NEW YORK CITY LOFT BOARD

In the Matter of the Application of Loft Board Order # 1945 MC #: 0658 Alan Feierstein Re: 19 Mercer Street New York, New York IMD # 10003 Docket # LH-0004

On October 31, 1983, Alan Feierstein, the owner of the premises at 19 Mercer Street, New York, New York, filed an application for a hardship exemption from the Loft Law. Specifically, he asserted that obtaining a residential certificate of occupancy for the premises would adversely impact on Feierstein's recording studio, Acoustilog, an existing nonresidential conforming use occupant of the fifth floor,1 and that the owner could not obtain a reasonable return on his investment due to the costs of making the premises code compliant.2 Feierstein sought the displacement of all three residential tenants in the building: Stephen Procuniar, who occupied the second floor, Elias Moser, who occupied the third floor, and Eileen Mullan, who occupied the fourth floor. At the time the application was filed, the first floor and basement were occupied by a commercial tenant, Soho Repertory Theater (hereafter, Soho Rep), the displacement of which was not sought.

In support of the application as based on the infeasible costs theory, Feierstein demonstrated an operating loss for the building of 22% in the period August 1982 to August 1983 and a projected loss, post-legalization, of 26% in the period August 1984 to August 1985. To document his claim under the adverse impact theory, Feierstein argued in a supporting affidavit that the residential tenants disrupt his business by being rude to his clients and complaining about the noise the studio generates; that to maintain its place in the market and continue to employ its current employees Acoustilog must expand by building another studio; and that displacement of all the residential tenants would be necessitated, because there must be a vacant floor between each floor containing a recording studio and the space would be used by Acoustilog to store supplies and perform other administrative functions.

1This phase of the proceedings is hereafter referred to as the "adverse impact" phase.

2This phase of the proceedings is hereafter referred to as the "infeasible costs" phase.

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On March 1, 1985 Feierstein, who was by this time represented by Alan Fuchsberg, Esq., filed a supplemental submission in support of his application at the request of hearing officer who

86 presided over a conference in the matter late in the preceding year. At the time of filing the supplemental application Feierstein, who had recently recovered the first floor and basement from Soho Rep, had constructed an additional recording studio in the area vacated by Soho Rep. In the supplemental pleading, the owner asserted that because of the wood joist construction of the building, adequate sound isolation of the fifth floor studio from the residential tenants could be achieved only by providing a buffer of one or more floors between studios; that moving the fifth floor studio would not be cost effective, would still require a residential tenant to vacate, and would deprive the owner of needed offices and other facilities; and that if he prevailed on his application, he would use the second floor for sales and rentals, the third floor to build a separate mix room and the fourth floor for offices, storage and an equipment repair area. Feierstein further indicated that fees for sales, rentals, maintenance and consultations comprised 40.8% of Acoustilog's income and that two staff engineers had been laid off and one secretary had become a part-time, rather than a full-time, employee as a result of Acoustilog's inability to expand.

The Loft Board's auditor reviewed the documentation submitted in connection with the infeasible costs phase of the case. By report dated October 17, 1986 she found that based on the actual expenses accepted for the period September 1, 1982 to August 31, 1983 the building ran at a 15% loss for that period, and that based on projected figures for a post-legalization period, September 1, 1984 to August 31, 1985, the building would operate at a 24% loss.

On December 15, 1986 the residential tenants at the premises, Stephen and Carolyn Procuniar, Eileen Mullan and Elias Moser, notified the Loft Board that they had retained Daniel Alterman, Esq. and filed an answer in the instant proceeding. They urged that the adverse impact portion of the application should be dismissed as a matter of law because the fifth floor was ruled by Civil Court to be a residential unit and, because it was not exclusively commercial, it did not qualify for a hardship exemption from the Loft Law. They also suggested that the relief sought by the owner was over broad in that he had not considered the use of less space for his business, relocation of the tenants or redesign of the residential units, as required by the statute. The tenants further suggested that the owner's hardship was self-created, as demonstrated by the fact that he had lived in the building for seven years and knew that the respondents lived there, also, prior to purchasing the building. Additionally, with regard to the infeasible costs theory, the tenants contested expenses allowed by the Loft Board auditor, including legal fees, real estate taxes, the determination of the fair market rent for the units occupied by the owner's business and the costs of legalizing the building.

Hearings on the infeasible costs phase of the case were held on February 4, 1987, February 25, 1987, May 22, 1987, May 29, 1987, June 1, 1987, June 2, 1987, July 17, 1987, August 3, 1987, August 4, 1987, August 5, 1987, August 7, 1987, October 9, 1987, October 22, 1987, December 14, 1987, February 11, 1988 and February 16, 1988. Hearings on the adverse impact phase of the case were held on July 18, 1988, August 25, 1988, August 26, 1988, September 9, 1988, September 22, 1988, October 2, 1988, October 6, 1988, November 1, 1988, November 2, 1988, December 21, 1988, December 22, 1988, January 5, 1989, January 10, 1989, January 11, 1989, January 20, 1989, 86

January 26, 1989, February 7, 1989, February 8, 1989, June 5, 1989, June 15, 1989, October 2, 1989 and October 6, 1989.3

TESTIMONY ADDUCED AT HEARING:

Infeasible Costs Phase:

John Storyk, testifying on behalf of the owner, stated that he was a designer and consultant for audio and video recording studios in the United States and abroad. He stated that he knew Al Feierstein professionally and that he was at 19 Mercer approximately half a dozen times.

Storyk described the lower studio as medium to large and sophisticated by industry standards, and the top studio as medium to small sized. He added that the top studio had been an active, on-going business since he first visited it five years prior to his hearing testimony in 1987. The studio, called Sorcerer Sound, is one of 30 or 40 full-service, fully priced recording studios in the industry, used mainly by rock, pop and jazz bands. Storyk testified that Feierstein also operated a manufacturing, equipment rental, studio service and repair business called Acoustilog. Most of the equipment they sold was designed by Feierstein.

Storyk further testified that there was a need for a vocal booth in a studio because of insufficient sound isolation to accommodate several instruments in a small to medium-sized studio such as the one located on the fifth floor. He stated that almost all studios have a main recording room, a control room, a smaller recording room, and a vocal room. He stated that without a vocal room, the studio could not be functional and added that one could be placed where the kitchen or bathroom was located. He stated that a vocal room should be placed as close to the control room as possible and that to place it on the roof would be ridiculous.

In discussing the possibility of moving to another floor, Storyk stated that the ceilings of the third and fourth floors were too low, at 11 to 11 1/2 ft., as a minimum of 14 ft. is necessary to be competitive. He noted that although the second floor ceilings were 14 ft., the cost of sound proofing it from the studio below would be enormous, and perhaps impossible because the building has a wood frame.

Storyk testified that the present size of the studio was definitely not large enough to accommodate the needs of Acoustilog and Sorcerer Sound, which he felt required 500 sq. ft. for the

3Although one hearing officer the adverse impact phase of the case on April 25, 26 and 28, 1989, a mistrial was declared concerning those hearing dates, since that hearing officer had given notice of her intention to leave the agency and it became clear that she would not be able to complete the hearings on this phase prior to her departure.

86 former and up to 3000 ft. for the latter. He also testified that there was inadequate room for tape storage, which he thought required about 300-400 sq. ft. He stated that he saw no space where such a room could be placed, except on the fifth floor.

Storyk stated that in order to operate a profitable facility, there needed to be two studios and a mixing room, or three studios, since overhead costs do not increase incrementally with another studio. He also stated that a mixing room was necessary for expansion because 50% - 75% of the total recording process takes place in the control room and therefore it would be inefficient to let the mixing room sit idle while the other facilities within the studio were being used.

Maurice Wasserman testified on the owner's case that he is an architect in the firm of Wasserman and Waterhouse, which specializes in the design of acoustic facilities, such as recording, television, and film studios, and that he has designed approximately 35 studios in his career.

Wasserman stated that he reviewed the report of Helene Murrin (Petitioner's exhibit 1), the Loft Board Auditor, and understood it to be the summary of costs involved in upgrading the building to meet Loft Board standards, which to him were the same as those required by the Multiple Dwelling Law.

Wasserman testified that he had brought with him plans for the conversion of 19 Mercer Street to obtain a Certificate of Occupancy, which were offered into evidence as Exhibit 2. He stated that he believed the items of construction listed on pp. 12-17 of the report were necessary to legalize the building. Wasserman prepared an estimate of the cost of implementing the plans in a letter dated August 26, 1983, offered into evidence as Exhibit 3, which described in general terms the construction work to be done and the estimated costs for each of those items.

Wasserman testified that the estimates were based on his experience in the costs of construction, the Means standard cost books, and prices obtained by calls to sub-contractors. In a letter dated February 13, 1986, Wasserman updated his report, which had been prepared three years earlier. He stated that he reinspected the premises except for the second and third floors. Generally, there were increases in prices for plumbing work, a substantial increase for elevator work and a deletion of an item for an oil burner.

Wasserman stated that the costs listed in the auditor's report were in most cases lower than the going market costs, with no costs higher than market price. Wasserman testified that his figures were derived independently of a report by City Builders, Inc., received in evidence as Exhibit 5, which was sent to him by Feierstein.

Wasserman stated that sound measurements taken underneath the recording studio exceeded levels allowable under the New York City noise code. In a footnote to his letter, Wasserman indicated that it would be almost impossible to adequately separate acoustically the residential area below the 86 recording studio on the fifth floor. He stated that in order to do so, they would have to sound proof both the ceiling of the fourth floor and the floor of the fifth floor. Wasserman stated that almost every recording studio his firm has designed has at least two stories for reasons of economy, as it permits the operator to have a large room, a small room and a mixing room in the same building.

Wasserman testified that he believed that under the zoning law, the building was located in a manufacturing zone which permits construction of recording studios. Submitted as Exhibit 6 were original plans for the construction of a recording studio on the first floor and basement, which, Wasserman testified, had been approved.

On cross-examination, Wasserman stated that he inspected the second floor unit for about half an hour, during which time he took photographs and made notes about the units. He did not take measurements. He stated that he visited all the units on the same day and was led by a member of Feierstein's staff. He further stated that he met Feierstein approximately ten years ago and that when he visited the studio about eight years ago, it was already in use. For the last five years, he worked for Feierstein and was paid at various times.

Wasserman stated that when he visited the premises, he reached the fifth floor via the public hall and stairway, and also stated that the $50,000 allocated in his reports was for the cost of relocating the exit stairway and the bulkhead to the roof. He further testified that the $20,000 cost listed in his report for the replacement of the fire escape should not have been attributable to legalization costs because it would have been necessary to replace it irrespective of conversion to residential use. In addition to a $35,000 deletion, Wasserman stated that $65,000 for the cost of providing an elevator was deleted as it was not required under the Multiple Dwelling Law ("MDL") or Loft Law.

Wasserman testified to plumbing costs at a total of $65,000. He stated that he did not personally inspect the pipes in the building and that the report was prepared by his staff and a figure was arrived at to cover the cost of installation of new pipes from the street to the fifth floor. Given the condition of the old pipes, installation of a new plumbing system was preferable. Wasserman testified that he did not consult any plumbing companies for his estimate and that his firm's business was not involved with loft conversions, although he once worked on a loft conversion in Brooklyn.

Wasserman stated that since the wiring in the building was either inadequate or illegal, he estimated the cost to newly rewire the building at $25,000. He also testified that $20,000 was allocated to create larger window openings equal to 10% of the floor area as required by the MDL, which he believed shared the same standards as the Loft Law. Wasserman stated that the alternative to replacing windows was to put in a mechanical venting system which would be far more expensive.

Wasserman stated that he was getting paid for his testimony and that he had a working arrangement with Feierstein. He stated that his firm designed the studio in the basement in 1984, and

86 was paid between $1,000 and $10,000 for it. He further testified that he did not know how much he was paid for the alteration application or other services since he and Feierstein traded services.

Wasserman testified that his firm had filed many applications with the Buildings Department but that he did not recall a specific one filed in 1983, numbered 458. He stated that in the applicants' initial hardship application there was a reference to an application to the Building Department for which a permit was not issued. Wasserman stated that it might have been either the application he prepared to satisfy a Loft Board requirement that the type of occupancy of the building be disclosed or an application filing the work done on the basement and the first floor. Submitted into evidence was Tenants' Exhibit 1, correspondence between Feierstein and Murrin. He further stated that he did not know if an approved alteration application is necessary to maintain a hardship application.

Wasserman stated that he was familiar with the February 11, 1985 letter from Acoustilog to Murrin which contained a list of items and a cost comparison for Loft Board figures and the other labeled "real" figures. He stated that although he read it, filed it and participated in the preparation of it, he never consulted the figures in the letter. Wasserman stated that he did not know why the estimate contained in his report was $260,680, and the one contained in the Murrin-Feierstein correspondence was $261,000. He guessed that perhaps Feierstein wrote to Murrin and she copied figures from him. Wasserman further testified that the $260,000 stated cost did not include architect's or attorney's fees, which, if included, increase the cost to approximately $295,334.

Wasserman stated that as of November 15, 1984, he had been retained by Feierstein to supervise the design of the studio on the first floor and basement. He stated that he did not know if he and Feierstein had discussed any plans to expand the studio prior to the purchase of the building, but that he first learned of the intent to expand around late 1983-84. However, he stated, Feierstein never discussed with him the eviction of the residential tenants on the second, third and fourth floors.

Wasserman testified that there were discrepancies between the total square footage of the various floors as indicated in a letter to Murrin and the square footage indicated in his floor plans.

Wasserman testified that he recalled having to prepare certain documents for Feierstein in connection with the conversion of the premises. He stated that the standards used in his estimate of costs to Feierstein were based on various cost books, such as Means, on quotes from suppliers and contractors, and on his own experience. He stated that his estimate of the cost, $261,000, was based on bringing the building to the standard required by the Multiple Dwelling Law, and was not specific to requirements under the Loft Law. He stated that at the time, he did not deal with the Loft Board regulations regarding hardship application criteria. Wasserman stated that while there were certain items in his August 26, 1980 estimate that are not specifically addressed in the Multiple Dwelling Law, he nevertheless felt, in his professional opinion, that they were necessary for the building and permitted under the requirements of the Hardship Regulations. He stated that his understanding of the requirements of the Loft Board Hardship Regulations was compliance with the Multiple Dwelling Law. 86

He indicated that the items listed as miscellaneous repairs, alterations, and exterior wall repairs, at an estimated cost of $25,000, were not specifically required under the Multiple Dwelling Law. He stated that he had listed items which were necessary under the MDL, as well as costs to replace or repair items which he observed were in a state of disrepair, were dangerous, or would cause deterioration of the building, although they would not be necessary to obtain a certificate of occupancy.

