The Continental Hotel, a turn-of-the-century pile on West 95th Street, was a vintage flophouse. In the sixties, a man could pick up the phone, dial UNiversity 6-1420, and find a bed there for a few bucks a night. It was never a place for nostalgia, and over the years it filled with drunks, vagrants, and deinstitutionalized mental patients. But the hotel did serve a function: providing a reservoir of dirt-cheap housing. As recently as a few years ago, the Continental’s tenants, protected by rent regulation, were paying just $330 a month on average. So, in 2005, the owners sold it for $3.1 million to Jay and Stuart Podolsky, brothers with an unsentimental eye for the potential of seedy properties.
The Podolskys had been active players in Manhattan real estate since the roughneck days of the eighties, when landlords all over the Upper West Side rousted low-paying tenants from single-room-occupancy properties like the Continental. Few were as ruthless as Zenek Podolsky and his sons Jay and Stuart, who became neighborhood legends and tabloid villains—“terror lords,” the Post called them. But they were only a particularly blunt instrument of inexorable market forces. As gentrification advanced, the family thrived, amassing a fortune fished from the bottom.
The Podolskys’ flagship company, Amsterdam Hospitality, operated boutique hotels—mostly old SROs that they repositioned for tourism—but their portfolio included everything from Coney Island oceanfront to Grand Concourse tenements. “They are very effective at finding adaptive reuses,” says a competing hotel developer. “Whatever is expedient.” They acquired the Continental and two adjoining SROs to add to a discount chain. It was renamed the Fresh Hostel and marketed to European backpackers.
Such transformations are a fact of economic life in an increasingly smooth-edged city—think of the Breslin, a Gramercy fleabag, recently converted into the Ace Hotel—but the Continental became a flash point. The SRO Law Project mounted attacks, alleging an escalating pattern of pressure on rent-controlled tenants. The hostel’s conditions were as fetid as a spring-break crash pad—online reviews referenced vomit and bedbugs—but the young tourists would pay $50 to $120 a night for a bed to pass out in. The more they trashed the place, the less tolerable the living situation became for the less profitable holdout tenants.
The housing activists organized protests, engaged politicians, and provoked a raid by the city’s Buildings Department, which discovered numerous illegal renovations, such as a haphazard wooden bridge constructed between two buildings. An inspector scrawled: “Discontinue illegal occupancy forthwith!” After much litigation, the Podolskys finally agreed to shut down the hostels.
It turned out, however, that they had found a more profitable angle: the homeless. In July 2011, a nonprofit called Housing Solutions USA was incorporated, listing one of the 95th Street hostels as its address. The charity’s board was made up of Podolsky employees and contractors, including a lawyer who contributed a $725,000 loan for start-up costs. Instead of fighting City Hall, the Podolskys were shifting their tactics, turning an antagonist into a customer. Catering to the city’s demand for shelter beds, their property could produce revenues like a perpetually booked hotel, with none of the amenity expenses.
In August 2012, Housing Solutions won an “emergency” contract to operate a shelter on West 95th Street, which has since expanded into a five-year, $47 million deal. The city pays $122 a night—or more than $3,600 a month—for each cubicle-size room to Housing Solutions, which in turn directs rental income back to the Podolskys. Suddenly, the Continental’s holdout tenants found themselves living in a homeless shelter, renamed Freedom House, that reeked of urine, marijuana, and chaos. But the Podolskys had hit upon a coldly self-sustaining business model: They created the homeless supply and profited from the shelter demand.
Homelessness is a perpetual crisis in New York. Since a judge’s decision created a legal right to shelter in 1981, the city has consistently struggled to find appropriate shelter for its poorest citizens. During Mayor Bloomberg’s tenure, the homeless population metastasized, reaching a record level of 52,000 in September. There are many possible explanations, including policy decisions, such as the elimination of rental-subsidy programs. But the most compelling one is familiar to all: It’s harder than ever to find an affordable lease in New York. Market-rate rents have risen sharply, even as incomes have shrunk and the number of rent-regulated apartments has declined. (And stabilized units can cost as much as $2,500.) This viselike dynamic has squeezed one out of every 150 New Yorkers onto the streets.
Bloomberg’s critics—including Bill de Blasio—have cited this figure as one of the mayor’s most profound failures. To a few, though, it has represented an opportunity. The city will spend almost $800 million on shelters this year, $200 million more than in 2010, and it relies heavily on outsourced providers. “Any of us can look at the data pretty simply,” said one shelter operator, “and say it’s a growth business.”