Not only would Pinnacle resist the order for the next 12 years – raising her rent to $705 and suing her for failing to pay it – they would also delay repairs and frequently fail to supply heat and hot water, according to a lawsuit that Powell and eight fellow tenants filed against the company in 2007. The company even installed three feet from Powell's door a device, Powell believed, to spy on her. The device consisted of an electrical junction box with a hole drilled in the face place.
“It leaves a bitter taste on my family’s mouth since we had to deal with this so long," Powell says. "We spent a lot of mental energy in them coming to us and saying can we start anew and us extending our hand to them, only to be slapped one more time.”
Powell’s experience was not a series of isolated incidents, advocates say, but a classic case of predatory equity, a common landlord scheme that they hope will soon be restricted by the Pinnacle tenants' landmark lawsuit. In the scheme, real estate investors buy rent-controlled or stabilized buildings, then pressure the tenants – primarily through harassment and failing to make repairs – to vacate them. After a tenant leaves, the landlord rents or sells the vacant unit at a higher price.
"These hedge-fund backed landlords that acquired huge numbers of subprime apartments gambled on their ability to raise rents and evict low-income tenants," says Edward Josephson, director of litigation at South Brooklyn Legal Services. "Either the gamble pays off and they displace tenants or they don't succeed and their business model collapses." (Pinnacle is not backed by hedge funds. Other landlords whom advocates believe are trying to force out rent-stabilized tenants are.)*
The crash of the housing market in 2007 has already reduced the prevalence of predatory equity in New York City, but a tenant victory in the Pinnacle lawsuit would help ensure that when the market rebounds, the practice doesn’t. And this month, the prospect of such a victory grew brighter when a judge granted the plaintiffs class action status. Pinnacle owns over 420 apartment buildings in New York City, containing more than 21,000 apartments and 60,000 tenants. Gaining class action status will enable potentially thousands of current and former Pinnacle tenants to join the plaintiffs' case.
The Rent Stabilization Association, which represents property owners, said it’s too early to comment on the significance of the case. “It’s way too soon to know what impact it has” says spokesperson Frank Ricci. “We have to see the merits of the case. Right now it’s a very esoteric case, a very specific fact pattern with a very specific owner.”
Indeed, the case could drag on for several more years while the tenant’s attorneys labor to prove their case. The lawsuit alleges that Pinnacle and its chief executive Joel Weiner not only violated the New York Consumer Protection Act and rent stabilization laws and codes, but acted as a “criminal enterprise” under the Federal Racketeer Influenced and Corrupt Organizations Act (RICO), a law enacted to fight organized crime. That law applies to landlords who engage in predatory equity because, similar to an organized crime syndicate, they scheme to violate the law to make a profit, says Sateesh Nori, an attorney with the Legal Aid Society who spoke about the legal theory behind the case but did not assert that Pinnacle has violated RICO.*
