Court Rejects Developer’s Attempt to Appeal Denial of Hardship Application

Stahl York Avenue Company is unable to demolish and redevelop two Lenox Hill apartment buildings due to Landmark designation. On January 8, 2016, New York County Supreme Court Justice Michael D. Stallman denied an article 78 petition filed by Stahl York Avenue to allow redevelopment a portion of the site known as the City and Suburban Homes Company, First Avenue Estate. The Landmarks Preservation Commission designated this location in 1990 and amended the designation in 2006 which prohibits Stahl’s redevelopment plan.

The landmark site, originally designated on April 24, 1990, was built between 1898 and 1915 by a privately financed limited-dividend company to provide quality housing to low-income New Yorkers, and an option to crowded, poorly-ventilated tenement buildings. The landmark occupied a full block, bounded by First and York Avenues, and 64th and 65th Streets. The complex is one of only two full-block light-court tenement developments in the nation.

In 1990, in one of its final actions, the Board of Estimate ratified Landmarks’ designation, but removed two buildings at the complex’s easternmost edge from the landmark site. At the behest of the local community board, Landmarks again considered the potential designation of the excised portion of the complex, and added the two buildings, at 429 East 64th Street and 430 East 65th Street, to the designation in 2006. At the hearing, wide support for designation was voiced by community organizations and elected officials. The City Council unanimously affirmed the amendment.

The buildings’ owner, Stahl York Avenue Company, challenged the 2006 designation in court, but Justice Emily Jane Goodman determined that Landmarks had rationally considered the historical and cultural significance of the property, and that the Council was authorized to reconsider a decision made by the Board of Estimate.

In 2010, Stahl filed an application with Landmarks to demolish the two easternmost buildings and redevelop the lots under the landmarks law’s hardship provision. After two public hearings, Landmarks rejected the application finding that Stahl had not sufficiently proven that the existing buildings could not provide a reasonable rate of return.

Stahl filed an article 78 petition seeking an order vacating Landmarks’ denial of the hardship application and compensation for the unconstitutional taking of its property in the 2006 designation amendment. Stahl sought additional compensation for attorney’s fees and other associated costs.

Stahl claimed it had acquired the complex in 1977 for its development potential, and that the existing apartments are of substandard quality under contemporary criteria. Stahl said that a large percentage of the units were vacant due to their unappealing quality, and if rented, were capable of generating only a meager income. Stahl asserted that comments by Landmarks commissioners indicated that they had prejudged Stahl’s application, and that the Commission’s analysis of costs and rate of return was manipulated to achieve a predetermined result.

Stahl’s application was based on computations using only the two buildings added to the designation in 2006, not the entire tax lot. Landmarks’ analysis, which used some of Stahl’s assumptions and others that it determined were more reasonable, determined that Stahl could realize a rate of return varying between 8.68 and 16.93 percent in different scenarios. Landmarks found that high vacancy rates were due to Stahl’s keeping of the units unleased, and failure to advertise vacant apartments or list them with brokers.

New York County Supreme Court Justice Michael D. Stallman upheld the rationality of Landmarks’ determination and rejected Stahl’s claims. Stallman found that Stahl had not met the burden of demonstrating that the properties were incapable of generating a six-percent return of the valuation of its parcels, as required by the landmarks law. Stallman wrote that Stahl relied on a number of questionable assumptions, such as a projected 20 percent vacancy rate in a highly desirable neighborhood with a 1.5 percent vacancy rate, and rents of $600 or $888 where comparable nearby units went for $1,500 to $2,200.

Stallman found that Landmarks properly found that the hardship application should apply to the entirety of the designated tax lot. Stallman noted that Stahl had filed consolidated filings for all buildings on the block in its real estate tax filings, and that the two buildings would have been included in the landmark site but for a political compromise by Board of Estimate, and were a part of the history and significance of the rest of the parcel.

Stallman further determined that the cited comments of Landmarks commissioners did not display a prejudice against Stahl, but a concern to adhere to the law’s principles, and display of knowledge of conditions in the regulated field.

Stallman rejected Stahl’s unconstitutional takings claim, finding that prior court decisions had disposed of the matter.

Landmarks issued a statement in which it said “the commission is pleased with the decision,” and that “the court properly found that the Commission’s lengthy determination denying the owner’s hardship application was rational and based on the record, and that the denial of the hardship application did not constitute a taking of private property without compensation.”

Stahl York Ave. Co., LLC v. City of New York, Index No. 100999/2014 (N.Y.Cty.Sup.Ct. Jan. 8, 2016) (Attorneys: Chetan A. Patil, Paul D. Selver, Albert Fredericks, for Stahl; Zachary W. Carter, Sheryl Neufield, Virginia Waters, Mark Silberman, for City) (Stallman, J.).