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Inside the Luxury Condo Tower That New York Says Was a Hotbed of Illegal Airbnb Rentals

By Massimo F. D'Angelo


Inside the Luxury Condo Tower That New York Says Was a Hotbed of Illegal Airbnb Rentals

By Josh Barbanel

June 9, 2019

Lines at the elevators and unfamiliar faces at breakfast; ‘I was kind of shocked by it,’ says one condo owner caught in the dragnet


At Manhattan’s Atelier one afternoon last year, its five-star hospitality service was on full display.

Cheerful staff greeted guests outside the building and escorted them to their rooms. Maids roamed the halls with cleaning carts and crisp white towels, while a continental breakfast was served in the spacious marble lobby. A one-night stay went for $400, on par with room rates at Manhattan’s Grand Hyatt just across town.

The Atelier isn’t a luxury hotel. It is a Midtown condominium building where the board president and a small travel agency built a lucrative lodging business, according to people with knowledge of the rental arrangements.

The Mayor’s Office of Special Enforcement, known as OSE, said it is investigating a network of allegedly illegal short-term rentals at the Atelier, an agency spokeswoman said. She declined to provide further details. The network shut down after a police raid in October, according to former employees of the travel agency.

The investigation at the Atelier is just one way New York City is seeking to address a widespread problem identified by Mayor Bill de Blasio and city enforcement officials: the misuse of home-sharing platforms like Airbnb Inc. to develop large-scale lodging businesses. The city has been stepping up its pursuit of large, illegal hotel operators. That intensifying focus on enforcement comes as Airbnb prepares for an initial public offering.

A spokesman for Airbnb said the company wants to work with New York City on legislation to protect hosts so that the city can focus “enforcement resources on large-scale illegal hotel operators.”

In New York, it is illegal to advertise and rent entire apartments for occupancy of fewer than 30 days. Offenders face civil penalties for multiple building-code violations, which can range from about $1,000 to $25,000 or more for each violation.

When city inspectors, accompanied by police officers, raided the Atelier in October, New York issued notices of violation to the owners of 27 apartments there. The notices said the owners’ condos had been “used/converted for transient use” and often listed the name of the home-sharing service guests said they had used.

The Atelier’s condo-board president, Daniel Neiditch, is the owner of real-estate agency River 2 River Realty, which leases many units in the building for short- and long-term rentals.

[redacted], a lawyer for Atelier’s condo board, responded to requests for comment from The Wall Street Journal to Mr. Neiditch and River 2 River Realty. Mr. Schwartz said that Mr. Neiditch “offered his services as a broker to unit owners, that is doubtless true.” Any short-term leases involving Mr. Neiditch were for 30 days or more and were legal, [redacted] said.

After the raid, Massimo F. D’Angelo, a lawyer representing a group of Atelier condo owners, sent a letter to the condo board demanding it shut down what he called an “illegal hotel enterprise.”

“The board denies any ‘illegal hotel enterprise’ which is a colorful exaggeration,” [redacted] said.

Many of the units managed by River 2 River Realty were provided to a travel agency, Primos NYC Inc., according to several condo owners and former Primos employees. Primos, in turn, rented out those apartments by the night, according to online listings and guest reviews. Primos founders Alberto Martin de Frutos, Javier Martin de Frutos and Blanca Regalado couldn’t be reached for comment.

[redacted] said Mr. Neiditch “had no leases with Primos,” but didn’t address questions about whether there was any relationship between Mr. Neiditch’s brokerage firm and Primos.

After sending the letter to the condo board, Mr. D’Angelo filed a complaint with the New York Attorney General and OSE, asking that the agencies take action on the owners’ behalf. In the complaint, Mr. D’Angelo requested that Mr. Neiditch be removed from the board. Mr. D’Angelo also asked for an injunction barring further illegal rentals in the building. The attorney general’s office and OSE declined to comment on the complaint.

[redacted] said he hasn’t reviewed the complaint. It couldn’t be determined if River 2 River Realty or Primos were aware of the complaint.

[redacted] said that Mr. Neiditch isn’t responsible for illegal rentals by any tenants who rented apartments from him. “If tenants subleased their units illegally, he was not aware or involved,” he added.

A condo board maintains the common areas of a condominium and operates the building. Mr. Neiditch has been board president of the Atelier since soon after the 46-story glass tower opened on West 42nd Street near the Hudson River in 2007.

