The Interim Multiple Dwelling program has been in existence since 1982. The program was created to protect those living in commercial and manufacturing buildings, and to require owners to legalize the buildings for residential use. What was meant to be an interim program to address this situation has remained in limbo for 30 years.
I believe the primary reason for this is that the owners are not given proper incentive to do the work to convert the buildings to residential. Once an owner receives a residential Certificate of Occupancy and gets the proper approvals from the Dept of Housing and Community Renewal and the Loft Board, the IMD tenants then receives rent stabilized status. In other words, the tenants' rents remain below market and are given rights to keep the apartment in perpetuity. This does not provide the financial incentive for landlords to make the capital improvements.
The other practical reason is that getting the IMD Loft Board's sign off to opt out of the program is a long, arduous task that can sometimes take years. As a result of the above, these properties sell well below what a rent regulated might sell for. Since the law also protects tenants from eviction and extreme rent increases until a C of O is in place, many investors will completely avoid these opportunities all together. Obviously the term “interim” does not seem applicable in this case.
However, all is not lost on these buildings. In 1983 there were 914 IMD buildings in NYC, and as of February 2011 there were only 304 remaining. Mitch Kossoff, an attorney who often represents individuals who purchase IMD buildings, advises however that he is expecting the stock of IMD buildings in NYC to again increase based upon a recent amendment to the law in June 2010 that sets a new window period for coverage and a broader criteria which will convert a new crop of buildings into IMDs. Albeit, Mr. Kossoff indicates that there are many strategies that can be employed to either expedite the timeline for legalization in accordance with the Loft Law or eliminate Loft Law coverage in its entirety. Once Loft Law coverage is eliminated or, alternatively, once the residential C of O is in place and the IMD tenants receive rent stabilized status, plenty of investors emerge. NYC loft buildings have grown more desirable over the last five years. Rent stabilized units offer significant upside for high end rentals and luxury condos.
Most recently, Nick Petkoff, Director of Sales, sold an IMD property at7-9 Harrison Streetin TriBeCa for $20,000,000 or $600/SF. The approximately 33,400SF property has 24 apartments, including four IMD tenants in place. According to Nick, the territory specialist, many of the interested investors were willing to pay a substantial premium if the building would be delivered vacant, but the seller was unable to do so. The buyers plan to keep the building as a rental property. Hopefully for the buyer's sake it won't maintain an interim status in perpetuity.