In Manhattan, developers are paying astronomical sums for Lease Surrenders to tenants who get in the way of large construction projects. When three rent-regulated tenants refused to move out of their apartments delaying Tishman Speyer’s plans to build a three million square foot office building in Hudson Yards, the real estate behemoth shelled out a total of $25,000,000 to buy them out. Although this is a somewhat unique example, large payments for lease surrenders are becoming more common. The scarcity of land in rapidly gentrifying Manhattan neighborhoods and foreign investment are factors driving this. Builders must take advantage of the current housing boom and low interest rates. Delays would result in large carrying costs tying up capital reserved for the development project as well as the risk of increases in construction costs. Moreover, gentrification can sometimes be fickle. Developers want to be on the forefront of establishing the luxury brand in a changing neighborhood. To put this payout amount in perspective, the cost of the Tishman Speyer’s project is estimated to be over three billion dollars.
The problem of delays is a very real one. Evicting a rent-regulated tenant can take years in New York City, especially if the tenant is not just rent-stabilized but rent-controlled, as one of the Hudson Yards tenants was. Requesting a demolition permit from the City for a residential building is a long, arduous process. A Builder paying a large sum to a tenant to relinquish their home is a fairly efficient cost of doing business. Regardless, they still undoubtedly exhaust other alternatives first. Many rent regulated tenants report intrusive investigations into their living situations and legal challenges to the legitimacy of tenancies. Many tenants are elderly and are not up to a long court battle. Landlords and developers justify these methods because they feel that the tenants are engaging in extortion. Tenants and their lawyers generally respond that they are simply respecting market forces and have a right to maximize their return as anyone would.
It will be interesting to see if these skirmishes remain mere contractual matters or whether the City will pass legislation to streamline a resolution of these stalemates.