Property Grunt

Monday, December 27, 2004

Low economic model of housing

Mr. Filthy Rich is an article about Morris Piller who is a successful landlord. However his tenants have a very different opinion. According to the Department of Housing Preservation and Development he is a slum lord.

His empire of 29 residential buildings is riddled with an astounding 7,313 current housing code violations, according to city inspections performed this year.

lindsay lohan mom

Well maybe he forgot about this stuff.

Vermin, lead paint, mold and other fungi, leaks, defective wiring, missing smoke detectors and broken windows are among the violations cited by the city's Department of Housing Preservation and Development.

So far not so good. So why doesn't he fix those problems? His response:

Through an intermediary, he characterized himself as "a landlord in the middle of the pack [who is] admittedly slow to correct violations and make repairs."

But he's a really good guy!

Tall and immaculately dressed, Piller also said he is "proud of the many charitable contributions" he has made.

But his tenants have a different opinion of Mr. Piller.

That largess does not extend to his tenants, many of whom are poor immigrants who speak little or no English. In some cases, they live crammed six to a room with rats and mice for company. Some lobbies are foul-smelling.

In Brooklyn, at 362 Linden Blvd., Piller collects $675 a month for Gina Morris' one-bedroom apartment, where she cannot turn off the hot water in the bathroom and there is a large, bizarre black hole in the floor beneath the kitchen sink.

"I can put my arm right through this wall," said tenant Jahira Rivera, 31, referring to a leaking, yellow piece of fractured plasterboard above the bathtub where there should have been tile.

And what happens when the tenants ask for help?

"I call the management office because it was freezing, and the management, a guy named Joe, said, ‘I'll have you evicted,'" she said.

That's not very helpful.

"Centipedes come out of the cracks," said Rivera, pointing around the bathroom.

The floors of her apartment are cracked linoleum, on top of more linoleum; the kitchen is a narrow wreck and the tiles are black with mold.

"I just sprayed them with Clorox," said Rivera, who has been living in the apartment for three years with her daughter, Dayawara, 3.

The windows of her apartment do not close properly, and in the winter, Rivera said, the boiler is frequently broken.

"I call the management office because it was freezing, and the management, a guy named Joe, said, ‘I'll have you evicted,'" she said.

lindsay lohan mom

Sounds disgusting. These problems have not gone unnoticed by the government.

While up to date on his New York City taxes, Piller is at war with the Department of Housing Preservation and Development, which has been pressuring him for years to clean up his buildings. "The N.Y.C. Department of Housing Preservation and Development has sued landlord ... Piller in all 29 residential buildings he owns in the Bronx, Brooklyn and Manhattan," the agency said in a statement.

So far, the agency has collected $105,275 in civil penalties from Piller for code violations. It also has spent more than $100,000 on repairs to his buildings.

And the agency has petitioned Housing Court to turn several of Piller's buildings over to a special administrator and bar him from collecting rent.

In two cases, as the court proceedings moved forward, Piller began to make repairs and the cases were dropped. A third case, involving 23 E. 194th St., is still active.

So why does this landlord go about his business in this fashion?
This owner gets his revenue from a completely reliable and stable source of income. The government.

Because many tenants receive hundreds of dollars a month in rent subsidies paid directly to Piller by government agencies, taxpayers are helping to make him rich.

Let's do the math.

Piller receives $938.16 a month - of which $800 is paid by the government - for Rivera's one-bedroom apartment at 2000 Cross Bronx Expressway. That 90-unit building has 142 violations as of last month, including mice, leaks, defective plastering, mold, roaches, defective faucets and radiators, broken locks and missing smoke detectors.

800 x 90= $72,000
$72,000 x 12= $864,000

This landlord probably realized it was more profitable in the long run to go to court and fight the violations rather than spend the money to fix and maintain the buildings. Since its only cost him $105,275 in violations and the government has done $100,000 in repairs on his buildings why go through the trouble. HPD is very aware of his business model.

"That's the way Piller works," said Joshua Lucchiaro, an HPD official in the Bronx. "Right up to the edge, he knows he's going to lose the building and then he starts to fix it up so the judge lets him keep it."

It looks like this model works.

Piller, 54, lives in a luxury townhouse worth $1.4 million in Borough Park, Brooklyn, and also owns a home in Rockland County.

This article is an example of how illogical real estate can be. This landlord is being dragged to court, his reputation is being trampled upon, however his profit margin is higher due to managing his buildings in this manner. The irony is that the majority of his profits are coming from the system that is dragging him to court. If you are under the impression that I am promoting this type of investing, you are missing the point. This is not about advocacy but a presentation of another perspective on real estate investing and how illogical it can be yet be so successful.