New York, May 9: Private investment firms have been amassing what may seem like unusual stakes in New York real estate: they have bought hundreds of apartment buildings with thousands of rent-regulated units across the city that produce decidedly meagre returns. As regulatory filings and promotional materials show, the companies expect to generate higher returns quickly by increasing rents after existing tenants vacate their units. Their success depends upon far higher vacancy rates than are typical in rent-regulated apartments in New York.

Some residents and tenant advocates say that they began seeing what they consider a pattern of harassment of low-income tenants this year and suspect that it is a result of the new owners’ business models. Tenants have been sued repeatedly for unpaid rent that has already been received by the landlords; they have been sent false notices of rent bills, lease terminations and non-renewals; and they have been accused of illegal sublets. The companies dispute the charges of harassment and say they are protecting their rights.

Nevertheless, tenants must answer the notices in court, but many have responded by moving out, court documents indicate. When they vacate the apartments, the owners can increase the rents substantially. “Predatory equity is undermining the best efforts of New York City and state elected officials to slow the loss of affordable housing,” said Benjamin Dulchin, deputy director of the Association for Neighbourhood and Housing Development, a non-profit organisation. “Both the private equity funders and the lending institutions are aware, or should be aware, that harassment of tenants is taking place as a result of their financial models.”

Private investment funds have boomed in recent years, buying companies they considered undervalued in industries as diverse as communications, hotels and energy, streamlining operations and then selling them at a profit. For example, private equity firms have bought nursing homes, often slashing expenses and reducing staff to increase their profit. New York provides an unusual opportunity because it is one of the few cities with a large inventory of apartments whose rental rates are regulated and kept below market levels.

In the last four years, developers backed by private equity firms have acquired almost 75,000 rent-regulated apartments, or about 6 per cent of the city’s 1.2 million such units. These companies often make clear that raising rents is crucial to their financial goals. On such firm says on its Web site, “There is a near-term opportunity to increase cash flow by converting rent-stabilised apartments to market rate as tenants vacate units.”

The companies say that they are not harassing tenants and that they are only trying to protect their rights by enforcing legitimate rules governing regulated apartments. But the New York City Rent Guidelines Board says the vacancy rate on rent-regulated apartments is 5.6 per cent each year. Buildings with vacancy rates far higher suggest resident harassment, tenant advocates say. Vacancy rates have risen above 20 per cent in many buildings and in some, they exceed 30 per cent.