Wasserman testified that he was neither familiar with Article 7-B, nor aware that the Loft Board requires only minimal compliance with the Code in conversion of an Interim Multiple Dwelling ("IMD"). He indicated that he did not know the exact zone in which the premises was situated, the requirements for conversions in that type of zone, or that Loft Board regulations exclude work for masonry, roof, or carpentry repairs. He also was unaware that under certain sections of the Labor Law and the Administrative Code an owner is required to maintain facilities and services as existed during the time of issuance of the original certificate of occupancy ("C of O"). He agreed that if fire escapes were required under the old C of O issued in 1945, they would have to be maintained regardless of whether the building was converted. Wasserman stated that it was not a new addition to the building but was rather a maintenance item. The estimated cost for the fire escape was $15,000.

Wasserman testified that the $65,000 cost listed in his report was a rough estimate of the cost to treat the total plumbing on the second, third, and fourth floors, including the replacement of the interior spaces of the kitchen and bathroom facilities.

Antonio Argibay testified that he is a licensed architect with the firm Meridian Design Associates, Architects, which has worked on a variety of residential projects, from commercial conversions to IMD conversions. He stated that he has worked on only one IMD conversion but was negotiating two more at the time of the hearing.

Argibay testified that in response to a request that he determine what was necessary to legalize 19 Mercer Street, he visited the building with two consulting engineers. He stated that he visited all the units and took notes to update his last survey of the building, taken in 1983, when he was in Wasserman's employ.

He stated that in addition to visiting the premises, he obtained the history of the building, relating to structure, design, alteration applications, as available in the files of the Department of Buildings ("DOB"). He stated that he prepared a report of costs according to the Loft Board's Code Compliance Regulations.

Argibay testified that he felt there were items in Murrin's report which should not have been included, and others which were underestimated. He stated that in preparing his report, where there was no Loft Board allowance for a particular item, he relied on an industry reference book for construction costs.

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Argibay further stated that the second floor ceiling had to be demolished in order to conform with the fire safety and noise control requirements found in the New York City Building Code, to be performed at a cost of $492.30. Plans for existing fire-rated partitions were submitted as Owner's Exhibit 8. Owner's Exhibit 9 consisted of photographs of the second floor unit, which, Argibay stated, needed substantial changes to its walls, plumbing, and fixtures. He stated that replacement cost would be less than repair costs. Other items which were necessary for code compliance were the replacement of a door and some windows. Alterations to the bathroom were shown on the plans, offered into evidence as Owner's 10, and were estimated by Argibay to cost $1,312.50, as compared with Murrin's estimate of $216.

Argibay testified that the existing pipes needed to be replaced and a demolition chute would have to be used. He further stated that fire-stopping material needed to be placed in the walls, and that missing radiators and parts needed to be replaced. Moving the window was estimated to cost more than allocated by the Loft Board. Acoustical insulation was necessary at a cost of $2,134 for the second floor. Bathroom and kitchen fixtures also needed to be replaced, which would involve further costs. In addition, he stated that new water lines, tiling, smoke detectors and electrical outlets would be required.

Argibay testified that he knew Maurice Wasserman, since he used to work for the firm of Wasserman and Waterhouse. He stated that he prepared the original survey of the building in 1983. He further stated that in preparing his report, he revisited the premises with Sigma Engineering, who prepared a report and made recommendations on the electrical status of the unit. They recommended the installation of electrical distributions for each unit as the old arrangement was not safe and in violation of the Code. He also stated that painting would have to be done to finish the job on the third floor.

Argibay testified that the demolition needs of the fourth floor were similar to those on the second and third floors with the exception that it did have a unique problem with acoustical isolation because it is located below the recording studio. He stated that the ceiling would have to be demolished because it is illegal to build a ceiling over an existing ceiling. He also stated that the fire exit corridor would have to be demolished and rebuilt with two hour fire rated walls. He said that a drop ceiling might be necessary to provide for ventilation in the unit. The sprinkler system would also be installed differently because of the need for acoustical isolation, which Argibay stated was required under the standards of the New York City Building Code's section entitled Acoustical Isolation of Dwelling Units and Airborne Noise. He stated that while he did not measure the sound in the studio, he was familiar with the amount of noise usually generated and from which the unit had to be isolated. Argibay recommended a double isolating ceiling constructed of sheetrock and fiberglass. Since the Loft Board schedule did not contain a price for such construction, Argibay relied on Dodge building and construction standards in his estimate of the cost.

Argibay testified that the one-hour rated fire walls and ceilings would have to be removed and replaced with walls according to Code. He also testified as to the lighting in the units and the need to 86 provide for adequate fixtures, sprinkler system, covering of waterlines (furring) and the removal of the wooden staircase.

Argibay testified that the situation in Unit 3 was the same as for unit 2. He stated that the masonry wall would have to be removed, as well as the non-code plumbing fixtures, and they would have to install new doors, replace windows, install new sheetrock ceilings and tile, and put in an air supply fan, a fire damper and grill, a fire partition, radiators and radiator valves, and hard-wired smoke detectors. He also testified to the need for acoustical isolation according to the Sound Transmission Coefficient contained in the Building Code. Argibay testified that the water lines would have to be redone because the materials of the pipes, copper and steel, were incompatible and could not be properly threaded together.

Concerning the fourth floor unit, Argibay stated that he derived the figure for the replacement of the ceiling based on the MDL noise control requirements. He stated that the present circumstances were unusual since in most cases, there is no recording studio immediately above a residential unit. Therefore, he stated, it is necessary to calculate the transmission level from one space to the other, and measurements must be taken to determine the decibel amount that is being produced in the studio. He testified that he had never taken measurements of the decibel levels in the present studio. He further stated that he has in the past constructed a recording studio above a residential unit. However, he was not certain whether the construction recommended here to isolate the sound would be sufficient but stated that it was the bare practical minimum short of installing steel framing and building additional floors between the units. Argibay stated that to be certain, he would hire a consultant specializing in this type of construction. The only other type of sound isolation construction would be to set the recording studio on a separate set of joists. Argibay stated that wood frame buildings have the biggest sound transmission problems.

Argibay testified about the need to replace the present waste traps, which are made of PVC, a piping material no longer permitted in New York City. He also stated that it would be necessary to modify the location and shape of the bathroom in order to accommodate the size of the kitchen. Argibay stated that it is generally much more costly to retain portions of existing work than it is to complete a job in which one plumber takes responsibility for replacing the whole thing. He also discussed the need for protective coverings for the water lines as required by the New York City Code Reference Standard for Plumbing. Argibay continued with the list of items as discussed in his testimony about the second and third floor units. He added that in his estimation of costs, he had not allowed for extra costs such as those should new lines be installed, but noted that generally, contractors will not absorb the costs themselves. Argibay made calculations for the painting of the new construction.

Argibay testified about the common areas of the building, and stated that in general, the first and second floor stairs would have to be replaced with steel, fire-proof stairs with an adequately sized landing. Also, exit hall lighting would be provided, as well as, signs at elevator landings, mailboxes, removal of existing ceilings, and construction of a new entrance door from the street to the street lobby 86 as required for multiple dwellings for security reasons. He further stated that it was necessary to relocate sprinkler heads, remove non-compliant walls and wooden stairs, and to rebuild the bathroom and the equipment room under the stairs, which would involve walling, tiling, electrical and plumbing work.

Argibay testified that there would also be a new passenger elevator. As a result of the elevator, there would be the installation of a new elevator machine room in the roof, demolition of the existing machine room in the third floor underpinning the elevator shaft wall, and providing a deeper pit than that currently in place. He also discussed the removal of steel shutters, installing a smoke detecting device for the electrical room in the cellar, and the work involved in providing new water service, such as the piping and digging. The metal chimney connecting the boiler to the flute, which is called a breaching, needs to be insulated; a sign must be posted on the main service switch in the cellar indicating "On/Off"; the gas meter must be relocated; security bars for the elevator shaft windows must be put in; suspended scaffolding must be installed; a parapet on the rear wall has to be rebuilt to 3 1/2 feet; the goose neck to roof must be extended; the corridor in the stair shaft must be ventilated; a skylight in the public stair must be provided; guard railings for the front of the building have to be put in.

Argibay stated that all legalization costs in his report were derived from the Multiple Dwelling Law, specifically Article 7-B. He stated that there was no substantial difference in the standards applied in cases of building renovation, new conversion or new construction. Though there are differences in the standard for old and newly constructed buildings, they would have to be considered on a case by case basis. He stated, for example, that where a newly constructed building would be required to contain an incombustible staircase, the older building containing wooden stairs undergoing renovation would only be required to have those stairs fire-protected. He did note that there were substantially different requirements for fireproof and nonfireproof buildings. He further stated that different standards apply to buildings receiving multiple dwelling Certificates of Occupancy before 1929, and those after 1929.

Argibay testified that he recommended the removal of both stairs because of problems with noise and fire-proofing. The main problem was the impact noise from the stairs, especially since people slept underneath those stairs. He also stated that it was in violation of §84 of the MDL regulating noise control. As to fireproofing, Argibay testified that there would have to be changes in the wall and ceiling heights. There would also be fire-proofing of the joists on the underside of the stairs and enclosed walls along the staircases, and removal of the trap door in the egress stair. There would also have to be 24- hour lighting for the entire public stairway.

On cross-examination Argibay stated that pursuant to the most recent certificate of occupancy for 19 Mercer Street, issued in 1945, the building was to be used for storage. As a result of that use, it was not subject to Labor Law requirements concerning means of egress. He further stated that he has legalized only one building subject to the Loft Law, 131 Bond Street, and that the conversion was pursuant to the Old Code. When questioned concerning the Loft Board's Code Compliance timetable, he stated that he knew of its existence but he was unable to state what the deadlines were. 86

Argibay stated that he has BA and MA degrees and was licensed in architecture in 1983. He has had no publications, nor has he taught architecture. He stated that he had retained Mr. Feierstein as an acoustical consultant in one of his buildings and expected to pay him $75/hour. He also stated that he was being paid for his testimony and thought he had been paid $2,500, also at a rate of $75/hour. He stated that he worked on a design project for Feierstein when he was employed in Maurice Wasserman's firm, and that he surveyed 19 Mercer St. at that time and also drew some plans for 19 Mercer St.

The parties stipulated that the ground floor is 2375 square feet, including 200 square feet allocated to the lobby. The second, third, fourth and fifth floors were stipulated to be 2050 square feet, with a common area of 225 square feet on the second floor and common areas of 240 square feet on the third, fourth and fifth floors. Argibay further stated that the cellar is about 25 feet x 95 feet, and that the vault is about 12 feet x 25 feet. The vault is used for an electrical room, a sprinkler room, an entrance for meter reading and meters. The rest of the cellar contains a control room, a recording studio with a drum booth, another electrical room, an elevator and two staircases. The boiler room is about 100 square feet, the elevator room about 80 square feet and the electrical room about 30 square feet.

Argibay stated that 19 Mercer Street is located in an area zoned M-15B and that you can only convert a building for residential use in such a zone as joint living working quarters for artists. These conversions are governed by Article 7-B of the Multiple Dwelling Law, the requirements of which are less restrictive than the requirements for building a new Class A multiple dwelling. The building is not fireproof, among other reasons, because it has wood beams. It has a sprinkler system and a fire escape. It is less than six stories high and less than 75 feet tall.

Argibay testified that the conversion he projected would require the stairs at the premises to be enclosed in two hour fireproof enclosures because the building is mixed use by virtue of the recording studios. However, in an Article 7-B loft conversion, a two-hour fire rating is not required. Argibay stated that the conversion as he planned it would not necessarily result in code compliance at the very minimum cost, but provided for what he thought was necessary in terms of renovation. For example, he had recommended that the stairs from the second to third floors be replaced to control noise, and that the rest of the stairs, which are wood, be replaced with metal for reasons of fire safety.

Argibay indicated that he recommended the legalization of the existing elevator at the premises as a service car. Further, he said that under Loft Board regulations prohibiting diminution of services, elevator service could not be terminated. When asked a hypothetical question concerning whether the elevator was still required upon legalization if it is used only by the commercial occupant, he indicated that it would be, and that he was unaware of any provision permitting the owner to take the elevator out, or to leave it as a freight elevator.

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Argibay further stated that he had recommended the replacement of the plumbing risers in the building based on a survey by an engineer who designs plumbing systems, but without a review by a licensed plumber or a pressure test. The water service to the building is through a 1 1/4 inch main, with the result that if the water is turned on at the fifth floor, no one else can get any water. Although changing the main is not required for compliance with Article 7-B, Argibay stated that he thought it would be a good idea based on the more general obligation to provide adequate water. In addition, the existing piping has been in place since 1971, and Argibay opined that it must be very corroded.

Argibay stated that measures to control sound transmission between the fourth and fifth floors are required by Article 7-B in an instance such as this, when the fourth floor is a residence and the fifth floor is a recording studio. Argibay further testified that five radiators in each unit, of adequate size, properly placed and correctly functioning, should be enough to heat units of this size, provided that the owner gives enough heat. In addition, he stated that he had recommended the replacement of the existing bathroom fixtures, such as bathtubs, because they are unsanitary. However, he indicated that the tubs on the third and fourth floors could be re-enameled instead of replaced. He also testified that the installation of air conditioning was required by the city electrical code, which he stated applies to all conversions in New York City.

On redirect examination counsel for the owner offered into evidence as Exhibit 14 nine photographs of conditions in the lofts -- for example, fixtures, wiring, plumbing and patching -- not taken by the witness, but which he claimed he remembered seeing at the time of his inspection of the building and knew to constitute violations. Argibay further stated, with regard to his expertise in loft conversions, that he has lived in several lofts, his partner has lived in several lofts and they have their offices in a loft building. He stated that they have done a lot of their own work on their own spaces. Finally, he indicated that all three residential tenants have washing machines, which increases the amount of water pressure needed for the building.

No new, relevant information was provided on recross-examination.

The owner's next witness was Stephen Tarter, a real estate broker and partner in Tarter, Statz Realty Corp. at 270 Lafayette Street in Manhattan. Tarter stated that he had been a real estate broker licensed in New York for about five years, and that he first worked for Sinvin Realty at 225 Lafayette Street, where he dealt exclusively in commercial real estate in Soho for three years. Thereafter he formed his own company, which also deals exclusively in commercial real estate in Soho. Tarter testified that he has been involved in over 150 deals in Soho, Noho and Tribeca since entering the real estate business.

Tarter testified that he had evaluated the market rental value of the first and fifth floors at 19 Mercer St. In doing so he considered the location and size of the building and the history of the commercial market in 1982-83 and 1984-85. He also visited the first floor of the building and saw photos of the fifth floor. Marked for identification as Exhibits 13a and 13b in connection with Tarter's 86 testimony were the 1984 lease to Acoustilog for the first floor space and the 1982 lease to Acoustilog for the fifth floor space.