Bank records reviewed by The Wall Street Journal show that there was a financial relationship between Primos and River 2 River Realty. A $402,000 electronic payment was transferred from Primos to River 2 River Realty in April 2018, and a $302,000 payment was made in June.

Mr. Neiditch referred questions about the bank transfers to [redacted], who said Mr. Neiditch’s companies get “thousands of wires per year.”

“So long as the accountants reconcile the numbers, he generally does not investigate who authorized whom to send what where,” [redacted] said.

Guests who arranged short-term stays at the Atelier would meet with guides whom Primos employees called “greeters” at nearby locations, according to guests who stayed at the Atelier. The greeters would guide them into the building through a side door or back entrance and would show them to their rooms, several guests said.

Primos started out with three condos at the Atelier in April 2016 and then expanded, said Perry Chan, a travel-technology consultant who said he worked with Primos. According to Mr. Chan, Primos listed the condos as per-night rentals on Booking.com and on its own platform, in addition to Airbnb. A spokeswoman for Booking.com said the company closed all listings in the Atelier after the raid.

By last summer, Primos was leasing about 70 apartments and providing cleaning services to about another 30 units used as short-term rentals by two other rental operators, according to a former Primos employee.

A few weeks after the raid, Mr. Neiditch said that, as board president, there was very little he could do to stop illegal rentals in the Atelier. He blamed the problem on tenants, not on the owners of the individual apartments the tenants were renting and allegedly subletting for fewer than 30 days.

“I would love to get anyone who is doing Airbnb illegally,” he said in an interview with the Journal.

Primos paid River 2 River Realty an average of about $5,000 a month per apartment, plus two or three months’ security deposits, Mr. Chan said. Primos was usually able to maintain an 80% occupancy rate, Mr. Chan said, by raising or lowering nightly rates, producing about $9,600 an apartment each month, before expenses.

Some unit owners—who had turned over management of their condos to River 2 River Realty—said they didn’t know their apartments were being rented out on a per-night basis until they received notices of violation from New York City for allegedly turning an apartment into an illegal hotel room.

“I was kind of shocked by it,” said Jung Soo Suk, an assistant professor of ophthalmology at Johns Hopkins University School of Medicine in Baltimore. Dr. Suk owns a 30th-floor apartment managed by Mr. Neiditch and received a notice of violation. “I assumed everything was done in the proper way,” he said.

One unit owner who had turned her apartment over to Mr. Neiditch to manage said he told her the fines “would be taken care of.” One lawyer, Bradley Green, represented all the owners at hearings, according to city records. A total of $77,875 was paid. The source of the funds couldn’t be determined. Mr. Green declined to comment.

Primos set up a concierge service at the Atelier, known as Eclat, that provided cleaning services and restocked apartments with coffee and tea, former Eclat employees said. About a dozen maids dressed in black trousers and white T-shirts with the Eclat logo, the former employees said.

Eclat stored shrink-wrapped towels and sheets and spare lamps and pillows from IKEA in several utility rooms in the building, while a key box in an electrical closet was set up to hold keys for the rentals, former Eclat employees said.

[redacted] confirmed that Eclat worked in the building, saying “it stands to reason” that Eclat would need keys for its concierge business.

Atelier condo owners said they began an online chat group to complain about long lines of people with rolling suitcases at the elevators and about unfamiliar faces at the daily continental breakfast, which is offered as a standard amenity at the building.

The condo board issued a series of fines against some owners who said they had complained about the visitors and had followed around guests they believed to be short-term renters, noting apartment numbers, according to text messages and emails reviewed by the Journal. The board—in a text message—imposed a $1,500 fine on one owner who the board said “incited violence.” A lawyer for Mr. Neiditch also threatened several condo owners with defamation lawsuits seeking $25 million in damages, according to letters sent to several owners that were reviewed by the Journal.

[redacted] said fines were issued for “intimidating or menacing individuals in the building.” The letters said the recipients had made “illegal and defamatory statements.” No defamation lawsuits have been filed.

Mr. Chan, the travel-technology consultant, is a founder of a home-sharing service, PermaGO, that he said is designed to operate legally in New York. He stopped advising Primos last year, long before the raid, he said, because the company was taking too many risks. He said he disagreed with Primos’s strategy of reinvesting profits to expand its network at the Atelier because he believed a large presence in the building would increase the likelihood of regulatory scrutiny.

Primos couldn’t be reached for comment.

Original Article

Adam Leitman Bailey, P.C.

NEW YORK REAL ESTATE ATTORNEYS