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Inside Kushner’s Murky Relationship with Rent Stabilization

The Real Deal

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Jared Kushner’s habit of not properly filling out paperwork began years before his tenure at the White House.

In exchange for receiving a lucrative tax break on a rental building in Williamsburg, Kushner’s real estate firm was legally required to register the apartments as rent stabilized with a state agency. It did the first year. But the next year, it registered just five apartments. Then it failed to register any of the units.

That caught the attention of the state’s Homes and Community Renewal agency, which sent a warning letter to Kushner Companies last month. You haven’t complied with the legal requirements of the 421a tax exemption, it said, and you must register all rent-stabilized apartments at 50 North 1st Street.

The 421a program, which was recently reborn as “Affordable New York,” is supposed to incentivize residential construction by dramatically reducing a building’s property taxes. In exchange for receiving the tax break, owners are required to register all units as rent stabilized. But landlords across New York City have failed to register thousands of apartments in 421a buildings, creating a potential for abuse and illegal rent increases for tenants who may be unaware of the protections offered by stabilization laws.

Kushner‘s 50 North 1st Street is one of those buildings.

The firm bought the 46-unit Williamsburg property in 2013 from Largo Investments and Kevin Maloney’s Property Markets Group for $34 million. According to an analysis of public records by The Real Deal, Kushner registered all 46 units as rent-stabilized in 2014, as required by law. But in 2015, the firm registered just five units. As with many other properties across its vast New York City rental portfolio, Kushner did not report that any of the apartments were stabilized in 2016, according to tax records last month from the city’s Department of Finance, which derives its rent-stabilization count from what owners report to the HCR.

The 25-year tax break exempted Kushner from $1.2 million in property taxes in just the past two years.

Kushner, which Jared resigned from in January, denies that it hasn’t complied with the legal requirements of the 421a program at 50 North 1st Street. Any oversights, it says, were purely procedural.

“As is common with a change of ownership, there is often administrative clean-up and reconciliation that must occur,” Emily Wolf, Kushner’s general counsel, said in a statement. “However, paperwork aside, all 46 apartments have been and will continue to be regulated by the rent stabilization and 421-a guidelines.”

But the response leaves questions unanswered. Kushner claims that last year, it simply made a mistake when it filed the required paperwork with HCR six to seven months late. But the year prior, the company registered just five of the building’s apartments – and that was in 2015, more than a year after it bought the building.

When pressed, Kushner declined further comment and insisted the building was in compliance. The company said that filings this year will show the units’ correct status, but wouldn’t share any documents or figures with TRD, noting the records are not currently public information. This year’s filings will become public on tax records in mid 2018.

TRD dug further into Kushner’s history with rent-stabilization and obtained two rental histories from tenants at 50 North 1st Street. Rent histories list, among other details, the regulation status and legal rents of the apartment in question. One of the apartments shows no registration in 2015 and another unit reported no registration in 2015 or 2016. Since TRD contacted Kushner for this story, and less than a month after HCR sent the firm its warning letter, the former apartment was retroactively registered for 2016 with a filing date earlier this month.

It should be noted that both tenants have stabilized leases, which suggests Kushner has treated the apartments as stabilized even if the company did not properly register the units. TRD did not find any evidence that company has collected rents above the legal limit.

Kushner — whose former CEO Jared has been dogged for omitting assets on financial disclosure forms and for leaving foreign contacts off national security clearance forms — acquired a big chunk of its New York rental portfolio in 2013 when it went on a $262 million buying spree. Its acquisitions have mostly been in the East Village, but it’s also picked up buildings in other parts of Manhattan, as well as Brooklyn and Queens.

Kushner tenants in the East Village have alleged since as early as 2014 that the company, through its property management arm Westminster Management, has tried to push them out of their rent-stabilized and market-rate apartments, according to tenant organizer Brandon Kielbasa, organizing director of Cooper Square Committee. And a May investigation by the New York Times and ProPublica found that a company subsidiary — JK2 Westminster LLC — went to great lengths to extract money from largely poor tenants in Maryland, filing hundreds of lawsuits, many on questionable grounds.