Tarter testified that in commercial buildings the ground floor and the first floor are rented together based on the square footage of the first floor alone. If a basement is also included, the price per square foot of the first floor increases a little. Based on his expertise, the fair market value of the fifth floor at 19 Mercer St. in 1982-83 was $5.00 to $5.50 a square foot, assuming a five or six year lease. He further stated that in 1982-83 it would not have been easy to rent the fifth floor at 19 Mercer St. Mercer Street is not considered a good location, as there are many trucks loading and unloading for the big buildings along Broadway. Few commercial tenants entered the area at that time, and the new commercial tenants were galleries, architects and designers who would not want to rent space on Mercer Street near Canal. Further, the elevator was not always available and could not be called to the street level, absent an operator, if it was left on some other floor. In addition, the facade and lobby have not been renovated, and there is no security guard.

Tarter testified that he was aware of a number of comparable rentals. For example, he placed a framing company called Sky Frame at 96 Spring Street in a 6100 square foot space that was light on three sides at a rental of $6.50/square foot for a seven year lease. However, Spring Street is a more prestigious location than Mercer, but 19 Mercer is a small building with small floors, which would generally go for a higher price per square foot than a larger space. 96 Spring Street also has ample elevators, including a passenger elevator, and a large lobby. The space had been upgraded in that it was painted, had sanded floors and had electrical distribution from the previous tenant. He also described as comparables Echo Shoes, which he placed at 324 Lafayette Street, two tenants he placed at 568 Broadway and one tenant he placed at 376 Lafayette Street.

Tarter testified that a lease of at least five years is entirely usual for a commercial space in Soho, and particularly for a space requiring the tenant to do some work. He further stated that if a new lease for the fifth floor were negotiated in 1984-85, the rent would be $6.00 or $6.25 per square foot.

With regard to the first floor and basement, Tarter stated that the fair market rental value in 1982-83 was $7.50 per square foot, taking into account the fact that the basement was included. He indicated that he had seen the first floor after it was vacated by Soho Rep and that it was very rough and dark. In addition, he cited a comparable at 164 Crosby Street, 2,500 square feet at $7.20 a square foot for a much nicer performance space with a mezzanine, but without a basement, as well as other comparables at 125 Crosby Street, 108 Wooster St. and 93 Mercer Street. He noted that 93 Mercer Street had been available for four and a half years before it was rented, and that it was initially offered for $6.00/square foot.

Tarter also stated that Marlene Schwartz, the principal of Soho Rep, came to him before they were evicted from 19 Mercer to see if she could find alternate space. At that time, Feierstein had offered her a lease at $1,350 per month, conditioned on her bringing the space up to code. Tarter 86 worked with her for about six months but never worked out a deal with her. He stated that he advised her to remain at 19 Mercer and renovate, because even with the cost of legalization, it was a fairer deal than anything he had to show her.

Tarter testified that in his opinion, the fair market rental of the first floor at 19 Mercer in 1984- 85 was $8.00/square foot. Again, he cited comparables, including a space he rented to a photography studio at 63 Greene Street which required similar renovation.

On cross-examination Tarter stated that he was first retained by Feierstein in about April 1987, after initial reluctance, because his time is better spent in his office than testifying as a witness. He stated that he thinks his fee for testifying is $1,000, but that he has not yet been paid and expects to send a bill when the services are completed.

Tarter further stated that Marlene Schwartz told him of some problems with continuing Soho Rep at 19 Mercer Street, including the fact that Mercer Street in that area is very dark and patrons were objecting for safety reasons. He also stated that he did not know the length of the lease she was being offered and so could not amortize the cost of the renovations, which he conceded would affect the cost of remaining there. He indicated that Mercer Street at this location would be worth very little for retail sales, and that even its proximity to Canal Street, where the stores rent for substantial amounts, did not affect his judgment on this point because there is almost no foot traffic on this part of Mercer Street. He further stated that he was trying to assist over 20 different galleries to find space in Soho at the time of his hearing testimony and that none of them is willing to rent on Mercer Street.

Tarter indicated that in most commercial leases, it is customary for the tenant to pay its proportionate share of any property tax increase. He stated that property tax escalators were not included in the fair market rents he had calculated. Additional expenses such as rental for the vault and water charges, which are routinely paid by a commercial tenant, and heat, common area utilities, consumer price index escalators and elevator charges, which may be paid by a commercial tenant, were likewise not included. However, he stated that the fair market rents he calculated were for the first year of a lease, and in the first year no escalators are payable. He stated that the actual cost of the comparable at 125 Crosby Street went up about 5% a year as a result of escalators. Passalongs generally add $2.50 to $3.50 a square foot, on a ten year lease after the first year of the lease.

Tarter stated that he has a sound studio in his space as a subtenant and that for a small area, 600 square feet, they pay $15/square foot. He tried to place another sound studio but was never successful in doing so. However, a fully renovated sound studio would be worth a lot more than $15/square foot. He further stated that the value of Feierstein's first floor studio to another tenant was hard to state, since the space was very unusual and unsuitable for many types of tenants.

The owner's final witness on this phase was Alan Feierstein. He offered into evidence as Exhibits 15-28 the documents presented to the Loft Board auditor at the time of the audit, including fuel 86 bills, Con Edison bills, real estate tax bills, an elevator repair bill, legal bills, and proof of mortgage payments. With regard to the fuel bills, Feierstein stated that the auditor would accept bills only where there was proof of payment, so he sought credit for a greater amount of money than was approved by the auditor, testifying that all the bills presented at the hearing had been paid. With regard to labor costs in the building, Feierstein stated that during the actual period that was audited, any work that had to be done in the building, such as running the boiler, shoveling snow and changing light bulbs, was performed by Greg Guarino, an Acoustilog employee, and that he had estimated about six hours a week was involved, at a rate of pay of $6.00 per hour. With regard to the Con Edison bills, Feierstein stated that the electricity for the common areas was on one meter, and that areas occupied by Acoustilog were on another meter. He stated that he only submitted bills to the auditor based on the common areas meter. Counsel for the tenants stipulated to the electrical amount allowed by the auditor, without conceding that the elevator is a building expense.

With regard to water and sewer bills, Feierstein stated that the auditor would not accept them because they were paid with a check written outside the audit period. The witness offered into evidence insurance bills for the premises, together with a breakdown of the portion which was for insurance on the building, as well as a letter from his accountant stating the percentage of his charges to Feierstein which were attributable to his work for the building, as compared to work for Feierstein personally. These checks were written on the Acoustilog bank account, and to that extent the tenants objected to their being credited as an expense of the building. The parties stipulated to the auditor's allowance for service contracts and for repairs and maintenance. Counsel for the owner subsequently sought to be relieved of the effect of the stipulation on the grounds that repairs to the building not found to be legalization expenses should be credited to maintenance, but the hearing officer ruled that only expenses incurred and paid in a particular period could be credited and declined to credit hypothetical expenses. Counsel for the owner also sought to add an additional bill for elevator maintenance in the amount of $1900 which was not provided to the auditor, over the objection of counsel for the tenants, who stated that he should be limited to the items offered to the auditor and also that the expense was not reimbursable because the payment was made on an Acoustilog account. Counsel for the owner did not contest the 5% management fee allowed by the Loft Board, but counsel for the tenants declined to stipulate to it.

With regard to legal fees, counsel for the tenants argued that only legal fees in connection with legalization of the building could be considered, as the infeasible costs regulation permits a hardship exemption only where the cost of code compliance makes legalization infeasible. Feierstein testified that all the submitted bills were for legal work concerning landlord-tenant problems, not for legal work for Acoustilog. Counsel for the owner further pointed out that one of the large bills, for over $10,000, was paid piecemeal, with a payment falling outside of the audit period. He therefore suggested that the owner should be credited for the entire amount. The parties also addressed repeating costs in a building, such as roof replacement, which is required about every ten years. Counsel for the owner opined that some allowance should be made for such costs, even though they were not incurred in the audit periods. 86

In testifying concerning the reasonable costs of legalization for the building, Feierstein offered into evidence as Exhibit 20A a letter he had written to the owner in 1979 concerning the water pressure in the building, stating that because the building was fully occupied, it had deteriorated to the point that he could only get a trickle of water in his loft. He further stated that it was necessary to install acoustical isolation materials between the fourth and fifth floors because the fourth floor tenant complains about the noise from the recording studio, and that this should be allowed as a legalization expense. Similarly, he asserted that insulation of the staircase is advisable because the second floor tenant has complained about noise.

Concerning the income of the building, Feierstein testified that in 1982-83 the residential tenants were on rent strike and that he did not receive all the rents credited by the Loft Board auditor. He stated that he did receive the rent from Acoustilog, Soho Rep and for vault rental in that period.

On cross-examination by counsel for the tenants, the parties stipulated that as of August 31, 1983 the tenants were no longer on rent strike and paid their rent as required, less set-offs for adverse conditions and harassment authorized by the Civil Court. When asked whether he had billed Soho Rep for any of the escalators to which he was entitled, he stated that he could not recall or that he had not done so. He further stated that he did not retain a real estate broker to ascertain the rental value of the Soho Rep space when they moved out, and that he does not charge Acoustilog escalators. He stated that he left the Acoustilog rent for the basement and first floor at the same amount he would have received from Soho Rep because he was bearing the entire cost of renovating the space; this was also the same arrangement he offered Soho Rep before evicting them -- that the rent would remain the same, but that they would be responsible for obtaining a certificate of occupancy as a theater. At the time Soho Rep left, he briefly considered re-renting the space, but he decided not to because he had received a violation for the use of the space as a theater without the proper certificate of occupancy. He determined the rent for the fifth floor, after buying the building, by speaking with a friend, Tony Goldman, who owned other buildings in the area. Goldman did not look at the space, but believed that it was worth $1,000 a month. He also offered the residential tenants leases for their floors at $1,000 a month.

Feierstein testified that even before he bought the building, he kept the elevator on the fifth floor most of the time, because he used it the most. He further stated that when a tenant needed to use the elevator, he or one of his employees would operate it for them.

On redirect examination Feierstein testified that he should be credited with legal fees of $28,000 for 1982-83 because he was required to pay the tenants' legal fees in the proceedings he unsuccessfully brought against them.

The tenants' first witness on this phase of the case was Andrew Fields. He stated on direct and cross-examination that he has been a licensed real estate broker since 1983 and that he develops 86 real estate and does some brokerage. He stated that he entered the field as a salesperson with Brogman Realty, specializing in the Soho area. After about six months, he wanted to put together a development deal and over time looked at about 100 projects with a view both to selling them to the public and to determining whether to him as the potential developer the deal would make sense. In this capacity, he became familiar with the whole range of residential and commercial rents in Soho.

On voir dire concerning Fields' qualification as an expert witness, he stated that he does not operate an office but works out of his home. He further stated that he has had licensed salespeople under him, but that he had none actively employed at the time of his testimony. He also stated that his last real estate commission had been received about a year prior to his testimony. The recent projects he cited were all in the Tribeca area. He further stated that although he had looked at a lot of possible projects in Soho, most of his recent development had been upstate because he had been finding property in the city overpriced. Fields was ruled qualified as an expert witness.

Fields testified that he was in the fifth floor recording studio at the premises several months before his testimony for about 20 minutes. He described its condition and contents. On the same occasion, he was in the first floor recording studio, which he described as very elaborate. He further stated that he visited the building at about 8:30 p.m. and was able to use the elevator, which was operated by a building employee. He testified that the value of the fifth floor studio, as completely raw space, in 1982-83, was about $6.00 per square foot. Fully equipped, this figure would increase about $3.00 per square foot, if the tenant could use the improvements. In providing a market rental value for the 1984-85 period, he stated that prices had increased greatly and that, although rents were higher in the West Broadway area, rents on streets such as Wooster, Mercer and Greene were not that much less, and were higher than rents on Crosby Street. He indicated that the unimproved fifth floor was worth $7.00 to $9.00 per square foot, and that improved, $3.00 per square foot should be added, if the tenant could use the improvements. He further stated that escalators were usual, and that after the first year of the lease, the space would be worth at least $11.50 to $12 per square foot, as a result of the escalators, even if the tenant could not use the improvements.

As to the first floor studio, including the basement, Fields stated that in 1982-83, as raw space, its fair market value was $10 a square foot, and therefore over $2,000 a month. He indicated that with passalongs, the cost would be more like $2800. He indicated that it should definitely have been rented for more than $1300. In 1984-85, it could have rented for $17 a square foot.

The tenants also called as their witness on this phase of the case Helene Murrin, the Loft Board auditor. Ms. Murrin testified that she holds a BA degree in economics from the College of Staten Island with 37 credits in accounting and that she has been employed in an accounting capacity for 15 years, in some instances supervised by a CPA. She further stated that she has been employed by the Loft Board since 1985, and that her duties include the audit of the hardship applications and of post-legalization rent adjustment applications. She stated that she is the only person who performs those duties, and that

86 under the supervision of the Director of the Loft Board or the Director of Hearings, she was solely responsible for the completion of the audit for 19 Mercer Street.

Murrin testified that she was aware that counsel for the tenants had objected to the ex parte completion of the audit here, but that she was not advised by her supervisors to send him carbon copies of her correspondence with the owner, so she did not do so.

Murrin testified that she excluded the entire basement of the building, and not just the mechanical rooms, from the rentable space. She further stated that she did not know there was a rider to the lease of Soho Rep and therefore did not include the escalators for water, electricity, heat and real estate taxes as income for the building in 1982-83. She further stated that she did not really question the fact that there was no projected rent increase for the commercial spaces between 1982-83 and 1984- 85 because commercial leases often provide no rent increase for several years and then take a huge jump. She also stated that unless the basement of a building is rented separately to a tenant who rents no other part of the building, she does not impose a separate charge for its use. As to the fair market value of the owner-occupied portions of the building, Murrin testified that she accepted the figures advanced by the owner because he supported them with advertisements for similar space from local publications, and she found advertisements herself which supported his claims. However, she said that the advertisements they both relied on had disappeared from her file.

Murrin indicated that she had been advised by her supervisors that a 10% increase in expenses between the actual year and the projected year was reasonable. She further stated that she accepts legal expenses if associated with legalization and collection of rent, but not otherwise. She further stated that if the legal fees were reduced in the actual year, the projection for 1984-85 would also have to be reduced. As to the calculation of costs for fuel oil, Murrin stated that since none of the tenants supply their own heat, she allowed the owner the cost of fuel for the entire building. She allowed all the electricity bills for the common areas, and could not separate the cost of the electricity to run the elevator. She further stated that in auditing the application minor repairs were considered maintenance expenses, but that capital improvements were considered legalization expenses. For example, she assumed that the fire escape was a proper legalization expense and did not reach a determination of whether it was necessitated only by the residential tenants. She also assumed that an elevator would be required to legalize the building. She also accepted the owner's contention that the funds to legalize the building would be borrowed for 15 years at 14% interest and did not make an inquiry into the prevailing rate at the time. She permitted management fees for the services of Messrs. Feierstein and Guarino in operating the building but did not permit certain accounting fees, as she could not determine whether they were for Feierstein's personal affairs or for the operation of the building. She did not ask for actual bills for the projected period, even when the audit extended into 1986 and therefore such bills were available.

