Kathy Hochul Comes to the Aid of Shadowy Landlords
A New York anti–money laundering bill meant to crack down on anonymous real estate shell companies was seriously weakened through changes by Governor Kathy Hochul after she received millions of dollars in campaign financing from real estate interests.
New York governor Kathy Hochul visits Newsday headquarters on January 22, 2024 in Melville, New York. (Howard Schnapp / Newsday RM via Getty Images)
After receiving $2.2 million from real estate interests, New York governor Kathy Hochul watered down an anti–money laundering bill, ensuring that information about the shadowy corporate landlords that control a wide swath of Manhattan real estate remains inaccessible to the public. These property owners have been associated with money laundering and other financial crimes, and Hochul’s move means tenants and workers abused by the system continue to have limited ways to seek justice.
The LLC Transparency Act, which was designed to crack down on anonymous shell companies operating in New York, required limited liability companies to report their owners’ identifying information to an online database. However, before Hochul signed the bill last December, she amended the language so that only government and law enforcement agencies can access business owners’ names.
This isn’t the first time Hochul has received campaign financing from the real estate industry. In the first five months after Hochul became acting governor following Governor Andrew Cuomo’s August 2021 resignation amid sexual abuse allegations, she received $21.6 million in contributions — much of which came from big real estate executives and developers.
Real estate is a huge force in New York’s economy, with home sales accounting for $294 billion, or almost 16 percent, of all goods and services produced in the state in 2021, according to a report by the National Association of Realtors. Many of these real estate interests hide their ownership information; in Manhattan, 37 percent of the forty-one thousand total properties are owned by secretive limited liability companies, or LLCs — five times higher than the New York state average.
These property owners are contributing to a housing crisis. The state ranks in the top five of highest average home prices and has a severe housing shortage, pushing up rents and rates of homelessness. This scarcity in housing is only exacerbated by the fact that huge financial institutions are buying up single-family homes and apartment buildings across the country.
In a December memo that accompanied her revisions to the LLC Transparency Act, Hochul wrote that the bill was “overly broad, and required changes to ensure it serves the core purpose of exposing unlawful activity while balancing personal privacy.”
Earlier that month, those involved in New York real estate had publicly pushed back against the bill. A Sotheby’s International Realty broker told real estate publication Brick Underground the act was “extraordinarily invasive” for luxury buyers who “don’t want others to know where or how much they are spending.”
“It’s commonly known that real estate makes up a big chunk of the governor’s fundraising,” said Tom Speaker, legislative director at Reinvent Albany, an advocacy group that pushes for transparency and accountability in New York’s government. “We think that the changes stripped out the heart of the bill.”
Hochul did not respond to a request for comment.
Manhattan’s Secretive Realty
One of the benefits of having an LLC is that these types of companies allow owners to make purchases under their LLC name, rather than their actual name, which is appealing to many investors who wish to keep their identities concealed.
“Anonymous shell companies have been used for far too long to break the law and harm New Yorkers,” a coalition of twenty-four advocacy groups including Reinvent Albany wrote in a letter to Hochul in support of the LLC Transparency Act. “Detractors seem to come from exactly one place: the real estate market for luxury condominiums in New York City, a market historically rife with money laundering facilitated by anonymous shell companies.”
Even US Department of Treasury Secretary and Brooklyn-raised Janet Yellen called out “Central Park skyscrapers” as means for corrupt actors to hide their money. “Indeed, sometimes the only thing these luxury properties are home to are ill-gotten gains — they’re money laundromats on the 81st floor,” Yellen said at the 2021 Summit for Democracy, a meeting hosted by the United States to “renew democracy at home and confront autocracies abroad.”
LLCs’ secrecy provisions attract foreign buyers, who can make multimillion-dollar purchases without much scrutiny. For example, business oligarch and former Russian lawmaker Vitaly Malkin purchased a luxury condo at Time Warner Center in Manhattan for $15.6 million in 2010. Malkin, who owned 111 condominiums in Canada but was denied entry into the country because of his alleged connections to organized crime and suspected money laundering, made the purchase under an entity called 25CC ST74B LLC.
For tenants and workers, LLCs can prove to be shadowy and abusive landlords, linked to deteriorating housing quality and lack of accountability, not to mention wage theft and tenant abuse. By hiding their identities, their owners can protect themselves from angry tenants and lawsuits.
Reporting by the news outlet Documented revealed in 2022 that painters working for a Brooklyn-based painting company were getting paid around half of what they were promised. Yet when the workers went to the company’s address, they discovered it was not an office, but a small storefront shipping business. Over two thousand companies — many of which are LLCs — are registered at that address, which according to the report is “notorious among Brooklyn housing and labor advocates as a nexus of wage theft and neglectful landlords.”
Deep Pockets
The LLC Transparency Act — which is similar to the 2021 federal Corporate Transparency Act that requires small businesses across the country to report who owns and controls them to financial regulators — was meant to address this type of misconduct.
But last year, Hochul received an influx of campaign funding from big names in New York real estate. For example, the Rudin Management Company, a real estate empire run by the Rudin family, donated $90,000. The family controls “one of the largest privately owned real estate companies in New York City,” according to their website.
Tishman Speyer, a massive real estate firm that owns Rockefeller Center, and its CEO Rob Speyer contributed a total of $12,500 to Hochul’s campaign.
Members of the Elghanayan family, who develop and manage luxury residential and commercial properties through Rockrose Development and TF Cornerstone, spent $36,000.
Scott Rechler of RXR Realty, which manages about twenty-five million square feet of commercial properties and twelve thousand multifamily units worth $22 billion, maxed out his individual donation at $18,000. His wife, Deborah Rechler, donated another $18,000. An RXR spokesperson told us that these were individual contributions and the company does not have a comment about the LLC Transparency Act.
Members of the Durst family and the Durst Organization, an over one-hundred-year-old family-run commercial and residential real estate company in New York, donated a total of $14,500.
Many of these individuals, including members of the Rudin, Speyer, Rechler, and Durst families, also donated to Hochul during her 2022 gubernatorial race.
Rudin Management declined to comment. The other companies did not respond to a request for comment.
By December, when the LLC Transparency Act was signed, the public database provision was excluded. And without a database that tenants and workers can use to find who is behind LLCs, people seeking accountability for shorted wages or negligent landlords are largely out of luck, said Speaker at Reinvent Albany.
“Unfortunately, this law does not create the publicly available database that we fought for,” bill cosponsors Assemblymember Emily Gallagher and Senator Brad Hoylman-Sigal, both Democrats, wrote in a statement. “Disclosure to state and local governments is an important first step but it is not transparency. Tenants deserve to know who they pay rent to, and employees should know who owns the companies mistreating them. That fight is not over.”
Failure to comply with the LLC Transparency Act will result in a fine of up to $500 for each day that a company’s filing is past due. Businesses will also be suspended from operating in New York until they report their owners to the state. As a “peace offering” offered by Hochul after the public database was removed, Speaker said the fine amount was doubled from a $250-a-day charge that was originally proposed.
Speaker still hopes for a public database of LLC owners in the future. “I think that this most recent legislative session put a spotlight on the role that LLCs do have in a lot of sectors and the negative impact that they have on tenants, on workers,” he said. “That’s a great start for helping advocates push forward in the fight for transparency.”