The Kushner rental portfolio in New York City now includes over 1,300 units across 57 properties. Recent tax records show that Kushner reported owning 339 stabilized units in 2016, down from 601 reported across the portfolio in 2015.

Since 2012, the company has dropped a total of 253 apartments from rent stabilization, according to a TRD analysis of the tax records. The company contests this total, arguing that a majority of the losses reflect late filings from last year that caused many recent records to show zero registered units. (If the company’s claims are correct, the actual number of dropped stabilized apartments would be around 50 units.)

Rent-stabilization laws limit rent increases and offer protections to tenants living in over 1 million stabilized apartments citywide.

It’s not clear why the figures in Kushner-owned buildings declined, but experts told TRD that the state and city’s record keeping and tracking systems are less than stellar and could account for some of the discrepancies.

Each year, owners register stabilized apartments with the state’s HCR between April 1 and July 31, and the numbers reflect the building’s stabilized unit count on April 1.

The 421a tax exemption process involves multiple steps and filing requirements with HCR, as well as the city’s DOF and Department of Housing Preservation and Development (HPD). Paul Korngold, of the law firm Tuchnan Korngold, Weiss, Liebman & Gelles, said HPD is partially to blame for delays in issuing the necessary paperwork. However, “any delays at HPD should not have a bearing on the requirements to register the rents with the HCR,” he said.

When it comes to noncompliance in 421a buildings, owners are sometimes unfairly blamed, according to Korngold. “Various agencies are investigating some owners for alleged rent overcharges” even though “most owners obey the law,” he said. As a result, noncompliant owners give the rest a bad reputation, Korngold said, but added that HCR has been effective in addressing overcharge complaints from tenants.

HCR’s website explains that the agency “may impose a penalty of up to $250 upon owners for each knowing violation of the Rent Regulations,” a paltry sum for many New York City landlords, who can generate thousands of dollars from each rent overcharge. But failure to comply with 421a registration can lead to more significant penalties, according to a source familiar with the compliance process. If caught, a rule-breaker may have to pay back taxes for the years it was not in compliance. Generally speaking, the city tries to work with owners who have failed to register units and ultimately reduce penalties, the source said.

Following a series of reports by ProPublica that called out landlords who had improperly boosted rents in 421a building, state and city lawmakers have given the issue increased attention. In December, Mayor Bill de Blasio announced that the city was sending noncompliance letters to landlords owning more than 37,000 apartments regulated in 421a buildings, threatening to suspend their tax benefits.

The 421a program, which cost the city an estimated $1.4 billion in forgone tax revenue in FY 2017, has been the subject of state lobbying efforts by the real estate industry for decades. Through what’s known as the “LLC loophole,” developers can donate through the limited liability companies that legally own each of their buildings and obscure their role in the process.

A joint investigation by TRD and ProPublica found that 421a developers donated $21 million to state candidates and committeessince 2000, roughly a quarter of all donations from the industry during this time. Gov. Andrew Cuomo received the most donations — $4.2 million over the course of his runs for governor and attorney general.

Considered the bible of New York City real estate, The Real Deal has become mandatory reading for everyone in the industry. Since 2003, TRD has provided up-to-the-minute industry news and in-depth reports and profiles in our 65,000-circulation monthly magazine and on TheRealDeal.com, which receives more than 1 million unique visitors per month. Our content is available across multiple platforms, including a mobile app available to iPhone, iPad and Android users alike.

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Trump

Meet Trump’s Pro-Dwarf Tossing Judge

Polipace Staff

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Donald Trump has nominated Neomi Rao to replace Brett Kavanaugh on the Court of Appeals in the DC Circuit. The announcement prompted a notable spike in online talk about dwarf-tossing—that’s right, the practice of throwing little people like a shot-put.

Dwarf-tossing has been banned in some US states and parts of France for offending human dignity, and a Nov. 16 post on Mother Jones by Stephanie Mencimer called Rao a “staunch defender” of this pastime: “Rao considers these laws an affront to individual liberty that fails to recognize the right of the dwarf to be tossed,” Mencimer writes.