On cross-examination, Murrin stated that she gave the owner credit for the rent he is entitled to collect, whether or not the tenants have actually paid it. She further stated that even if she were shown a 86 bill for the boiler for $10,000, she could allow only $3,000 pursuant to the Loft Board schedule. In addition, she said that she did not consider the owner's loss from any period the recording studio had to be closed during construction to legalize the tenants' lofts. She would have been allowed to consider legal fees incurred to reduce the taxes for the building, if proper proof were presented.

No new, relevant material was provided on redirect examination.

The tenants' next witness was Arthur Atlas. He stated that he has been licensed as an architect in New York since 1972. He holds a BA degree in architecture from Pratt Institute and was completing work on an MA degree in architecture at Pratt at the time of his testimony. He has maintained his own practice in architecture since 1974; prior to that time he was employed for six years by various entities. At the time of his testimony, he was also a full-time assistant professor at New York City Technical College. He further stated that he has testified as an expert on Article 7-C of the Multiple Dwelling Law before city agencies and in court on a number of occasions.

Atlas further testified that he visited 19 Mercer Street in mid-June 1987 to survey the public areas, the residential lofts and the portions of the basement containing the boiler and the meters. He was not permitted to see the first and fifth floor recording studios. The focus of his inquiry was a determination of the work necessary to bring the lofts up to Code.

Atlas stated that the premises are located in Soho, where residential conversions are permitted only for the creation of joint living working spaces for artists, under Article 7-B of the Multiple Dwelling Law. Article 7-B contains reduced standards for residential conversion, which are available only under this article. He further stated that the most recent certificate of occupancy for the premises was issued in 1945, that the Building Code known as the Old Code went into effect in 1938, and that in 1968 there was a major revision of the Building Code, resulting in what is known as the New Code. In addition, even a commercial building, if the commercial use is manufacturing or factory, must adhere to the requirements of the Labor Law. The 1945 certificate of occupancy was issued under the Labor Law, which requires a fire escape and a secondary means of egress. The need for a fire escape at the premises is not attributable to the presence of residential tenants in the building and therefore is not a proper cost of code compliance. Likewise, the existing bulkhead is illegal and must be corrected, not because there are residential tenants in the building, but because it is required under the Labor Law. The same analysis applied to any work required on the sprinkler system.

Atlas testified that it would be desirable to convert 19 Mercer Street under the Old Code, not the New Code, as this would reduce the standards that must be met and the resulting costs of conversion. As a nonfireproof building with a sprinkler system not exceeding 85 ft., 19 Mercer Street is plainly eligible for conversion under MDL §277(2)(b), and therefore under Article 7-B. Atlas stated that he has never filed a loft building conversion under the New Code. He stated that he had briefly reviewed the testimony given by the owner's architect and that it was prepared by someone without a lot of experience in loft conversion and with a view to replacing things, rather than repairing them. 86

Atlas further stated that an alteration application was filed for the premises in 1983. The owner did not obtain approval of the application, and in 1984 filed another alteration application to build the first floor studio. At that time, he said that the whole building would remain commercial. Under Buildings Department Directive 17, which is appended to the Loft Board's Code Compliance Regulations, the 1983 alteration application expires if not approved within two years.

Atlas further stated that the elevator in the building need not necessarily be converted to a passenger elevator for legalization of the building. The building could perhaps be legalized with the existing freight elevator in place, or it might be done as a service car, at a cost of $35,000 to $50,000, as compared to $125,000 to $150,000 for conversion to a passenger elevator. If the owner chose to install a passenger elevator instead of a service car, Atlas opined, the difference in cost could not be passed along to the tenants as a legalization expense.

Atlas also stated that vertical fire separations between units are not required in a conversion pursuant to Article 7-B unless the floors are subdivided. At 19 Mercer Street there are no subdivided floors, so this expense should be disallowed. He also pointed out that the sound separation ceilings are not required under the Old Code and should be disallowed. He found the existing plumbing system adequate for minimal code compliance, based both on his calculation of the water pressure by a formula and his own observations on the fourth floor. He also found the existing electrical system adequate. He further stated that the windows of the building must be repaired for minimal code compliance, but that in his opinion this was a maintenance and repair item, not a code compliance item, because it was not an instance requiring the placement or installation of new windows but of making existing windows safe and operable. He further stated that the existing wood stairs at the premises are specifically permitted under MDL §277 because the building is sprinklered. Nor is the two hour fire rated staircase enclosure required under a recent amendment to the MDL.

Atlas further stated that based on the Loft Board's schedule of costs, he calculated the costs of legalization of the building as $22,188.08. Further eliminations he recommended from the owner's proposal included the demolition chute (since under Atlas' proposal the amount of demolition required would be greatly decreased), the front doors of the Procuniar and Moser units, the replacement of the existing hot water heater in the Procuniar unit, some of the electrical outlets recommended by the owner, the electric heaters in the bathrooms, the replacement of existing appliance receptacles, the air conditioning receptacle (required for a residential renovation but not for joint living working quarters for artists), the front door of the building and a more expensive than necessary extension of the parapet railing.

On cross examination, Atlas stated that the legalization of the premises as he recommended would result in a certificate of occupancy as a Class A multiple dwelling, not as an apartment under Use Group 2 but as joint living working quarters for artists under Use Group 17.

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With regard to the legalization costs projected for the fifth floor, Atlas testified that he would allow the fire rated ceiling in the public stair hall on the fifth floor, ventilation of the kitchenette, a ground fault outlet and painting in the stairways occasioned by bringing the hallway up to code. He further stated that in his opinion the stairs from the first floor to the second floor are not long enough to require a landing to break them up, and that although these stairs are narrower than the stairs higher up in the building, the premises can be legalized without widening them because they will not be replaced, only modified.

Atlas indicated that he agreed with the owner's architect that 23 to 25 electrical outlets per floor are required. However, his disagreement was with the number of outlets that must be replaced in each of the residential units. He conceded that there are outlets in the lofts with exposed cables. However, he stated that if they are encased in wire mold or conduit, the exposed cable is permitted.

Atlas further stated that some of the plumbing fixtures at the premises are made of china, and that others are made of cast iron with an enamel coating. The fixtures are chipped in places, and if they were chipped to a substantial extent, they would not be considered sanitary, as required by the Building Code. However, the existing fixtures at the premises do not, in his view, violate Building Code requirements.

With regard to the water pressure in the building, Atlas stated that pursuant to his calculations, reasonable use of water by the tenants, even if used in more than one place at a time, can be accommodated. With regard to the acoustical isolation of the Mullan unit, he stated that in a renovation under the Old Code, no noise tests are required, although they would be required under the New Code.

On redirect examination, the tenants offered into evidence as Exhibit 3 a certified copy of a Department of Buildings Index Card showing the violations on the premises. Atlas also stated that he did not think that leaving concrete over wood construction in this building would result in a dangerous condition.

The tenants' final witness was Stephen Procuniar. He testified that he has lived on the second floor at 19 Mercer Street since 1974 with his wife, Carolyn, and son, David. He is a certified artist, has permission to live in the building as an artist in residence and teaches at City College as a visiting professor.

Procuniar stated that the water pressure in his loft is fine and that he has eight radiators in his loft, all of which work. He further stated that when the owner turns the boiler on, there is sufficient heat in his loft. He further stated that the electrical work in his loft was done by a licensed electrician recommended by the previous owner.

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On cross-examination Procuniar stated that the electrical outlets in his loft are 10 to 12 feet apart. He could not state how many outlets there are in total. He further stated that he covers some of his windows with plastic in winter, at the request of the landlord, to conserve heat. He indicated that he has made heat complaints in the past as a result of the owner's failure to turn on the boiler.

Adverse Impact Phase:

The owner's first witness, Alan Feierstein, testified that he bought the building in March 1982, paying about 30% cash and taking a mortgage from M & A Freiman, the previous owners of the building, for the balance. Offered into evidence as Exhibit 1 in this phase of the hearing was a certified copy of the deed for the premises indicating that Alan Feierstein was the owner of the premises as of March 18, 1982. Feierstein further stated that he operates a business, Acoustilog, at the premises. Acoustilog is involved in all aspects of sound and sound recording, and includes a recording studio called Sorcerer Sound, a sound equipment rental business, an operation selling electronic equipment, an electronic equipment repair service and a sound consulting business. He further stated that Acoustilog was engaged in all these areas continuously since its inception and certainly since 1982. He stated that within the five to six years preceding his testimony, given in 1989, more people had been able to set up home recording studios, causing an increase in the number of consultations for that purpose and in requests for equipment repair and adaptation.

Feierstein stated that in 1982 he had a single recording studio on the fifth floor at the premises. Photos of the studio as it appeared at that time were received in evidence as Exhibit 3. The facilities included a client lounge which doubled as a tape storage area, a display area, a shipping area and a consultation area. On voir dire concerning the admissibility of these exhibits, he indicated that in 1982 the fifth floor unit contained a kitchen and a bathroom which were not reflected in the photos, as well as a couch on which Feierstein used to sleep and still occasionally does sleep when the need arises, as when recording sessions last 18 to 24 hours at a stretch. The photos showed the 24 track studio itself, the drum booth, the vocal booth and the control room. Offered into evidence as Exhibit 4 was a list of the major clients of Sorcerer Sound; the bracketed clients recorded at the studio between 1976 and 1982. During that time period, Feierstein stated, the studio was booked virtually 100% of the time. Feierstein stated that his studio was at that time highly regarded as a small, progressive studio with excellent support services, such as rental equipment and on-site repair service.

Offered into evidence as Exhibit 2 was a collection of photographs of the studio taken in 1988.

As shown in Exhibits 5 and 6, the 1982 tax return for Acoustilog and the financial report for Acoustilog for the year ending September 30, 1983, Acoustilog's gross profit for 1982 was $284,000; 74% of its income was derived from studio operations. Feierstein stated that 50% of his clients were making records and that the rest were generally making demos. He indicated that during this period he wrote many articles for trade publications and was an active speaker at meetings of organizations for recording professionals. Consultation at that time accounted for 4.9% of his business, including the 86 design of several professional recording studios. He also invented a number of electronic devices, which were sold by Acoustilog, accounting for about 30% of its sales volume. In 1982, sales accounted for 12% of his business, while rentals accounted for 2.1% of the business.

Additional tax returns for Acoustilog were offered into evidence as follows: as Exhibit 19, its 1981 tax return; as Exhibit 20, its 1983 tax return; as Exhibit 21, its 1984 tax return; and as Exhibit 22, its 1985 tax return. Feierstein indicated that the 1982 return was audited, but that the result was no change in the stated tax liability. Offered into evidence as Exhibits 29 through 32, respectively, were annual Acoustilog financial reports dated September 30, 1982, September 30, 1985, September 30, 1987 and a report for the period September 30, 1987 to December 31, 1987. Feierstein stated that his accountant had been unable to find the annual report dated September 30, 1984.

Feierstein stated that more recently, much of his consultation business has involved testifying as an expert before government agencies. He has always met with clients for consultations in the repair shop or waiting area of the studio or at the client's premises.

Feierstein stated that given more space in the building, he could increase his gross receipts by designing and producing a larger quantity of more sophisticated equipment (including consoles, which he no longer builds due to lack of space), and could improve display space and allocate a room in which to demonstrate their wares and a conference room in which to discuss potential sales in a business-like manner. In 1988, the witness stated, he had to decrease the size of his shop and tape storage area, which are now both very cramped; the clients object to the fact that their tapes are stored in the waiting area, in case of theft. He further stated that he had considered moving his manufacturing business elsewhere, but believed that would be an inefficient solution, even if space could be obtained very nearby, since many of his employees double in various roles and must stay near the studio at all times. They would also have to buy a second set of tools for use at the manufacturing location. In addition, they would have to choose a location which would be suitable for clients to enter and exit easily with heavy equipment. Finally, he stated that he did not think he should be required to rent space elsewhere when he purchased 19 Mercer Street to house all his operations.

Feierstein stated that as of the time of his hearing testimony, his residence is at his parents' home in Great Neck, that this had been his residence for five to six years, and that he stays there two or three nights a week. Between 1975 and 1984, his residence was 19 Mercer Street.

Feierstein testified that Sorcerer Sound competes with about ten to twenty recording studios on its level, including, in New York City, Power Station, Hit Factory, Electric Lady, Soundworks, Minot, Clinton, Media Sound, RPM Studios, Unique Recording Studios, Sound Track Studios, Atlantic Studios; in Philadelphia, Sigma Sound and Kajim; and upstate, Bearsville. Of these studios, only RPM has one room. Kajim and Minot have two rooms, Clinton and Unique have three rooms, including a mix room; Electric Lady has three to four rooms; Atlantic and Hit Factory have four to five rooms; and Sigma has seven rooms. He further stated that in the industry, the real trend is to have a mix room on 86 the premises, and to use big studios, which have acoustical benefits and permit the use of lots of musicians. He further stated that there is a trend to the conversion of studios to digital recording methods and that his studio has begun conversion, which will be complete within two to three years. He cited specific engagements he had turned down because his studio lacks a mix room, including a one- month "lockout" (exclusive use of the studio) for the group Sonic Youth and a one-week "lockout" for mixing a Keith Richards album. He further calculated that between May and November 1988 he had lost $90,000 in bookings due to the lack of a mix room.

Feierstein further stated that he has various franchises to sell equipment and that for three years he was licensed to sell Panasonic equipment, but that he has lost his Panasonic franchise due to lack of display space. He has attempted to get franchises for other brands of equipment, which have been denied for the same reason.

Offered into evidence as Exhibits 10 and 11 were plans for the renovation of the building drawn by someone from Meridian Design in 1987. He stated that these were not the same plans filed with the Department of Buildings in 1983 and 1984. His proposals involve moving the drum booth and the vocal booth on the fifth floor, eliminating the kitchen and bath on the fifth floor and placing them on the fourth floor, creating an assembly area on the fourth floor large enough to build big equipment, as well as house a darkroom, creating an equipment storage area where the fifth floor client lounge is now located, and providing additional sales space and a computer operations area. The third floor would be used as a mix room with an adjacent client lounge and a conference room for consultation work. The second floor would be used for sales and rentals, storage of rental gear, and display of items for sale, and would contain bathroom facilities and a coffee area.

