Conversion of Interim Multiple Dwelling Loft Buildings

The Fundamental Issues Facing Loft Building, White Street

This landmarked Tribeca loft building with 13 lofts and a commercial ground-floor restaurant tenant has a rich and representative history. In 1980s NYC, owners of commercial and manufacturing loft spaces such as White Street began illegally renting lofts to residential tenants. The Department of Buildings responded in 1987 by creating an “IMD” (Interim Multiple Dwelling) status for these buildings. An IMD building has not yet satisfied building code to become a legal residential space with a “C of O” (Certificate of Occupancy). Its tenants, however, are protected with essentially rent-stabilized rights and rents. In addition, they are granted ownership over their units’ fixtures, or improvements. For the building owner to repossess a unit and convert it to free market, he needs to purchase its fixtures from the tenant. However, the owner cannot operate the building with full landlord rights until he invests to bring the property up to code and achieve a C of O.

White Street - an IMD building owned by a non-for profit organization - was receiving only a fraction of its potential cash flow:

• 12/13 lofts were tenant-occupied with tenant-owned fixtures
• Low, low rents (10% of market value).
• Solvency crisis: $200,000 outstanding in residential accounts receivables

Aggressive Negotiation

As both a property and asset manager, Danconia faced the challenge of restructuring an asset while ensuring the property’s smooth daily operation. Danconia:

• Collected the entirety of outstanding unpaid residential rent.
• Negotiated with the commercial tenant to receive $600,000 (over remaining period of lease) in additional monies for tenant’s breach of agreement.
• Reduced the building’s tax burden by $500,000 over a 7 year period.
• Abated insurance bills by half and negotiated twice the coverage.

Freeing Up Cash Flow

To redeem occupied units, Danconia installed secret surveillance cameras, and discovered proof of illegal sub-tenancy. Invoking the sub-tenancy restrictions that come with IMD and rent-stabilized tenant status, Danconia initiated court cases and recovered those units for the owner. Furthermore, Danconia negotiated a tenant-to-owner sale of another unit’s fixtures at a price many times lower than that originally asked. Altogether, Danconia repossessed for the owner 8,000 Sq. Ft. of space ($300,000 in yearly free market rent or $15 million in condo sale).

Lasting Value

Taking steps towards obtaining a Certificate of Occupancy, Danconia worked with an architect to draw up a narrative statement on work to be done to come into compliance with the Landmarks Commission, Environmental Control Board, and Department of Buildings. Danconia subsequently managed rehabilitation and preservation work for the building to gain the approval of the Landmarks Commission. Through grueling negotiations, Danconia also achieved entry into all tenant units, allowing illegal fixtures to be removed so the building would come into compliance with code.