Rao, currently administrator of the Office of Information and Regulatory Affairs, wrote about the controversial “sport” repeatedly while she was a professor at George Mason University law school. Her writings offer “a pretty good indication of where [Rao] will come down as a judge, not just on dwarf-tossing bans, but on some of the nation’s most contentious issues,” including same-sex marriage, says Mencimer. By reading Rao on dwarf-tossing, we can predict that she will be preoccupied with “all the conservative bugaboos.”

Conservative and liberal commentators seem to agree that Rao’s dwarf-tossing arguments illuminate her worldview and judicial philosophy. But not everyone agrees on whether Rao’s position is defensible or being genuinely represented by the press. For example, R Street Institute policy fellow Shoshana Weissmann in Reason on Nov. 26 noted, “If you only read about Rao’s work in Mother Jones…you might have thought that Rao simply has a niche affinity for dwarf tossing.”

In pieces reviewed by BuzzFeed News that Rao wrote between 1994 and 1996 — she graduated from Yale University in 1995 — she described race as a “hot, money-making issue,” affirmative action as the “anointed dragon of liberal excess,” welfare as being “for the indigent and lazy,” and LGBT issues as part of “trendy” political movements. On date rape, Rao wrote that if a woman “drinks to the point where she can no longer choose, well, getting to that point was part of her choice.”

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Trump

Trump’s First Building to be Torn Down

Polipace Staff

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The building that helped Donald Trump make a name for himself in his first big deal in Manhattan is being sold to developers who plan to tear it down.

Developer TF Cornerstone said Thursday that it and a group managing billionaire Michael Dell’s money have agreed to buy the Grand Hyatt New York next to Grand Central Terminal and replace it with a mixed-used tower that will include office and retail space and a smaller hotel.

Trump partnered with the Hyatt Corp. to buy what was then the Commodore Hotel in the late 1970s in his first splash in Manhattan real estate. He refurbished it into a sleek glass tower and used its success as a stepping stone to his next big gamble a few years later, the Trump Tower on Fifth Avenue.

Trump sold his stake in the Grand Hyatt in 1996.

Neither the White House nor the Trump Organization responded to requests for comment.

When Trump struck a deal to buy the Commodore from the bankrupt Penn Central Corp., the city itself was on the verge of bankruptcy and most other developers were not interested.

As Trump tells it, he realized there was something special about the Commodore after a walk by the hotel early one morning.

“The lobby was so dingy it looked like a welfare hotel,” he wrote in “The Art of the Deal,” but then his eye caught a hopeful sign. “There were thousands of well-dressed Connecticut and Westchester commuters flooding onto the streets from Grand Central Terminal and the subway stations below. The city was on the verge of bankruptcy, but what I saw was a superb location.”

Eager to make his mark in Manhattan, Trump took the plunge, using guaranteed loans from his father and generous tax abatements from the city.

Within a few years, he transformed the tired, old Commodore into a gleaming, reflective-glass tower. His timing was near perfect, too. He opened the hotel just before the start of 1980s boom and was soon able to rent rooms for as much as $1,100 a night.

In the latest deal, the new building will cover 2 million square feet and include a new Grand Hyatt with 500 rooms. The current hotel has 1,298 rooms.

The deal still requires local and state approval. The land under the Grand Hyatt is owned by the Empire State Development Corp., the state’s business-development arm.

TF Cornerstone’s partner in the deal is MSD Partners, which invests assets owned by Dell and his family. Dell is the founder of Dell Technologies and is estimated by Forbes to be worth $34 billion.

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International

Inside Sex Tapes, Power the Kremlin and Trump: Nastya Rybka case

Polipace Staff

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With bee-stung lips, Nastya Rybka addressed her approximately 130,000 followers in a short Instagram video. The 23-year-old Belarusian said she was ill, which was why she had not attended the press conference last Wednesday. She said she needed rest and would soon “tell everything.” Smiling, she thanked Belarusian President Alexander Lukashenko, who had campaigned for her release from custody in Moscow.

