The Final Chapter:
Changes For Dayton-Seaside?
By John McLoughlin
Just as the City of New York is attempting to have a receiver installed to monitor the finances of the three Dayton-Seaside buildings, the owners announced they would be filing bankruptcy. Special financing secured by the owners last Friday, January 28 will permit the owners to make major repairs to the buildings while in bankruptcy.
For more than 15 years the City of New York and the owners of Dayton-Seaside, which includes 1 Beach 105 street, 106-20 Shore Front parkway and 107-10 Shore Front parkway, have been involved in a real estate tax dispute. Even as the owners continued to pay present taxes on the buildings, no resolution was agreed on the back taxes. The city estimates that with interest and penalties the back taxes are at $50 million.
In an effort to collect back taxes, the city recently filed papers in federal court to have a temporary receiver installed to care for the Dayton-Seaside buildings. This step would have removed the owners from managing the finances of the properties. This particular issue will be argued in federal court on Friday, February 11.
News of the receiver sat well with tenants. Barbara Buffolino, president of the Surfside Housing Association For Tenants (S.H.A.F.T.), said "While we are happy the courts are stepping up for us with a receiver, we are looking for a receiver who would have the authority to make repairs." Buffolino and the tenant association have had a separate case in state supreme court where they have requested a receiver.
Buffolino said, "People are getting sick of this," referring to the ongoing court cases and deteriorating conditions of the buildings. Buffolino added that the necessary repairs on the buildings were a result of years of neglect by the owners. "They hid behind the tax situation," Buffolino said. The owners reject this and claim the tax lien prevented them from receiving loans to make repairs.
With the owners announcing that they have filed bankruptcy on all three buildings, a wrench is possibly thrown in the plans of the city and tenant association. The need for a receiver might be diminished since the owners have received a financial commitment totaling $11 million from a loaning source. The money, almost $4 million for each of the three buildings, would be for an entire new exterior, new parapet, new roof, new windows, new boilers and updated elevators.
According to Michael Zukerman, a principal of Dayton-Seaside Management, the bankruptcy allowed the owners to receive debtor in possession financing, which permits money to go towards repairs before paying the back taxes. Zukerman said the owners have been developing these plans for the past 18 months, adding that this was the "only way to fix the buildings." With the $11 million loan secured, the owners were able to now come forward with their "business plan."
Zukerman continued by saying the owners plans to refinance the buildings, which will give them $2 million dollars to pay toward the back taxes. Zukerman said that when the interest was calculated, the taxes were "substantially lower" than what the city wanted. Some estimates show the taxes owed being as low as $4 million, a far cry from the $50 million the city expects.
Zukerman said that under this plan management would be retained, but rents could be increased because of a contractual agreement with the city. Capital improvements on the building allow the owners to increase the rent. Zukerman expects the increase to be between 15-20 percent over a three-year period, but he quickly pointed out that "rents are 50 percent below market rate" and will "still be substantially below market" after the increase.
Tenants could also be hit with an additional 15 percent rent increase if the city does not renew the Shelter Rent Exemption. If the city calls for the owners to pay additional back taxes, the owners have a contractual right to raise rents. Zukerman said the city should renew the exemption, being that the tenants would be the ones to suffer. "Eight hundred families will get screwed," Zukerman said. "The ball's in the city's court now."