the New York City Department of Housing Preservation and Development Hearing on Bedford Gardens Company Proposed Application for Rent Increase

Thank you for the opportunity to testify on Kraus Management’s application for a rent increase at the Bedford Gardens Mitchell Lama development.  

Since 1955, the State’s Mitchell Lama housing program has provided affordable homes to moderate- and middle-income families. In a city with a deepening affordability crisis, these programs are essential for families trying to maintain stability. Rents across New York City are skyrocketing, half of New Yorkers are spending over a third of their income on rent, and the most recent Housing Vacancy Survey showed that fewer affordable units are available than there have been in 30 years – just 1% of units that rent for under $1,500 are vacant. Developments like Bedford Gardens in Williamsburg are meant to protect against the forces of speculation, which have already severely hit the surrounding neighborhood.  

The Kraus Organization (“Kraus”) has a decades-long history of proposing egregious rent increases, self-dealing, and property tax delinquency. A 1982 audit conducted by the City Comptroller’s office found that Kraus authorized excessive payments mostly to its own company. The Bedford Gardens Company December 2021 Financial Report indicates that there may be ongoing self-dealing, listing multiple companies with common ownership used for various services in the development. This includes property management (“Kraus Management, Inc.”), security systems (Kraus Hi-Tech Security, Inc.”), plumbing (“Kay Plumbing, Inc.”), parking (“Kraus Parking”), and other affiliated organizations. 

The most urgent issue today is Kraus’s request to HPD on October 19, 2022, to increase rents nearly 80% over three years, with an immediate 25% rent increase in 2023, a second 25% increase in 2024, and a final 15% increase in 2025; the property would be authorized to leave the Mitchell-Lama program the next year fully, potentially displacing the remaining tenants not already displaced by this rent increase. It is important to note that the development is not subject to rent stabilization given that it opened in 1975.  

A tenant living in a basic 1-bedroom apartment currently pays $919 a month. By 2025, the time at which the final requested rent increase would be implemented, that same tenant would be paying $1,651. To be sure, the current rents are affordable for families between 30% and 60% of AMI, depending on family and apartment size. For example, a family currently living in a two-bedroom unit, would need to earn just over $46,000 a year in order for the rent to not exceed 30% of their gross income. That same family would have to earn over $83,000 by 2025 in order to afford the same unit and not be rent burdened. Nearly 50% of residents at Bedford Gardens do not have a rental assistance voucher and would have to find a way to cover this rent increase out of pocket, a near impossible task. The proposed rent increase, if approved, would result in broad displacement and significantly change who can afford to live at Bedford Gardens.   

In their request submission, Kraus stated that the proposed increase is necessary to bring the income up to the level of the existing operating budget, pay down the accounts payable, and address deferred maintenance. The operating statements submitted indicate that over the past 3 years, the annual operating cost per dwelling unit, not including property taxes or debt service, is over $13,500 per dwelling unit. This cost represents a 60% deviation from the Housing Development Corporation maintenance and operation standards used to underwrite all HPD preservation deals. While the age of the building surely increases the cost of operations, more scrutiny must be placed on the management practices of Kraus Management given this significant divergence in cost.  

Their Physical Needs Assessment concluded that $9,176,000 in Capital Improvements is required over the next decade to stabilize the building. The report found that work was required on the building facades, deck, garage, playground, and security system. While Bedford Gardens may have legitimate capital repair needs, rent increases should not be the only avenue through which to address them. Financial statements show that as of December 31, 2021, “residential and commercial tenants’ arrears aggregated to $1,612,508.” Tenants at Bedford Gardens, and across the city, are still recovering from the hardships and uneven recovery of the pandemic. Increasing rents at such an unsustainably high level will place additional burdens on already struggling tenants and place them at high risk of displacement with extremely few alternatives at the same rent levels.  

The City must consider other pathways to resolve this issue, especially considering that the “restrictive use agreement,” which requires the buildings remain in Mitchell Lama, expires in 2026. Instead of returning to these discussions in three years, this is an opportunity for the City to stabilize the project now to ensure it remains in the Mitchell Lama program for the long term. Further investigation into additional rehabilitation needs of the building should also be conducted by an independent party, including ensuring the buildings are on track to comply with Local Law 97 and that all open Housing and Maintenance code violations, of which there are 154 open, are resolved. The City and State should work with the owner and residents to determine the cost of these repairs in totality, better understand the reasons for such high operating costs per dwelling unit, and work towards recapitalizing the building through City and State Mitchell Lama loan programs. The loan process would also allow for residents who qualify for Section 8 vouchers to apply for them and to better shoulder any, more moderate rent increases that may be required. 

HPD and HUD must not allow a federally and state subsidized development move forward with a rent increase that is counter-intuitive to the goals of the Mitchell Lama program as a beacon of affordability. Now is the time to preserve our affordable housing stock, and ensure all New Yorkers are stably and securely housed.  

Thank you again for the opportunity to testify.  

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