Feierstein testified that in 1980, before Eileen Mullan moved into the fourth floor, he took sound readings in the fourth floor loft in accordance with the ANSI (American National Standards Institute) standards then in effect. He had someone play drums on the fifth floor average to loud, which is how rock band always play. At 63 Hertz the reading was 108 decibels. Offered into evidence as Exhibit 12 were photos of these test sessions. Feierstein further stated that not long before his hearing testimony, he made some additional sound readings in the hallways adjacent to the fourth floor loft during a recording session of the group North Star, but had concluded that the noise in the hallway was more muffled than the noise in the loft.

Feierstein stated that the original construction of the floor on the fifth floor consists of subfloor, then a wood beam and a wood floor, with no insulation, and that the ceiling of the fourth floor is made of sheetrock and tin. He added a layer of sand, a layer of rubber and a thin plywood floor, with additional layers and insulation under the drum room. He denied ever having removed any of the insulation he had installed. He stated that in a building such as this one, with wood beams, sound is transmitted more so than in a building with a concrete slab construction. Cracks in the subfloor can result in the transmission of sound, and noise can go down an unlimited number of floors between plaster walls and brick. He has considered putting in a concrete floor on the fifth floor but has been 86 advised by his architects that he cannot install a concrete floor of any thickness in this building because it has wood beams and wood joist floors. He further stated that to comply with Local Law 924 he would have to reduce sound transmission by 30 decibels, which cannot be accomplished by installing additional insulation. The ceiling of the first floor studio consists of a layer of subfloor, beams, some of which are not solid, the original ceiling of plaster and lath covered with tin, a sheetrock ceiling installed over the original ceiling by the last tenants, and a new ceiling installed by Feierstein when he took over the first floor. From the studio area, you can hear people playing music and walking around, which interferes with recording sessions. He stated that similar sounds from the third and fourth floors have disturbed sessions in the fifth floor studio.

Feierstein indicated that he has had no serious noise complaints resulting from the recording studio from the second and third floor tenants, but that there have always been complaints from the fourth floor tenant. When Ron Morrison was the tenant of the fourth floor he used to complain regularly about night recording sessions involving drums and bass, but he did not call the police. Feierstein tried to muffle the drums, but the musicians objected. He also tried to schedule the recording sessions earlier in the day, but when he did this he had to pay to maintain the studio 24 hours a day and he could rent it for only some of the hours he was paying for. In addition, some of the musicians have full-time day jobs and some of the late sessions involve a daytime session that has run overtime.

After Eileen Mullan moved in, in 1980, she made some noise complaints, but the complaints increased after he bought the building in 1982. He stated that on February 23, 1983 at 1 a.m. two policemen came to his door, stating that there had been a complaint from the fourth floor tenant; although he did not get a ticket, his client saw the policemen and was alarmed. In May 1983 his engineer, Dave Avidor, got a ticket to report to the Environmental Control Board as a result of excessive noise from a late night session. On November 11, 1983 a recording session was disturbed by loud music from Moser's stereo. On January 31, 1984 and February 13, 1984 recording sessions were stopped as a result of the arrival of the police pursuant to complaints made by Mullan. On August 26, 1988 during a recording session some neighbors arrived at his door to complain, with a copy of Judge

4Local Law 92 has been codified in the Administrative Code, 241.1, which provides:

Commercial Music. No person shall make or cause or permit to be made or caused any music originating from or in connection with the operation of any commercial establishment or enterprise when the level of sound of such music, as measured inside any residential unit is in excess of either; (a) 45dB(A) as measured with a sound level meter; or (b) 45dB in any one-third octave band having a center frequency between 63 Hertz and 500 Hertz inclusive (ANSI bands numbers 18 through 27 inclusive in accordance with American national standards institute standard S 1.6- 1984)

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Glen's decision in hand. The client on that occasion was Reggie Lucas, at the time one of his most frequent customers. Lucas has since built his own recording studio, and the witness suggested that the disturbance of this recording session might have been the reason. The hearing officer agreed to take administrative notice of an affidavit submitted by Lucas in connection with the owner's supplemental filing in view of the fact that he lives and works in New Jersey. Feierstein stated that he believed in total he had received about 100 noise complaints from the tenants, generally in connection with sessions involving live drums. At one time, when the tenants were on rent strike, Mullan cited the noise from the studio as a reason not to pay her rent.

Feierstein further stated that the second floor tenants, the Procuniars, have complained about noise on the stairs outside their unit. Mr. Procuniar has had fights with him in front of his clients. All the tenants have displayed an "attitude" with his clients and they have at times gotten drunk and bothered his clients. The hostility of the residential tenants has also been the subject of complaints by clients of the recording studio. Also, the tenants have made noise on the stairs which has disturbed his recording sessions.

Feierstein further testified that he had to lay off recording engineers Mario Salvati, Steve Woodward and Dave Avidor, who were on his staff during the period 1980-82, between 1982 and 1984 because he could not give them enough work. Many artists bring their own recording engineers, and as a result he has eliminated most of the recording engineer jobs, but if he could expand, he would have studio facilities to rent to people who do not come with their own recording engineers. He stated that before he bought the building, in January 1982, he had six in staff and that by 1987 he had seven in staff. Also, Greg Curry, a full-time engineer and console designer, left because there was no space to design consoles and he therefore could no longer design them.

Feierstein testified that he would move out of the building if he is not granted a hardship exemption because it would be impractical for him to run his business in two places. He further predicted that because of increasing costs, absent expansion, he would be unable to keep operating the business at the same location because it would become less and less profitable. In addition, if the building were to be legalized for residential tenants, the noise from the construction would disturb his recording sessions.

During the course of his direct examination, Feierstein offered into evidence a number of complete acoustical texts, including Rettinger, Acoustic Design and Noise Control, Doelle, Environmental Acoustics, the NIOSH (National Institute of Occupational Safety and Health) Compendium of Materials for Noise Control and Bernak, Noise Reduction. Feierstein claimed that these texts were authoritative in the field and supported his position at the hearing.

On cross-examination Feierstein testified that when he bought the building in March 1982, there was a 24 track recording studio on the fifth floor with a drum room, a vocal booth and a control room. Although the lower floors are about 2200 sq. ft. net, the fifth floor is only about 1800 sq. ft. net. 86

Feierstein stated that he did equipment manufacturing, maintenance and rentals there, and that he operated his consultation business from there. They had a kitchen and a bathroom on the fifth floor; also, he kept a cot there and slept there occasionally.

Feierstein stated that he moved into the building in about January 1975 and that he thought he was the first residential tenant. At that time, his roommate was Lenny Fisher, and the lease, offered into evidence as Respondent's Exhibit 1, was in Fisher's name. He first began using the recording studio about a year after he moved in. Construction for the studio had begun in January 1975 without the filing of an alteration application. Later, in about 1978, when the studio was already operating, he built a drum room, again without filing an alteration application or obtaining approval of the insulation materials he was going to use. He stated that he thought the Procuniars had a lease dated November 19745 but that their unit was not ready to live in when he moved in. However, he agreed that the Procuniars had lived and worked in their loft since early 1975 and stated that he had been in their unit prior to buying the building in 1982. Ron Morrison moved into the unit in 1975 and used his loft for residential and artistic purposes until Eileen Mullan moved into the unit in 1980 or 1981 and used it to live and work. Leases for Morrison and Mullan were received in evidence as Exhibits 3 and 4, respectively. The third floor was used for storage when he first moved into the building and first became residentially occupied sometime between 1975 and 1977 by Patty Hauck. She lived there two to three years, and after she died, her father assigned the lease to Elias Moser. Moser lived in the loft as of about 1979 and was certainly in residence at the time Feierstein bought the building in 1982.

Feierstein stated that during the Moratorium, he and the other tenants wrote to the former owner of the building, seeking renewal leases for one year at 8% rent increases. However, he could not remember the year in which this took place. In May 1981 he, Moser and Mullan were considering buying the building. The former owner told him she had another prospective buyer. He was prepared to put down a binder to buy the building alone, and Mullan and Moser were not prepared to participate, so he decided to go ahead and make arrangements to buy the building alone. He entered into a contract to buy the building in late 1981.

In 1982, Feierstein stated, he paid himself a salary of $204,000. At that time he had five employees. As the owner of the building, he leases the first and fifth floor to Acoustilog, the corporation of which he is the president and sole shareholder. His salary history, apart from 1982, was $121,000 in 1981, $125,000 in 1983 and 1984, and $78,000 in 1985. He stated that in 1984 and 1985 they were renovating the first floor which cost between $200,000 and $800,000, probably about $500,000. This renovation was conducted by an architect, Maurice Wasserman, and was done pursuant to the filing of an alteration application with the Department of Buildings. They lost a lot of work during that period because workmen came in and out all the time, and the business lost money in one of the years between

5 In fact, offered into evidence as Respondents' Exhibit 2 was a lease to the Procuniars dated October 24, 1974.

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1984 and 1986. He could not cash his paychecks for a period of time and had difficulty paying the bills and meeting the payroll. The money to do the construction was raised by using the income of the business and also by selling electronic equipment he owned to a leasing company, getting cash out -- about $100,000 -- and then leasing it back.

Feierstein stated that the gross receipts of the business were $370,000 in 1981, $452,000 in 1984 and $508,000 in 1985, using the fifth floor studio. However, in 1982 he could bill out the fifth floor studio at $80/hr., while by 1985 they could only get $60-65/hr. Meanwhile, his insurance increased from $6,000 to $12,000, his payroll went up from $68,000 to $70,000, his supplies increased by $5000, and his advertising, telephone, equipment rental and utilities also went up. He stated that while some expenses, like equipment maintenance and repairs and travel and entertainment, went down, overall operating expenses, excluding officers' salary increased.

Feierstein stated that Mullan had complained about noise from the recording studio a number of times in 1982, 1983 and maybe 1984. He further stated that all the tenants complained about construction noise when he was renovating the first floor, although he had a permit and did the work only during authorized hours. However, he stated that there were no noise complaints from the tenants in 1988, even though both studios were operating 90% of the time.

Feierstein further testified that when he bought the building in 1982 he knew it had a wood frame. He installed five tons of soundproofing material between the fifth and fourth floors and cannot install any more because the floor load capacity would be exceeded.

Feierstein stated that in 1982 he gave Soho Rep a two year lease at $1350/month plus escalators. Between 1984 and 1988 Acoustilog paid $1350/month for the same space, without increases or escalators, although it had been renovated. However, Acoustilog paid for the renovation. Feierstein further stated that between 1982 and 1984 he wanted to expand his business into the second, third and fourth floors. He did not think that taking back the Soho Rep space was a good idea because it was not contiguous to the fifth floor studio, he did not have the money to renovate it and wanted to collect the rent that Soho Rep was paying. Feierstein testified that during this period two of his employees, Greg Curry and Terry Murphy, resigned because he did not have the ability to expand. He also had less business after Mullan called the police on eight to ten occasions in 1982 and 1983. However, they only got one summons for noise and were not found liable on it.

Offered into evidence as respondent's Exhibits 11 through 15 were Acoustilog's payroll records for the period 1982-87. In 1982, Feierstein stated, his payroll, excluding the salaries of officers and directors, was $60,000. By 1987 it was $106,000, but there were decreases in 1984 and 1985. In 1982 he had expenses of $6640 for outside labor, but in 1987 that figure has risen to $26,600.

Before buying the building, Feierstein stated that his attorney Stuart Hammerman told him that the Moratorium was over, and that he would be able to evict the tenants. He contracted to buy the 86 building in November 1981 and closed in March 1982. He knew about the Loft Law within a few days of its passage, but although he had once gone to an LMLT meeting with Eileen Mullan during the Moratorium, he did not know about the Loft Law before it passed. He recognized in buying the building that there was a possibility he would not be able to get the tenants' units back, but he regarded it as very small.

Feierstein stated that his use of the fifth floor has always been the same -- commercial with accessory residential. Offered into evidence as Exhibit 21 was Feierstein's voter registration record stating that he resided at the premises as of October 1980. At the time he bought the building he was paying $452/month for the fifth floor. He raised it to $1000/month at that time, but did not increase it afterwards. He stated that after he bought the building he waited for a few months to see how the expenses would run before offering leases to the tenants. Procuniar was offered a one year lease, with no living, at double the rent he had been paying. However, Procuniar would not accept it and stated that he wanted a lease for more than one year at no more than 11% increase. He also offered Moser a one year lease, but offered a longer lease to Mullan as he did not need her unit right away.

Feierstein stated that in December 1982 he had six full-time employees, in January 1983 had six full-time employees, in December 1985 had six full-time employees, throughout 1987 had six or seven full-time employees and a maximum of 13 employees, counting those who worked part-time, and in 1988 had six full-time employees, one part-time employee and two assistants. Feierstein stated that the Loft Board application he filed stating that he had to lay off an employee because he could not expand his business was true, and that the employee involved was Mario Silvati, who was laid off after October 1983, when Feierstein could no longer guarantee him 40 hours of work every week. However, Silvati continued to work for him as a consultant and made more money than he would have made if he had been on staff full-time, since the hourly rate for consultants is higher.

On redirect examination Feierstein stated that he got a violation during the tenancy of Soho Rep because the certificate of occupancy for the space they occupied was not for a theater. He further stated that it would have cost $50,000 to make the space a legal theater, and there was a question of secondary egress which would have been difficult to resolve. Feierstein stated that he was initially hesitant to invest in a studio on the first floor because he thought his hardship application would be granted and he could get space contiguous to the fifth floor studio. He also thought that if he put a studio in the basement and first floor, he would get complaints from the residential tenants on the second floor.

Feierstein also offered into evidence as Applicant's Exhibit 40 photographs of 11 consoles he built between 1971 and 1982.

On recross-examination no new, relevant information was provided.

The owner's next witness was Barry Kip Kaplan. He testified that he has been in the audio recording industry since 1975 and since 1981 has had his own business, Time Capsule Brokerage, Inc., 86 coordinating logistical considerations on audio projects. Kaplan stated that he had known Feierstein since 1979, when he hired Feierstein in his capacity as the principal of Acoustilog, Inc. as a consultant to the recording studio Kaplan was managing at the time, Right Track Recording. Kaplan has also used Feierstein's recording studio, Sorcerer Sound, since 1981. He noted that he visits Feierstein's facility as often as 50 times a year and is also familiar with about 200 other recording studios, as many as 60 of which are located in the New York metropolitan area. Kaplan testified that until mid-1986 Sorcerer Sound was a "grade B" or "medium grade" facility on the fifth floor at 19 Mercer Street. It was then expanded to include a larger "grade A" facility on the first floor. He stated that the fifth floor studio was viewed as medium grade in 1982 both because of its technical capacity and price, but that it was considered an excellent value because it was maintained properly and had excellent staffing. The fifth floor studio is essentially the same today as it was in 1982 and therefore, in light of technological advances, does not compare as favorably to other studios as it did then.

