For Some Landlords, Real Money in the Homeless

Willy Machan acknowledges he is a gadfly, someone who writes bristling letters to local officials to get conditions improved in his grim single-room-occupancy building. But he was surprised by what his landlord offered last July to persuade him to move out of the room he has lived in since 1984 and for which he pays $371 a month.

“If you are not happy, I will give you $25,000 cash,” he recalled the landlord’s representative telling him.

Though barely getting by on Social Security, Mr. Machan, a 68-year-old retiree, turned down the offer, saying he had nowhere else to go. But some of his neighbors in the building on the Upper West Side of Manhattan — where the 71 rent-paying residents share bathrooms and there is no kitchen — told others they accepted similar cash payouts with the excitement of lottery winners and quickly vacated.

The landlord, Alan Lapes, was clearing out these tenants to accommodate a group of people not often regarded as desirable: New York’s homeless.

The city’s Department of Homeless Services pays many times the amount the rooms would usually rent for — spending over $3,000 a month for each threadbare room without a bathroom or kitchen — because of an acute shortage in shelters for homeless men and women.

Indeed, the amount the city pays — roughly half that amount goes to the landlord, while the other half pays for security and social services for homeless tenants — has encouraged Mr. Lapes to switch business models and become a major private operator of homeless shelters. He is by most measures the city’s largest and owns or leases about 20 of the 231 shelters citywide. Most of the other shelters and residences are run by the city or by nonprofit agencies, but his operation is profit-making, prompting criticism from advocates for the homeless and elected officials.

Mr. Lapes has lately stirred anger for his contracts through the Department of Homeless Services. More than 200 residents and elected officials packed a community meeting last week to express outrage at the transformation of two buildings he owns on West 95th Street into homeless shelters, without the usual public and legislative scrutiny.

“The city needs to make sure there’s affordable housing instead of waiting for shysters to come forward to make thousands of dollars off these poor unfortunate people,” State Assemblywoman Linda B. Rosenthal, a Manhattan Democrat, said at the meeting, promising to push for reforms. “Getting rid of the profit motive will reduce some of the bad actors.”

Mr. Lapes, 49, has been willing to weather the blistering response because of how lucrative these shelters have become. Mr. Lapes, who has a home in Upper Saddle River, N.J., that was valued in 2005 at $3.3 million, did not return numerous messages left at his home, office and homeless shelters seeking comment.

The fact that these modest living spaces have such high rents opens a window on a peculiarity of the city’s overall homeless policy. That policy, which was put in place in response to court settlements in 1979 and 2008, requires the city, under threat of sizable fines, to find a roof immediately for every homeless person. It has given landlords willing to house the homeless leverage to dictate rental prices and other terms.

Although the 95th Street shelter where Mr. Machan lives has been opened under “emergency” rules, the contract is for five years at $122 daily per room and will cost the city a total of $47 million. “We’ve tried hard to make sure we’re getting the best deal for the city,” Seth Diamond, the commissioner of homeless services, said at the meeting in response to the criticism.

With the number of homeless people rising to 30-year record levels — over 47,216 people as of early this month, 20,000 of them children — the city has struggled to find landlords willing to accommodate a population that includes people with mental health and substance abuse problems. So the city has resorted to housing adults in single-room-occupancy buildings originally designed for long-term residents who pay stabilized rents. The city also often relies on sites with troubled histories, like a long vacant 10-condominium building at 165 West Ninth Street in Carroll Gardens, Brooklyn, owned by Mr. Lapes, where it wants to house 170 homeless men.

“How many landlords are out there who, if you said I need 200 rooms by the end of the month, would have these properties ready to go?” said Muzzy Rosenblatt, the chief executive of the Bowery Residents Committee, a nonprofit organization that operates six well-regarded shelters. “There are not a lot of landlords banging down the door.”

At several of Mr. Lapes’s shelters, tenants — both homeless and longer-term residents — say the buildings are often characterized by violence, drug-use, mice, broken elevators, periods without heat and hot water, and violations of fire safety laws. At 237 West 107th Street, a six-story women’s shelter formerly known as the West Side Inn, many of the 200 tenants said they often waited for an hour or more to take a shower at one of the shared bathrooms on each floor.

Joyce Colon, a resident there who entered the homeless system in December, said she was shocked by the violence and prostitution in the building.

“For $3,000 I could have gotten an apartment, a down payment and a security deposit and some furniture,” Ms. Colon, 49, said. “The landlord is getting $3,000 and I’m getting nothing.”

The Department of Homeless Services points out that its per diem rates cover expenses like security guards, case managers, workers who do housing and job referrals and other social services that are provided by nonprofit organizations like Aguila Inc. The city contracts with the provider to operate a shelter, and then the provider contracts with landlords to rent out rooms in the building — at West 95th Street, Aguila pays Mr. Lapes $63 of the $122 per diem per room.

Aguila, which recently merged with Housing Solutions, is run by Robert V. Hess, a former commissioner of homeless services. Several elected officials have raised concerns, saying that Mr. Hess, as a commissioner, approved previous deals with Mr. Lapes.

Last Friday, the city comptroller, John C. Liu, began an audit into the homeless department’s billing and payments to Aguila. A previous audit, in November 2011, found that the department did not properly spend or provide supporting documentation for $10 million it had turned over to Aguila. The report also said the department did not ensure that clients were housed “in safe and sanitary conditions” or transition “its clients to permanent housing in a timely manner.”

Recipients of the social services at Mr. Lapes’s shelters say that though security guards are prevalent, other services are lacking: they say they get only brief interviews and receive almost no actual referrals.

Mr. Lapes owns or leases about 20 properties housing the homeless, according to the Department of Homeless Services. At several of those, like the Pennington, Continental and Ellington, the owner is a member of the extended Podolsky family. Stuart Podolsky, who is chief executive of Amsterdam Hospitality Group, is connected to some of the properties operated by Mr. Lapes. According to Mr. Podolsky’s lawyer, David M. Satnick, he “triple-net” leases the homeless accommodations to landlords like Mr. Lapes, who maintain the buildings and pay the real estate taxes and insurance, effectively assuming all the headaches.

“If Lapes makes or loses money, it doesn’t affect how much rent he pays at the end of the month,” Mr. Satnick said. “The owners don’t have a risk.”

The model being used by Mr. Lapes, clearing out lower paying tenants, was also pursued by Mr. Podolsky and family members. In the late 1980s, Mr. Podolsky, his father and his brother, pleaded guilty to charges by the Manhattan district attorney’s office that they used threats and violence to drive tenants out of three Upper West Side buildings so they could rent them to new tenants at far higher rents or sell them as condominiums or cooperatives. Mr. Satnick said the guilty pleas were “ancient history.”

Patrick Markee, a senior policy analyst for the Coalition for the Homeless, blamed the Bloomberg administration for the continuing use of private landlords to house the homeless, citing a policy not to give the homeless priority for public housing projects and Section 8 vouchers because of long waiting lists.

“The crisis that’s causing the city to open so many new shelters is mostly of the mayor’s own making,” he said. “Instead of moving families out of shelters and into permanent housing, as previous mayors did, the city is now paying millions to landlords with a checkered past of harassing low-income tenants and failing to address hazardous conditions.”