How Titans of N.Y. Real Estate Were Trounced in Historic Rent Law Deal

Less than a day after newly emboldened Democratic lawmakers announced bills that would significantly tighten tenant protections, prominent real estate developers got Gov. Andrew M. Cuomo on the phone to make a last-ditch plea to persuade him to block the measures.

The developers, including Douglas Durst, Richard LeFrak and William C. Rudin, are involved with some of the most iconic buildings on the New York City skyline, including One World Trade Center and 3 Times Square, and have long wielded major influence in Albany.

They and their counterparts in the real estate industry have donated millions of dollars in campaign contributions to Mr. Cuomo and other state politicians in recent decades.

But on Wednesday, Mr. Cuomo rebuffed the developers, telling them that “they should call their legislators if they want to do something about it,” said a person briefed on the call, which lasted about 15 minutes.

The phone call capped a humiliating moment for an industry that had long reigned in the state capital.

“I’m in shock. I think many of us in my industry are in shock,” said James R. Wacht, president of the firm Lee & Associates and a board member of Real Estate Board of New York, the industry’s leading trade group. “It’s a lot worse than we anticipated.”

The bills announced on Tuesday night by the Democratic leaders of the State Senate and the Assembly would abolish rules that let building owners deregulate apartments and close loopholes that permit them to raise rents.

The legislation would directly impact almost one million rent-regulated apartments in New York City, which account for more than 40 percent of the city’s rental stock, and allow other municipalities statewide beyond New York City and its suburbs to adopt their own regulations.

[Read more about how the new rent regulations in New York would affect tenants and landlords]

Real estate industry groups said the bills would do serious damage to housing in the city by reducing incentives for landlords to renovate existing apartments and to build affordable new ones.

Existing rent laws expire on Saturday. The rent regulation package, which is expected to be approved before the end of the week, is perhaps the most resonant symbol of the change in power in Albany since Democrats took complete control in November.

Republicans had dominated the State Senate for most of the last century and formed a close alliance with the New York City real estate industry, which donated heavily to Republican senators.

The elections in November not only brought Democrats to power in the State Senate, but also saw the rise of progressive lawmakers who fiercely opposed real estate interests.

“There was some arrogance on the part of the real estate industry that was based on how things have functioned in Albany for a long time,” said State Senator Zellnor Myrie, a Brooklyn Democrat who is a member of the new cohort of progressives. “In the past there was no need for them to truly engage the way that I think would have been necessary this time around.”

Lawmakers, government aides and lobbyists said in interviews on Wednesday that the industry had pinned its hopes on Mr. Cuomo, a Democrat who at times tried to act as a brake on his party’s left wing.

But in the last week of negotiations, Mr. Cuomo distanced himself from the debate. He dismissed requests from the real estate lobby to engage in negotiations with Democratic leaders of the Senate and Assembly, inviting the Legislature instead to pass bills on its own.

When real estate lobbyists called the governor’s office over the last week, they were told by the governor’s aides that Mr. Cuomo had stepped back and that they should speak with legislators instead.

“There is no negotiation,” Mr. Cuomo said on Tuesday before the deal was announced. “I will sign the best bill they can pass.”

Asked on Wednesday whether he had changed his mind, Mr. Cuomo said, “I believe this is the best tenant protections they will pass.”

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Douglas Durst, a real estate developer, stands in the offices of the The Durst Organization on the 49th floor of One Bryant Park.CreditMichael Appleton for The New York Times

The developers who reached Mr. Cuomo on the phone on Wednesday declined to comment.

But one person briefed on the call said the developers expressed surprise at the way the governor had handled the rent issue, and voiced concern about the impact the legislation would have on the construction of new housing.

Several people on the call raised the possibility of legal challenges. Mr. Cuomo had no reaction to that, according to the person briefed on the call.

Mr. Cuomo’s spokeswoman, Dani Lever, said, “The governor and staff had a call with real estate and housing people who were concerned that the bill could reduce the number of units in New York. And he said they should raise those concerns to the Legislature.”

The industry had already tried that, having met with lawmakers in Albany over the past few months, presenting them with sophisticated charts that purported to show how the proposed measures would erode the city’s housing stock.

The industry also commissioned an expensive advertising campaign featuring construction workers who were depicted warning that they could lose their jobs under the new proposals.

After the announcement on Tuesday night, industry officials scrambled to figure out what had gone wrong, blaming a combination of strategic miscalculations, resurgent activism by the progressive left and a new mood of antipathy — in New York and nationally — toward landlords and the wealthy.

And industry leaders seem to have been slow to adapt to the new environment.

From 2010 until last month, a prominent landlord group, the Rent Stabilization Association, donated more than $800,000 to the campaign committee for State Senate Republicans. In the same time period, the group spent just $25,000 on State Senate Democrats.

The Real Estate Board of New York similarly favored Republicans. Last year, it spent more than $1 million on independent campaign expenditures, mostly to back two Republican politicians running for the State Senate — one on Long Island and one in the suburbs north of New York City. Both candidates lost.

This year, as the tenant activists’ platform gained traction, landlords did not publicize their own counterproposals, fearful of losing leverage by offering compromises. Instead, industry members relied on their traditional method of private negotiations, trying to talk key lawmakers out of the more dramatic changes in one-on-one meetings.

“The industry held their cards close to the vest, thinking that the consequences of these proposals would be obvious to everyone,” Kathryn S. Wylde, the president of the Partnership for New York City, an influential business group, said.

In the hours since the deal was announced, industry officials have blitzed lawmakers with phone calls in an attempt to contain the damage. They have pored over the bill to single out the most far-reaching provisions, then relayed them to senators from moderate districts, hoping to convince them to vote against the bill.

“The governor and Legislature have a choice,” John H. Banks, president of the Real Estate Board of New York, said in a statement. “They can work collaboratively to change the legislation and pass responsible reforms or pass the bill and worsen the city’s housing crisis.”

Some of the lawmakers seemed to be receptive. Senator James Gaughran, a newly elected Democrat from Long Island, said he was reviewing the bill. “I’m just a little concerned about the unintended consequences of some of this,” he said on Wednesday.

Still, some industry leaders suggested that the governor had failed them.

“We thought the governor would help moderate some of the more ridiculous proposals,” said Jay Martin, the executive director of the Community Housing Improvement Program, a trade association representing about 4,000 building owners. “That did not happen.”

“It seems to be that the democratic socialist wing of the Democratic Party is in full control of the state government,” Mr. Martin added. “I think this is the official declaration of that.”

For tenant activists, the shift of power was a moment years in the making.

“We’re seeing a sea change,” said Jonathan Westin, executive director of New York Communities for Change, an advocacy group that pushed for stronger tenant protections. “Real estate dominated for so long that what we’re seeing is a much broader and more aggressive movement to go out and win on these issues.”

Read more about real estate laws in New York

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