Kaplan stated that recording time is usually divided into thirds, 1/3 for tracking, 1/3 for overdubbing and 1/3 for mixing. The fifth floor studio at 19 Mercer Street, he stated, is not suitable to do mixing, due to both technological shortcomings such as the size of the control room and console and lack of creature comforts to offer clients during mixing sessions, which last from 8 to 16 hours. Feierstein's inability to offer clients multiroom setups like other facilities do, permitting them to do tracking, dubbing and mixing under one roof, means that he has to offer lower and lower rates to stay competitive.

Kaplan testified that in order for the fifth floor studio to remain a medium grade facility under the rising standards of the industry, it would have to be renovated, including the enlargement and reshaping of the control room and recording studio and the reconfiguration of the lounge area. This would entail using the entire fifth floor, including the area Feierstein has used since 1982 to manufacture audio equipment, such as consoles and noise gates. He added that consoles have grown much bigger since 1982 and are technologically beyond what Feierstein has the physical means to produce at the premises.

Kaplan further testified that since at least 1982 Feierstein has made available recording equipment for rental. Kaplan's company rents equipment from him because his client may be using a studio which does not have available a particular piece of equipment they want to use. In addition, Kaplan stated that Feierstein has been working as a consultant since before 1982. In 1982 Feierstein was, according to Kaplan, the most sought-after studio consultant in the New York area. As of 1988, he was less involved in the construction of entire facilities but continued to be the most sought-after consultant on acoustics.

On cross-examination Kaplan testified that over time the fifth floor studio has become less desirable to his clients and in fact, he no longer recommends it. He stated that if the shop and maintenance area were removed from the fifth floor, it would be hypothetically possible to upgrade it to 86 a medium facility as that term is understood today. However, it would then yield only about $250,000 a year as compared to the $375,000 the recording studio and shop yielded in 1982. Kaplan further suggested that it would neither be acoustically feasible nor cost-effective to add an additional story to the building, but that it might be feasible to break through to the fourth floor and combine the fourth and fifth floors into a "double A" studio.

Kaplan further testified that the only studio in the metropolitan area that had a console built by Feierstein was Sorcerer Sound, but that Feierstein had built other equipment, such as equalizers and gates, which are used by recording studios in the United States and England.

Kaplan also testified that it would be advisable to have the console manufacturing shop adjacent to the rest of Feierstein's business so that the consoles could be tested immediately and so that Feierstein could supervise both aspects of the business simultaneously. However, he admitted that some manufacturers have "beta" sites apart from their manufacturing facilities, where they test their equipment. He also said that it might be feasible for Feierstein to set up his manufacturing operation at another location and merchandise his equipment from there.

Kaplan stated that if Feierstein maintained his manufacturing shop on the fifth floor, he would not have space to build a mixing room. However, even if he moved the shop, he would have room only for a mixing room and would still lack a facility in which clients could overdub. Clients generally go to places where they can both mix and overdub, and in fact Kaplan's clients who record at Sorcerer Sound do both their mixing and overdubbing elsewhere. Clients also prefer that all the facilities they need be on one floor, so that each floor of the studio is self-contained. He stated that although Feierstein has great recording facilities, he cannot deal with a client's total needs and therefore Kaplan takes more clients to another studio called Sigma Sound than to Sorcerer Sound.

On redirect examination, Kaplan testified that a studio needs a storage area as large as 30% of its total area to store tapes and also equipment clients may bring with them. On recross-examination, he testified that he was unaware of the existence of a storage area in Feierstein's ground floor studio, but that he has one in the fifth floor studio which is crammed. He further stated that the storage area need not be directly adjacent to the recording studio, but it should not be too far away so that tape and supplies can be secured quickly during recording sessions.

Ronald Klein then testified on behalf of the owner. Mr. Klein graduated from New York University in 1966 and became a certified public accountant in New York in 1969. He started his own firm in 1976 after being in charge of accounting and investment analysis of international acquisitions at Hormel, a food manufacturing and service-oriented company. Mr. Klein has a full-service accounting firm which handles compliance, compilation and audit work. He continues to specialize in acquisitions and business evaluations.

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The witness met Alan Feierstein before starting his own firm in 1977 but has handled Mr. Feierstein's and Acoustilog's accounting since 1976. Mr. Klein did not personally prepare Mr. Feierstein's tax returns but took full responsibility for the data presented in the statements. He has performed investment analyses, cash flow analyses and expansion budgets as well as given personal financial advice.

The accountant testified that he had conversations with Mr. Feierstein about expanding the studio and about relocating to Brooklyn or New Jersey before Mr. Feierstein acquired the present building. The mortgage for the building was obtained through a corporation then liquidated to Mr. Feierstein, not to Acoustilog. Acoustilog is merely a tenant in the building which pays rent to Mr. Feierstein.

He testified that the Acoustilog financial statements were a complete summary of Mr. Feierstein's recording studio business for the years 1982 to 1987. The financial information was prepared from original books and records which include: the general ledger, cash receipts journal, cash disbursements journal and payroll journal. Gross sales were compiled from studio income, rent income, consulting income, maintenance income, and merchandise sales.

Mr. Klein stated that studio and merchandise income increased in 1983, then decreased in 1984. The rental and maintenance income stayed about the same. The consulting income increased in 1983 and 1984. However, he said that gross sales cannot be used as a simple indicator of the status of the business.

Klein stated that Acoustilog is an equipment-intensive business which needs to be constantly upgraded to maintain the quality of service being offered and to continue to attract clients. Mr. Klein reported that there were two periods of large capital investment for Acoustilog's expansion, in 1980 and again in 1984. In 1984, Mr. Feierstein invested $114,000, mostly from his own salary, to finance the two year expansion on the first floor for the 48-track studio while the fifth floor studio was used. Mr. Feierstein's salary went up by $90,000 in 1983, then down by $80,000 in 1984, stayed the same in 1985, then went down by $47,000 in 1986. The witness explained that Feierstein's salary increased because he needed to offset passive losses with passive income. In 1985, $73,000 was spent from the cash reserves and $10,000 from the profits of the fifth floor to defray part of the additional $315,000 of debt incurred. The remainder of the debt was financed through equipment leases. Mr. Klein separated the expenses of the first floor from the fifth floor as construction in progress and then as a fixed asset when it became operational. Mr. Klein depreciated the equipment expenses by using different methods such as double declining balance, straight-line, accumulated cost recovery system and direct write-off, depending on the item.

The largest increase in expenses stemming from the studio expansion came from insurance and interest expenses on the cost of financing the debt service on the equipment lease. Consequently, the gross profit as a percentage of the total revenues decreased from 1984. 86

On cross-examination, Mr. Klein stated that the financial reports showed differences in totals from the tax returns because there were expenses taken on the financial statements that the IRS categorized differently. Mr. Klein admitted that the profits and losses of Acoustilog as a subchapter S corporation are passed through to Mr. Feierstein as a K-1 of the sub S tax return, which was filed starting October 1987 to the end of the calendar year. He was not sure whether Acoustilog was operating at a profit or a loss for 1988. He declared that total fixed assets from 1982 to 1987 increased from $189,000 to $669,000.

The accountant explained that the 1988 year end financial statement did not include separate categories of income because it was prepared by a new accountant. The tenants' attorney continued to request Mr. Feierstein's personal tax return to show evidence of the profits and losses flowing through from Acoustilog. Acoustilog's tax return listed fixed assets of $936,000 prior to accumulated depreciation and liabilities of $354,000 as loans made by him to the corporation. The remaining liabilities of $152,000 are in long term notes payable. The interest on the loans is shown in his income and the interest payments were taken as deductions by the corporation.

Mr. Klein attested that operating expenses have increased since the 1984 expansion. However, Mr. Feierstein's salary and payment of principal on equipment leases has also increased while interest payments on the equipment have decreased. The total expenses shown on the financial statement included legal expenses for this litigation, but did not include the interest payments and deductions. Acoustilog paid $32,900 for rent in 1987, which was approximately 60% of the total rents received by Mr. Feierstein.

On redirect, Mr. Klein stated that looking at operating expenses was not an accurate method of gauging the business. He said that the cost of goods sold and the gross profit percentage should be the evaluating factors. The cost of generating revenue, materials, labor, outside services and depreciation make up the costs. The gross profit percentage decreased steadily from 59% in 1983 to 30% in 1988.

No new, relevant testimony was introduced during the recross-examination.

The owner's next witness was Paul Ostergaard. He stated that he is a graduate of MIT with a master's degree and a year of additional, specialized study in acoustics. He is a licensed engineer in New Jersey and Pennsylvania, Past President of the National Council of Acoustical Consultants and a past member of the Executive Council of the Acoustical Society of America, among other professional affiliations. From 1959 to 1971 he was employed by Louis S. Goodfriend and Associates, and in 1971 he established his own firm, Ostergaard Associates. He has recently sold his interest in Ostergaard Associates and works for the firm part-time, on a semi-retired basis. Ostergaard was qualified as an expert in the field of acoustics.

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Ostergaard stated that he was retained by the owner of 19 Mercer Street to consult on problems of sound transmission from the basement and fifth floor studios to the residential units on the second, third and fourth floors. Feierstein asked him to determine whether the sounds emanating from the studios were in compliance with the requirements concerning commercial music as promulgated in §24-241.1 of the New York City Administrative Code.

Ostergaard set up a test at the building on December 8, 1988. His equipment consisted of a sound level calibrator, a tape recorder, microphones, headphones, cables and other basic equipment, such as tape recorders. He checked his equipment the day before the test at his facility in New Jersey. On the day of the test, the microphones were set up with the assistance of the owner's personnel, one at the source of noise (a live drum and a drum machine in each of the studios) and one in a residential unit. The tape recorders and calibrators were similarly placed. Ostergaard used a headphone on which he could hear the sounds coming in on both channels. They recorded two to three minutes of sound in the apartment and in the studio, walking around with the microphone to average the high and low points of the sound in the apartment unit.

Ostergaard charted the results of his test on graphs received in evidence as Exhibit 38 A-D. Referring to Exhibit 38A, which shows the sounds transmitted to the second floor loft, he stated that with regard to the first floor studio, both the live drums and the drum machine exceeded by at least 10 decibels at 63 and 80 Hertz the 45 decibel standard permitted by the Administrative Code. The live drums, he stated, measured in the studio as having sound levels between 105 and 110 decibels which is a normal level for live drums, confirmed by the literature. The drum machine was set at about 100 decibels, and was not quite as consistent in its levels as the live drummer.

Ostergaard stated, with regard to Exhibit 38B, that it showed the sound levels transmitted to the third floor loft from the basement studio. The live drums were 55 decibels at 63 Hertz and the drum machine was 46 decibels at 63 Hertz and 47 decibels at 80 Hertz. The witness then explained that Exhibit 38C showed the sound levels transmitted to the third floor loft from the fifth floor studio. The live drums were 61 decibels at 63 Hertz and 52 decibels at 80 Hertz and the drum machine was 50 decibels at 63 Hertz and 55 decibels at 80 Hertz. Offered into evidence as Exhibit 38D was a similar chart showing the sound levels transmitted to the fourth floor loft from the fifth floor studio, where at 63 Hertz the live drums exceed 65 decibels.

On voir dire concerning the admissibility of Exhibit 38, Ostergaard testified that he is not licensed as an engineer in New York and that he did not conduct this test in accordance with ANSI standards, but under his own procedures, which are very close to ANSI standards. He further stated that his measurements were made using a sound meter and in accordance with American national standards institute standard S1.6-1984, as required by §24-241.1 of the Administrative Code.

Offered into evidence as Exhibit 39 was a catalog from Peabody Noise Control, a company manufacturing noise control products. A chart in the catalog confirmed Ostergaard's testimony that loud 86 music or drums are in the 110 decibel range. Ostergaard testified that if you increase a sound by 10 decibels, it is made twice as loud. He noted that the sound levels on the fourth floor are about 10 decibels louder than on the second floor, and stated that therefore the sounds coming from the recording studio would sound twice as loud on the fourth floor as on the second floor. He further stated that the 45 decibel limit on noise in residential quarters promulgated in the Administrative Code is reasonable at the lower Hertz levels, but that at the higher Hertz levels, it should be lower than 45 decibels. He further stated that if you are trying to sleep and a 45 decibel sound at 63 Hertz is sustained over a long period, you would probably ignore it and go to sleep, but if the sound varied a lot, it would be disturbing. It would be difficult to go to sleep in the presence of a 55 decibel sound at 63 Hertz.

With regard to isolating the sounds coming from the fifth floor studio, Ostergaard testified that about 20 decibels of additional noise reduction would be needed. Ten to 15 decibels of noise reduction would be obtained by interposing a nonresidential floor between the studio and the next residential floor. Another alternative method of noise reduction is the installation of a dense material like concrete, but reducing the noise here would require the installation of as much as 2500 pounds of concrete. Lead could likewise be used as a noise reduction material, but although the volume would be only 1/5 that of the concrete, the weight would be the same. Ostergaard further testified that the sound levels in the third floor are just slightly above standard and that he was not able to judge how bad the result would be if this were not corrected. When the actual construction of the first floor studio (two layers of 5/8" sheetrock screwed to the underside of new 2 x 10 beams not connected to the existing ceiling, which consists of 4 x 14 beams with 3/4" tongue in groove flooring, and the entire void filled with batt and 703 type insulation) was provided to the witness as a hypothetical, he stated that not much could be done to improve the isolation already achieved.

On cross-examination, Mr. Ostergaard said he belonged to the American Society of Heating, Refrigeration and Air Conditioning and also the Audio Engineering Society. He has never testified in New York before the Environmental Control Board regarding noise levels in a loft or before any other administrative body in New York on the meaning of the Noise Control Law of the Administrative Code. He has also never testified concerning the applicability of the Commercial Music code section and its application to residential buildings. He was also unaware that New York City offers owners the opportunity to obtain a variance from sound codes.

Mr. Feierstein first contacted Ostergaard by phone in September 1988. He vaguely recalled that Feierstein mentioned tenant complaints about noise levels and that he needed to take noise level measurements to determine conformance with the commercial music portion of the code. The witness requested a building construction layout to estimate existing and necessary sound isolation. Feierstein sent a first floor layout of the Soho Rep Theatre done by Maurice Wasserman. Feierstein never gave Ostergaard the plans that were submitted to the Buildings Department but he did give basic descriptions of the areas. He did not see all of the sound insulation materials that were put in, nor did he speak with Feierstein's architect or engineer about it.

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He did not check on the thickness of the walls because he was only measuring the sound traveling between floors. He did not know whether the printing presses next door were running during the tests and did not know whether they would affect the ambient or background noise levels. Other background noise such as footsteps may have increased decibel levels at higher frequencies but noise levels at that frequency were below the code restrictions.

