Prosecutors allege Bushwick developers cashed in on tax breaks while overcharging tenants

The Manhattan District Attorney’s Office contends six developers ‘fraudulently obtained’ more than $1 million in tax credits aimed at boosting affordable housing.

October 20, 2022 George Joseph, THE CITY

Nearly 7 of 10 multifamily residential buildings in New York were constructed with the benefit of the 421-a tax break in the past decade. Photo: Ben Fractenberg/THE CITY

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This article was originally published on Oct 19 12:58pm EDT by THE CITY

BUSHWICK — Manhattan prosecutors allege that a group of six developers ripped off taxpayers, overcharging Bushwick tenants while cashing in on a controversial, now lapsed, state tax break for developments that are supposed to include income-restricted affordable units.

According to an indictment announced Wednesday, the developers violated the terms of that tax break, known as 421-a, by falsely claiming that the “affordable” units had been rented out to income-qualified tenants. They instead hiked rents, prosecutors allege — in some cases more than $1,000 per month above approved levels — to renters who did not qualify.

The indictment includes charges of filing false paperwork, tax fraud, and grand larceny, and is being led by Manhattan District Attorney Alvin Bragg, whose team had jurisdiction to pursue the criminal charges because of where the developers filed their paperwork, according to a spokesperson from Bragg’s office.

“These developers allegedly abused a government program meant to provide New Yorkers access to desperately needed affordable housing,” said Bragg. “Not only did they illegally charge substantially higher market rents for years, but they did so while personally reaping the benefits of generous property tax abatements.”

“At a time when affordable housing is crucial for New Yorkers, and for the city’s recovery from the pandemic, these landlords, as charged, enriched themselves by fraudulently obtaining over $1 million in tax credits from the City that were intended to promote affordable housing,” said city Department of Investigation Commissioner Jocelyn E. Strauber, whose agency is collaborating with prosecutors on the case.

Manhattan prosecutors allege that the developer of this Bushwick property made off with more than $435,000 in improper tax benefits between 2017 and 2020. Photo: George Joseph/THE CITY

Six separate defendants are names, including Alen Paknoush, the owner of 682 Bushwick Avenue, who participated in the tax abatement program starting in 2014 and was required to make five of 23 units affordable. But the next year, prosecutors assert, Paknoush’s apartments were being quietly rented out to tenants who were paying between $1,900 and $2,700 for one- and two-bedroom units that were supposed to be reserved for low-income tenants paying between $926 and $1,042.

As a result of Paknoush’s false filings with city authorities, prosecutors allege, the developer made off with more than $435,000 in improper tax benefits between 2017 and 2020.

Paknoush did not immediately return a request for comment.

Tenants at the property — a gray-brick building covered in graffiti at the corner of Bushwick and Willoughby Avenues — told THE CITY they had no idea about the developer’s alleged tax violations and were unsure about whether they should seek counsel to look into potential rent disputes.

“I will probably talk to my roommate about it, maybe look into it, because it’s something I don’t know a lot about,” said Dahmin Lim, a 21-year-old student who has lived in her apartment for just a few months.

“There’s a lot of malfeasance that goes on with Brooklyn rents and New York rents in general,” said another 26-year-old tenant, who lives on the first floor of the building and asked not to be named. “I think it’s maybe a function of city bureaucracy. No one knows what’s going on, and that allows landlords to sometimes take advantage.”

The criminal case filing is not the first time New York property owners have faced accusations of fudging paperwork to take advantage of 421-a. State lawmakers allowed the program to expire in June in response to concerns that the program amounted to a needless “boondoggle,” as the city comptroller called it.

Manhattan District Attorney Alvin Bragg brought the charges in coordination with the city Department of Investigation. Photo: Hiram Alejandro Durán/THE CITY

Earlier this month, tenants in three buildings in Brooklyn, Manhattan, and Queens sued their landlords for allegedly filing false paperwork with the state’s Division of Homes and Community Renewal (HCR) in a bid to overcharge tenants for rent renewals or new leases in violation of the terms of the tax break, City Limits reported.

Despite support from Gov. Kathy Hochul and Mayor Eric Adams, developers failed to convince Albany to keep 421-a alive, a decision they claim will make new rental housing harder to build at a time when the city’s housing crisis is particularly acute.

Between 2010 and 2020, nearly 70% of multifamily residential developments in New York City were constructed with the benefit of the tax break, an NYU Furman Center study published this year found.

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