IAIs were inflated at hundreds of NY apts. suit says

Attorney General Letitia James

By Sabina Mollot

A property manager is being accused of lying about the costs of hundreds of apartment renovations in order to have the rents reach the threshold where they could be converted to market rate.

The property manager, David Drumheller and his company, JBD Realty Services, were both named as defendants in a lawsuit that was filed by Attorney General Letitia James last Thursday.

The suit accuses Drumheller of fraud and repeatedly violating the Rent Stabilization Law for the individual apartment improvement (IAI) scheme, which was allegedly perpetrated at hundreds of apartments in Manhattan and Brooklyn. At that time, he was working for Newcastle Realty Services, a firm that manages roughly 2,500 units in the city. He also, along with an unnamed associate, allegedly collected $1.2 million in kickbacks from contractors who did renovation work at Newcastle-managed apartments. Some contractors were said to have paid the pair directly, while others paid for their expenses such as country club dues, Porsche payments and home improvement projects. Most of the contractors made most of their money from the Newcastle jobs, including a landscape design firm that had no apartment renovation experience when hired by Newcastle.

According to the attorney general, the scheme went on for years between 2012-2016, with Drumheller manipulating the IAI system that allows property owners to charge permanent rent increases to tenants based on the cost of the renovations that were done in their apartments. An owner can charge 1/60th of the cost in buildings with over 35 units, and 1/40th of the cost in buildings with 35 or fewer units. The goal was to get the rents to reach the threshold where they could be deregulated.

The suit says that Drumheller would come up with costs of a unit’s renovation and dictate it to a contractor, even in instances when the contractor’s own calculations were less. The attorney general gave one example of how $14,500 was claimed in construction costs to renovate a one-bedroom apartment, but a studio in the same building had a claimed construction cost at the same time for $95,000. The work avoided raising red flags, the suit continued, because Drumheller filled out paperwork, including creating checklists, to make the costs seem legitimate.

“It was virtually impossible for HCR (Homes and Community Renewal, the state housing agency) or incoming tenants to uncover the fraud,” the AG said.

The attorney general is seeking restitution for tenants who were overcharged, the forfeit of any kickbacks and for Drumheller and his company, JBD, to be barred from doing any business related to real estate ownership or management. Tenants who believe they may have been overcharged are being advised to file an overcharge complaint with the HCR.

“Engaging in fraud with respect to renovations is a decades-old, devious practice designed to take advantage of tenants throughout New York,” said James. “Knocking hundreds of rent-stabilized apartments off the market by illegal schemes is immoral and unacceptable. My office will work to reregulate the units lost to this fraud, and to ensure that individuals like Drumheller are no longer in a position to abuse the rent regulation system.”

In response to the lawsuit, an attorney representing Drumheller, Roger Stavis, said, “The allegations in the complaint are completely false and we will be fighting them in court.”

Ronn Torossian, a spokesperson for Newcastle Realty, said the company has been cooperating with the investigation into Drumheller’s alleged activities.

“Newcastle has been cooperating with the attorney general for over a year,” Torossian said. “We stand with the NYAG in ferreting out bad actors.”

He then cited a paragraph in the attorney general’s complaint that read, “Drumheller and Agent 1 actively worked to conceal the existence of their kickback scheme and never reported the existence of the kickback scheme to any tenants, to anyone else at Newcastle, to any of the owners of Newcastle-managed buildings, or to any purchasers of Newcastle-managed buildings.”

Torossian added, “Drumheller was fired years ago, and the other employee was fired immediately upon NYAG’s disclosure of the wrong-doings.”

A LinkedIn profile that is now down had recently linked Drumheller with a company called GFB Management as director of operations.

Currently, IAI rent increases stand a chance of being completely eliminated as legislation aiming to end the system is included in a package of nine tenant-friendly bills that have been introduced in the New York Assembly. State Senate Majority Leader Andrea Stewart-Cousins and Assembly Speaker Carl Heastie both recently said they were both committed to passing “the strongest rent package ever.” The laws that regulate rent-regulated housing the city will come up for renewal on June 15.

One thought on “IAIs were inflated at hundreds of NY apts. suit says

  1. The landlord lobby is always running sob story ads about how changes to the MIC and IAI laws will hurt small landlords and their tenants. That may well be true. Therefore, why can’t the laws be changed in such a way that allows for smalltime landlords to have some protection when they do major essential repairs to their buildings and be able to recoup some of the cost from tenants.

    The laws need to crack down on mega landlords of the predatory kind such as Blackrock and their ilk, who own huge complexes and apply for MCIs every time they do necessary repairs (that should be covered by their rental income) or slap a coat of paint on a boiler.

    It is obscene that landlords can do things like replacing lousy windows with even worse and making the tenants pay FOREVER for the crap – and then have to pay on top of that if the second batch of lousy windows are replaced with a third batch. It is downright dishonest practice and should not be allowed. It’s bad enough they install substandard schlock and then replace it with even worse junk, but we should not have to pay in perpetuity for these “improvements.” It is government-sanctioned larceny.

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