Ostergaard admitted that although he testified on direct examination that he did not measure sound levels on the fourth floor from the basement, he did, in fact, measure the levels but did not report them because the levels were below city standards. He also measured the second floor for noise from the fifth floor and said that the levels were also too low to report. He recalled that there was no problem from the basement to the fourth floor or from the fifth floor to the second floor. He testified that insulating the second, third and fourth floors with sound absorption materials would not appreciably reduce the noise levels in the apartments.

Ostergaard did not provide his own drum machines because Feierstein said that he preferred actual recording studio sounds to normal test sounds from machines. The drummer stayed within three decibels and seemed more reliable than a drum machine for repeatability. He presumed that the drummer used the same rhythm on both the first and fifth floors. However, he could not say whether the drummer was in excess of, or below, the normal levels used in regular recording studios. The drum machine measurements lay within a band of about five decibels at all frequencies, plus or minus 2 1/2.

He was told by Mr. Feierstein that there was a layer of sand on the floor with a sleeper on top for the studio control room. Ostergaard saw evidence of the 2"-3" raised floor in the fifth floor studio control room. He said that it was possible to raise the floor higher to reduce the decibel level but that head room would be lost. There were sound retardant doors and double glazed windows for the recording room but the lounge outside the room was only lightly insulated and the vestibule had no insulation. The trap door between the fourth and fifth floors may have been open during the sound tests but would probably have little effect on the results since the noise would have to go out through the studio walls, through the trap door, then the partition wall and then into the fourth floor loft.

Only the drummer and Feierstein's staff were in the first floor studio when Mr. Ostergaard was on the second floor. None of Mr. Ostergaard's staff was on the first floor. It was possible that the studio's double doors may have been open but that would only affect the results by less than one decibel because there would be a loss going through the circuitous path of doors up to the next floor. However, he could not answer how much difference there would be if there was no sound insulation in the studio and the lounge. He stated that Mr. Feierstein could do something to reduce the sound in the studio reaching the second floor by five to seven decibels. Mr. Ostergaard only measured sound levels from the rear areas of the loft and averaged the readings for each floor. Given the hypothetical of two layers of 5/8" sheet rock attached to 4 x 14 beams covered with tummy roof flooring on top attached to the ceiling of the fourth floor, Ostergaard replied that at these frequencies it would probably pull a few decibel levels down. If a sixth floor could be built for the 86 studio and similar insulation were attached to the fifth floor ceiling with two 12 inch masonry walls with seven inches of air space between them, a total sound isolation of 40 decibels could be achieved. If it were increased to four 16 inch wall board, a 16 inch concrete wall then at 63 Hertz, the absolute reduction would be about 40. So then it is almost impossible to isolate the sound within 45 decibels at lower frequencies. Any vibration isolation materials would require a stiff or concrete floor to properly reduce the noise traveling through the floors. Sand could be added to the rest of the floor, although it may interfere with the use of the studio.

During measurements in the apartments, the microphone was moved up and down and around so that measurements were not always taken at the same elevation. He sampled the levels every eighth of a second and averaged the total levels together. The drum machine was operated three times in the basement and on the fifth floor. The levels were measured in series of two minutes and were averaged out to a band of five decibels. The combination of the music and the background noise was considered and the level of differences was separated in the calculations. He also recorded the drummer in the studios and the drum machine in the control room simultaneously for an idea of the source level, the sound isolation between the two spaces and the consistency of the noise sources. The likelihood of error of the acoustical instruments was plus or minus 1 to 1 1/2 decibels.

Placing a resilient channel with rubber ends to support the ceiling against the wall to decouple the facing of the wall, gypsum board, from the support structure would not be effective at the low frequencies in this situation. The wood which vibrates, the mechanical strength of the channel, and the pressure allowed puts limits on any improvement possible. Increasing the weight of 24 inches of concrete to 64 inches of concrete would buy five decibels at 63 Hertz. However, at low frequencies only 35 to 40 decibels would be saved in the 63 to 125 Hertz range. At 125 Hertz, a resilient channel would only save one to two decibels at low frequencies.

During recross-examination, Mr. Ostergaard recalled stating in his previous testimony that putting in resilient channels when he was building the first floor studio would have saved four to five decibels. Sound absorption materials would have to be put in the walls and ceiling of the ground floor studio to reduce the sound going to the other floors if it were permitted at the time they were building the studio. He did not mention the effect on low frequencies.

The owner's next witness was Antonio Argibay, whose credentials were stated in connection with his testimony on the infeasible costs phase. Prior to establishing his own firm, Meridian Design Associates, he worked for another architect, Maurice Wasserman, who dealt with recording studios and acoustic spaces. At Mr. Wasserman's firm, Atlantic Record Studios, Cinema Sound, AFI, TBC Video, ABC Radio Networks and other small projects were designed. He also prepared the necessary construction documents for the projects.

When acoustically sensitive spaces have been involved, he has hired Mr. Feierstein or some other consultant. The majority of his work has been designed in consideration of New York building 86 codes. He is familiar with the term MEA but explained that materials used as sound barriers do not have MEA numbers, only BSA numbers, which are used only for fire ratings. He cited Local Law 92, which specifically limits commercial noise transmission to a residential area to a maximum of 45 decibels. He also mentioned that the New York City Building Code refers to STC, Sound Transmis- sion Class, which shows the frequency and decibel levels of different wall materials. He said that the Buildings Department reviews the plans submitted to construct a studio but they do not assess noise transmission.

Mr. Argibay previously designed a studio at 31 Mott Street, where he was able to isolate the sound transmission from other floors. The building also had a wood frame like Mr. Feierstein's. The first and second floors contained the studio, while the third had offices, the fourth had classrooms and residences, and the fifth and sixth floors were totally residential. He used multiple layers of plywood and resilient materials to isolate the studio floor and the third floor. Then he hung spring isolators with layers of sheetrock on the ceiling. Heavy isolation was not needed for the studios because they were used to separately record music. The tenants who lived in the building were friends of the landlord.

At the Mercer Street building, the witness testified, he saw multiple layers of sheetrock put up for the ceiling of the first floor studio at Feierstein's studio. He could not distinguish the sound proofing construction of Mr. Feierstein's ceiling as better or worse than any other. He emphasized that more work could be done toward getting rid of the extra 5 decibels although the reconstruction would be costly.

Mr. Argibay had the existing plans when the building was first built and the structural plans from the Buildings Department when live load calculations were made. He described the floors as made out of 4 x 14 White Pine and 10 x 14 Long Leaf Yellow Hewn beams which would be replaced by steel beams and reinforcement. Then an acoustical expert could advise how much concrete flooring and sheetrock ceiling to install in order to reduce the sound transmission to the other floors. Preliminary steps would entail removing the floor framing, the ceiling, the sprinkler, and electrical lines running through. The brick walls would have to be reinforced and rebuilt as well as the stairs. The demolition and constructing the base deck with steel would cost about $63,142. Mr. Argibay estimated that the total project, which includes rebuilding the studio, would cost $187,632 plus a 10% contingency. It would take from five to seven and a half months. The floor between the first and second floors would have to be removed. The bathroom from the fifth floor would be removed. The fifth floor would definitely be unusable, and all the other floors would be dangerous to occupy during the construction.

On cross-examination, Mr. Argibay hesitatingly agreed that the trap door to the roof would have to be made into a legal stairway as required by the Multiple Dwelling Law's requirement to have two means of egress. He said the stairway reconstruction would cost a minimal amount since it was part of the whole construction. For the new studio construction, he estimated $175 per square foot at a minimum, using non-union workers. The witness called a contractor to get the estimate for the concrete floor. 86

The witness testified that he did not take any sound transmission readings so he did not know how much sound isolation exists for the fifth floor. He admitted that the only sound absorbent material inside the walls of the control room booth in the studio was some fiberglass covered by fabric. He had no knowledge of any sound retardant material for the fifth floor.

On cross-examination, the witness stated that he met Mr. Feierstein before he bought the building and had been in the studio a few times. He stated that they never discussed any problems about the tenants. Although he testified that he was not professionally involved in designing the studio, he surveyed the building at the end of 1983 before he left the Wasserman firm.

Argibay explained that no noise test was required before a commercial conversion in a multiple dwelling with residential areas. If the Buildings Department was not told that there was a commercial studio above a residence, the test would not be necessary and the Permanent Inspection Record, Multiple Dwelling & Commercial C of O Check List use would not be changed. Otherwise, the C of O would be denied. If the plans that were filed before the last inspection were not changed, they would not know that a commercial sound studio existed. Then he offered certified copies of Alteration Application 458/83 for 19 Mercer Street. The application showed Maurice Wasserman's name and seal and Mr. Feierstein's signature.

The alteration application concerned fire-proofing a stairway and described the use of the fifth floor for manufacturing and shipping. The application did not include any information about the recording studio. The 1945 C of O reflected that the second, third, and fourth floors were used for manufacturing and storage. The 1983 C of O reflected only the change of the second, third, and fourth floors to living lofts and did not show the change in use of the fifth floor to a recording studio. The witness did not seem to know why the application was prepared as it was. In addition, the application listed an estimated cost of $2,500 to convert the building to three living lofts.

The witness stated that he did not know that variances could be granted for noise violations. He knew that the 19 Mercer Street building is in an M1-5B zone, a manufacturing district, so that the noise zone regulations would probably be less strict than for others.

Mr. Argibay asserted that he filed an alteration application on August 1, 1989 to legalize the existing recording studio. The plan was prepared by Meridian Design Associates on July 28, 1989 and was offered into evidence. Argibay attested that he submitted similar reproductions of the plans of the second, third and fourth floors to the Buildings Department. He then received a standard objection sheet with the alteration application number, block and lot number, address and date of disapproval. Referring to the objection sheet, Argibay felt that there would be no problem clearing the objections because the building is a registered IMD

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The next step was to revise the plans to submit for the type of construction to satisfy the requirements for commercial-residential noise relationship. The architect affirmed that the fifth floor can be legalized as a recording studio because this is an as of right use in a manufacturing district as long as the requirements are met.

The attorney for the tenants objected to the alteration application being offered after the other application was found unacceptable for consideration.

Argibay could not answer how he would be able to resubmit plans so as to comply with Local Law 92. He believed that Local Law 92 was not in effect in 1982 but even if it was, it does not concern a recording studio unless there is a complaint about noise levels and the Environmental Protection Agency finds that there is a violation. He said that he has never had to see the examiner about an IMD building concerning compliance with the decibel requirements under the Multiple Dwelling Law.

Mr. Argibay further testified that he has a felony conviction for selling drugs, a Class A crime, while he was a college student in 1976, but that it was reviewed in a hearing at the time he applied for his architectural license and did not affect his obtaining his architect's license. Also testifying on behalf of the owner was Michael Murphy. He testified that he is the lead singer in a group called The System, a record producer and writer who has been in the recording industry for over ten years. He stated that with his partner, David Frank, he has recorded over 20 albums for many major record labels, including MCA, CBS and Electra. He has seven gold records, representing 500,000 sales, and four platinum records, representing a million sales.

Murphy and Frank began their careers as producers by recording an album at Sorcerer Sound at 19 Mercer Street. They had previously used a studio in Long Island, but the recording engineer they were working with at the time, Craig Bishop, recommended that they switch to Sorcerer Sound. Starting in September 1981, they recorded at Sorcerer Sound for two to three years, because Feierstein, who was an "electronic brain," could create the electronic equipment they needed to make their synthesizers work together. At that time, they were doing 18 to 24 track recording.

Over time, Murphy stated, they began to get offers to produce records for bigger stars, such as Diana Ross, and these stars expect the recording studios they use to have nice waiting areas and lounges. They approached Feierstein and told him that they would like to continue recording in his studio because of his technical skills. They convinced him to build a lounge and a kitchenette.

Murphy stated that Feierstein had a small room which he used as a shop to build electronic gadgets. He knew Feierstein was definitely building consoles at that time, Murphy stated, because he was aware of another recording studio for which Feierstein had built the console. Soon after they began recording at Feierstein's studio, they began doing 48 track recording. Feierstein scarcely had room for the additional tape recorder this required, and Murphy remembered 86 some sessions in which the second tape recorder was placed outside in the hall, with someone watching it. He stated that presently in the recording industry, most recording is at least 48 track. While in the past they sometimes put more than one instrument on a track, today this is no longer acceptable.

Murphy stated that they stopped recording at Feierstein's studio because it was not large enough to accommodate all the keyboards they were using. They began to record at a studio called Unique on 47th Street. Unique had two studios and two mix rooms when they began to record there, and now they have three studios and three mix rooms.

Murphy stated that every recording studio has a tape room. In recording an album, as many as 40 reels of tape may be used. It is usual to store them at the recording studio for up to several months, until the record company is ready for them.

Murphy further testified that they have built their own recording studio, which was designed for them by Feierstein, and that when they need repairs or a special electronic gadget, they always call Feierstein. His availability 24 hours a day is important to a small recording facility which lacks extra equipment and cannot close down for several days while waiting for their equipment to be repaired.

Murphy testified that Feierstein's first floor recording studio is the best studio in the city for recording large bands and drums. It has an unusual feature -- moving panels on the walls which can be used to change the sound of the room. They record all their acoustic instruments there. However, they do not use the fifth floor studio anymore because it is too small. In spite of their loyalty to Feierstein, they must get the best possible sound or they will no longer be hired as producers.

Between 1981 and 1983, Murphy testified, he was at Sorcerer Sound almost daily and knew that his clients for the upstairs studio included Madonna, Steve Ray and Reggie Lucas. He stated that no artist of these dimensions -- or any other artist he knows of -- would use the upstairs studio today unless they were making a demo. They need a larger number of tracks, a larger console, more space for equipment.

Murphy stated that once when he was recording at Sorcerer Sound, Feierstein asked him to keep the volume down because the neighbors were complaining about the noise. On one occasion they saw the police on the premises, but the witness did not talk with the police, nor did he know whether Feierstein got a ticket.

On cross-examination Murphy stated that during the three and a half years that they worked at Feierstein's studio almost daily, they were there at least eight months of the year and often worked from 8 PM to 3 or 4 AM. Sometimes they worked during the day, from 6 AM to 8 PM or 12 noon to 8 PM.

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Murphy stated that Unique Studios started out with one floor of 3,000 square feet, then added another floor of 2,000 square feet. He did not know whether the building that houses Unique has only commercial, or also residential, tenants. It is made out of brick and concrete. Murphy stated that his own recording studio is 14' x 18' or 16' x 18.' They have two other small rooms for programming and a separate room where they record the vocals. They record almost all their work there, but for drums and live recording they need a larger room with a higher ceiling. They have a small shop because they do not have a maintenance engineer on staff. They had a small tape library, only 8' x 10', because they mail all the tapes to the recording company as soon as the recording is finished. There are no residential tenants in the building at 1650 Broadway where Murphy's studio is located and the building is made out of brick and concrete.