This seems unusual enough; after all, this is a woman from the escort business who was imprisoned in Thailand, accused of illegal prostitution. In Russia she could face a prison sentence of up to six years. But Lukashenko’s assistance is only one piece of the puzzle in this heady mix of sex, power and politics.

Rybka (“little fish” in English) is a nickname Russian men give their loved ones. The young woman who  calls herself that is actually Anastasia Vashukevich, a colorful figure in a political thriller that has been going on for about a year.

The repercussions reach from Moscow to Bangkok to Washington. At its core, it’s about Oleg Deripaska, the Russian oligarch and aluminum king, and speculation as to whether he might have been one of the secret intermediaries between Russia and Donald Trump’s campaign team in the 2016 US presidential election. Vashukevich played a role that evidently became too much for her at some point.

Vashukevich owes her fame in Russia and beyond to her craving for admiration, Instagram, and opposition politician Alexei Navalny. With her help, Navalny came across one of his most explosive revelations. In February 2018, Navalny presented a 25-minute investigative film on his web channels. He explained that he originally wanted to find out who was behind a 2017 campaign in which young women dressed as sex slaves stormed his office in Moscow. Vashukevich took part in the group’s other similarly provocative campaigns, for example, when several nearly naked girls showed solidarity with US film producer Harvey Weinstein by demonstrating in front of the US Embassy in Moscow.

In a talk show on Russian television, Vashukevich described herself as a “professional man hunter,” and said that she had had relationships with six billionaires, describing one of them in a book to demonstrate the maxim: “This is how you catch a billionaire.” Navalny in some instances compared very intimate descriptions of a yacht trip from this book with real photos from Rybka’s Instagram profile, where she presented herself with the oligarch Deripaska. Navalny’s conclusion was that the anonymous oligarch from the book is Deripaska.

The most controversial discovery in Rybka’s Instagram profile was a video supposedly taken in Norway in August 2016. It shows Deripaska and a man closely resembling top Kremlin official Sergey Prichodko on a yacht. Prichodko operates in the background politically, his main focus being foreign policy. An excerpt from a conversation about Russian-American relations can be heard.

Navalny speculated that this was the missing secret link between the Kremlin and the Trump team, which both sides have so far denied. According to US media reports, Deripaska was a business partner of Paul Manafort, Donald Trump’s former campaign manager. Manafort allegedly owed Deripaska money and indirectly offered him “private briefings.” There is no evidence that the oligarch received and accepted this offer. Nor has there been any confirmation of Navalny’s suspicions, not even from US Special Counsel Robert Mueller.

Deripaska described this as a smear campaign and sued Vashukevich and a certain Alexander Kirillov for damages in a Russian court for circulating details of his private life. Kirillov is also a native Belarusian, who likes to present himself as a “sex coach” and operates as Rybka’s “patron.” His exact role in this case is unclear.

No new revelations?

Vashukevich later fueled speculation by claiming she had explosive information about the US elections. In February 2018, shortly after Navalny’s revelations, she was arrested in Thailand, together with Kirillov, for conducting “sex training for Russian tourists,” as it was described by the Russian media. Both begged US media and authorities for help, but Washington did not get involved. Russian media reported, quoting sources from Vashukevich’s circle of acquaintances, that FBI agents questioned her during her detention in Thailand, but she said she “told them nothing.”

After nine months in prison, Vashukevich and Kirillov were deported in mid-February and flown to Moscow. Vashukevich allegedly wanted to fly on to Minsk in her native Belarus but was arrested and spent several days in Russian custody. She is accused of enticing at least two women into prostitution. She denies everything and was released from custody on Tuesday, but the charges remain.

In a Moscow court, Vashukevich asked journalists to pass on her apology to Deripaska and Prichodko. “I’m sorry that everything came to this.” Some see the investigation against her as Deripaska’s revenge. Others speculate that she filmed the oligarch on his yacht with the consent of the Russian secret services. Vashukevich told the court that Deripaska should “settle down.” The exhausted-looking woman promised no new revelations: “I’ve had enough.”

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