Murphy testified that Feierstein is his friend, that he likes him a lot because he has helped them out. He stated that Feierstein employs at least five or six people. He stated that Feierstein would not have room to install a 48 track system in the upstairs studio at 19 Mercer. He stated that the entire upstairs facility is about 8' or 10' x 20 ' long, and that Feierstein has a piano in it, as well as areas for drums and vocals. Murphy testified that he uses eight to ten keyboards at one time and that his own studio is scarcely large enough to accommodate them. Only a beginning artist would record in Feierstein's upstairs studio, Murphy testified.

Prior to his redirect examination of Murphy, counsel for the owner sought to reopen his direct examination because he believed he had omitted something. After an offer of proof on the record, the application to reopen the direct examination was denied on grounds of relevance and duplication of other evidence already on the record. No new, relevant testimony was elicited on the redirect or recross-examinations.

The owner's next witness was John Storyk, an architectural designer and acoustician. He stated that he designs and does acoustical consultation for recording studios. He has designed over 300 recording studios all over the world and spends half to 75% of his time doing this type of work. He stated that he designed the Electric Lady and Hit Factory recording studios in New York City, among others. Storyk testified that he was in the Sorcerer Sound studio about six months prior to his testimony, in connection with this case, and had been there within the last year as a customer of its tape duplication service. He described the downstairs studio as consisting of a lower floor with a large studio and an upper level with a large control room and a double height studio. He stated that the upstairs facility was the older, original facility, with a small control room and a small to medium sized studio with a vocal booth and a small shop. Between the two studios, he stated, are three floors which appeared to be residential lofts that he never entered.

Storyk stated that he first met Feierstein in the 1970's when Feierstein designed a console for a studio in which he was working as a designer. He stated that he later bought a piece of equipment from Feierstein, and although he did not know where that particular piece of equipment was made, he knows that Feierstein makes equipment in the shop off the upstairs studio at his present facility. By the late 86

1970's, Storyk stated, Feierstein was one of only a few people (half a dozen or a dozen in the United States) who was designing and manufacturing high end custom consoles and acoustical testing equipment, such as reverberation measuring equipment.

Storyk stated that almost all of the studios he has designed have ancillary maintenance or manufacturing areas. On voir dire concerning his qualification as an expert witness in the field of recording studio design, Storyk stated that he is familiar with the New York City Building Code and always files with them for permits to do any work he is involved with. He further testified that he employs two architects and sometimes works with other registered architects who are in private practice. Storyk was qualified without objection as an expert in the design of recording studios.

Storyk testified that Feierstein has continued to design and manufacture high end equipment and that he also tests equipment and operates two recording studios at 19 Mercer Street. Storyk testified that there was "possibly" a small room on the first floor and one on the fifth floor for Feierstein's maintenance and manufacturing business and it "seems" not to be enough. He stated that Feierstein would need 1000 to 1500 square feet to continue his manufacturing, repair and maintenance activities. He further stated that to stay current with the field, Feierstein should install some sort of mixing room. Most recording facilities with two studios have a mix room.

Storyk testified that both by law, in New York City, and by "common social sense" it is necessary to isolate recording studios so they do not bother the adjacent area and that there are industry standards for isolating studios from one another where there is more than one studio in a complex. He stated that it is possible to sufficiently isolate any studio in the world, but that as a practical matter it is difficult to do so in a wood frame building with 12 inch thick masonry walls and of the size of 19 Mercer Street. He indicated that a mass dampening floor, like a jacked up concrete floor, would be needed to isolate the fifth floor studio at 19 Mercer Street from the fourth floor tenant. This would be expensive to install and it might be impossible for the building to hold up the weight of the concrete. Another possible solution would be to use the entire fourth floor as a buffer to protect the tenants below the fourth floor from the noise.

Storyk testified that he has been in most of the recording studios in New York City and would classify Feierstein's first floor studio as among the top half dozen medium to large recording studios. The fifth floor studio, he testified, is one of many high-end demo to low-end recording studios in the city. Six to eight years ago, the fifth floor studio had a better chance of attracting higher-end clients than it has now.

On cross-examination Storyk stated that the fifth floor studio is a little bit outdated. Clients who used the fifth floor studio to make records six to eight years ago would now go to the downstairs studio instead.

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Storyk testified that for the type of manufacturing Feierstein does, his facility has to be on site where his recording studio is, or at least next door. If he were doing mass manufacturing, it could be done almost anywhere. However, he does unique testing and modifications of equipment. Storyk could not state whether an equipment rental business must be located immediately adjacent to the studio.

Storyk testified that when you change the use of an area of a building from storage to a recording studio, you must file an alteration application with the Department of Buildings. Reviewing the 1945 certificate of occupancy for the premises, which was in effect through at least 1987, Storyk stated that although the fifth floor was listed for use as storage, to his knowledge it was not being used for that purpose in 1987. Storyk further testified that if the fifth floor recording studio had been built after the filing of an alteration application, a noise control test would have had to have been signed off on by an architect, an engineer or another professional.

The witness stated that he did not know the relative breakdown of Feierstein's income from recording, maintenance and building. He stated that he thought Feierstein was still building consoles because he saw something Feierstein made recently. He could not state, however, whether it was made at 19 Mercer Street or at some other location. He further stated that he would have thought Feierstein did more maintenance in 1987 than he did in 1981 because he had two studios instead of one. He stated that he did not know Feierstein's financial situation and could not state whether he was in any danger of going out of business.

Storyk testified that Feierstein could not have put a mix room in the basement or on the ground floor when he build the studio there because using one floor or the other would not result in enough headroom and if both spaces were to be used together, there would be room either for a studio or a mix room, not both. There is no room for a mix room on the fifth floor, even if the shop area were used. A mix room could be created by adding an extra floor, if the building would support an extra floor and the eight to twelve inch thick concrete which would be needed to prevent the noise from traveling between floors.

No new, relevant testimony was elicited on redirect examination. There was no recross- examination.

The tenants' first witness in the adverse impact phase was Stephen Procuniar, who testified that he moved into the building in November 1974. At the time, the fifth floor was occupied by the Pennypackers, who moved out by 1975. Then, he testified, Mr. Fisher and Mr. Feierstein moved into the fifth floor loft as residential tenants. Later on, Sarah Campbell joined them in the fifth floor loft. In 1975, Patty Hauck moved into the third floor loft. Ron Morrison and Miriam Bloom moved into the fourth floor around the same time. Elias Moser moved into the building in 1979, after Patty Hauck died. Then Mullan moved into Morrison's space in 1980. He did not become aware that there was a recording studio on the fifth floor until August 1977, when Ms. Hauck told him about it.

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Mr. Procuniar stated that he not only lives in his loft with his wife and son, but he also uses the loft as a studio to paint and make oversize collages and prints as a certified artist. He has worked as an advisor for the Department of Cultural Affairs. 99% of his income is derived from selling his paintings.

In October 1980, Procuniar received a letter from the owner of the building saying that his lease was expiring. Prior to that time, the Procuniars occasionally talked with Al Feierstein about heat and security. When they received the letter about their lease expiration, they spoke with Feierstein about getting lease extensions and the tenants met twice with Paul Gulielmetti, an attorney, and sent a letter to the landlord, which is in evidence as Exhibit 31. Mr. Feierstein spoke about buying his floor in order to prevent eviction.

Mr. Procuniar was disturbed by noise levels from the Soho Rep Theater, while it was the first floor tenant, because they had rehearsals 24 hours a day, 7 days a week. They stopped complaining after some insulation was added and their son joined the group.

From the time the first floor recording studio opened in 1985 until 1989, they were disturbed only a few times by loud muffled noises. Otherwise, Procuniar claimed that the loft was the quietest it had ever been. However, there were construction noises at 4 or 5 in the morning. They spoke with the construction manager about the noise and the insulation for the studio.

Mr. Procuniar stated that he cooperated with Mr. Feierstein for residential filings with the City Planning Commission in 1983 even though they were involved in litigation.

Between the time that the Procuniars' lease was up and the time that Feierstein bought the building, Procuniar maintained that Feierstein urged him to buy his own floor to prevent eviction. In addition, Feierstein never mentioned that he was interested in the Procuniars' loft. After Feierstein bought the building in March 1982, Procuniar said that he was offered a lease at a 100% increase in rent. Procuniar became aware that the Loft Law was proposed in the Senate and published in April 1982.

Feierstein invited Procuniar up to the fifth floor to talk in May of the year that he bought the building. Procuniar stated that he saw an office, living quarters, a kitchen, and the studio. Feierstein then offered Procuniar a new one year commercial lease which included riders for water, deposit, and other fees. He added that Procuniar could live there indefinitely at the rent offered, particularly if he helped Feierstein evict one of the other tenants. One of the conditions of the offer was that the lease was to be kept confidential from the other tenants. However, Procuniar later learned that Eileen Mullan was also offered a lease for Procuniar's floor. Feierstein told Procuniar that he was going to move out of the building for legal reasons. Feierstein threatened to evict Procuniar if the lease was not signed. Procuniar insisted that he would have rights under the new Loft Law. However, after Procuniar definitely refused to sign the new lease, Feierstein served eviction notices on May 21st, 24th, and 30th to give notice of terminating tenancy by June 20th, 1982. 86

Feierstein lost this action both at trial and on appeal. Procuniar stated that he remembered that at one of the eviction proceedings Feierstein brought against the tenants, he said he would stop the lawsuit and eviction if one person would accept $50,000 and vacate one floor of the building. Only since the hardship application was filed did Feierstein say that he wanted all the floors.

On cross-examination Procuniar testified that he lived at 237 Lafayette Street before moving into 19 Mercer, and that he kept the Lafayette Street loft for a time after he rented the Mercer Street loft. Procuniar received oral permission from the landlord to install a bathtub, shower, and kitchen and he himself moved in before they were installed. However, he stated that his wife and child were not at Mercer Street for this entire period, as his mother-in-law was very ill in Washington, D.C.

Procuniar was asked to describe the sales of his artwork in 1988. He stated that he frequently barters his work and that he had bartered about $8000 worth of work and had sold two collages to his attorney. He further stated that his last one-man show was an exhibition of drawings at the Tompkins Square Gallery in November 1987, that he participated in two group shows of drawings in 1987, and that he had a one-man show at the University of Connecticut in 1984.

Procuniar further stated that he was aware construction was going on in the building in 1975 but that he did not associate the construction materials or bags of sand with building a recording studio on the fifth floor.

The parties stipulated that Soho Rep vacated the building on June 30, 1984. Procuniar stated that Soho Rep made noise at night -- the sounds of the audience, as well as hammering and power tools when they were building their sets. However, they did not testify concerning the noise made by Soho Rep in the proceeding before Judge Glen because the Soho Rep noise was less disturbing and intense than Feierstein's noise.

Procuniar testified that under the previous landlord, there were sometimes heat problems. He further stated that his rent before the expiration of his lease was $582/month and acknowledged that the increase proposed by Feierstein, to $1000, was not a 100% increase.

On redirect examination Procuniar offered into evidence, inter alia, as Exhibit 37 a rent bill for January 1975 in the amount of $350; as Exhibit 40 an electrician's bill dated December 30, 1974 (stating that all electrical work in his loft was completed by that date); as Exhibit 41 the Loft Law as introduced in the Senate on April 22, 1982; and as Exhibit 4 a newsletter issued by Lower Manhattan Loft Tenants in January 1982.

On direct examination Eileen Mullan testified that she has occupied the fourth floor loft at 19 Mercer Street for almost nine years. Mullan stated that she is from Detroit and was friendly with Ron Morrison, the prior occupant of the loft. She visited him there and sometimes she would stay over. 86

Mullan further stated that in 1978 she stayed in the loft for a month while Ron was teaching in North Carolina. Shortly afterwards, Ron decided that he wanted to move out and asked Mullan if she wanted to take the loft. She said she had been looking for a light, airy large space where she could do her artwork and that the loft was perfect. She moved into the loft in June 1980.

Mullan further stated that she uses two thirds of the loft for drawing and painting, and that she uses about 400 or 500 square feet in the back for residential purposes. Mullan stated that her work is an ongoing investigation into the structure of space and is architectural in nature. The large scale is an integral part of the work. Mullan testified that her work is in the eight to ten foot range. She offered as Exhibit 47 photographs of her loft and her work to demonstrate its scale. One of the photographs includes a ladder, which she uses to work on her largest works, and another shows a work that only just clears the ceiling.

On voir dire concerning the admissibility of Exhibit 47, Mullan testified that she works as a consultant for Merrill Lynch and Citibank, but that they give her an office in which to work. She also stated that she sold a painting last year for $2,000. She stated that she took the pictures two weeks before her hearing testimony and they were taken to describe the space that she worked in, not to show the artwork.

Mullan stated that she has worked for more than twenty years as an artist. Mullan also stated that she attended the center for Creative Studies in Detroit, Michigan, and that she had two Ford Foundation Grants, as well as BFA and MFA degrees. Mullan stated that she had a one-person show at Federal Plaza.

Mullan testified that when she first moved in, Alan Feierstein told her that her loft would be very noisy and there was nothing she could do about it. He also gave her his phone number in case she had any problems. She told him that if he would be reasonable, she would be reasonable.

Mullan stated that she learned from Lesley Freiman, the former landlord, that she was interested in selling the building. Mullan talked with Feierstein and he told her that they should get together with his attorney and his accountant and do business with Lesley, but that it would be better if he took care of the meetings in connection with the purchase. Mullan further stated that she and Elias Moser met with Feierstein's attorney, Mr. Hammerman, in his office on 57th Street, and that Al Feierstein and Klein were there. They spent a lot of time discussing what they would do with the other two floors. Al said he would move down to the first floor and rent the fifth floor. There was a lot of talk between Moser and Feierstein about how it would be financed. Three or four meetings of this kind took place.

Sometime later, Mullan and Moser asked Al Feierstein what was going on with Lesley Freiman. He said he wanted $50,000 from each of them, but Mullan and Elias decided that Feierstein was not providing them with enough information about the negotiations, so they decided to contact 86

Hammerman. They wrote him a letter but they never heard from him. Feierstein stopped calling them about meetings about buying the building. Mullan was shown Exhibit 8 for identification, a letter to Stuart Hammerman from Moser and Mullan to clarify whether he was negotiating in their names, and after she identified the document, it was offered into evidence.

Mullan stated that Mr. Feierstein asked her if she wanted to rent her front space, because his friend Richard Long wanted to use it to store speakers. Long subsequently rented part of her loft from the fall of 1981 to the spring of 1982 at $500 per month. After that point there was no more communication with Mr. Feierstein about the purchase of the building.

In December 1980, Feierstein called Mullan and said he had something to show her. It was a paper saying that there was going to be a meeting at Our Lady of Pompeii for tenants who lived in lofts. Feierstein said his lease would be up in either January or February 1981. Mullan and Feierstein attended the meeting together.

Mullan testified that she was in the fifth floor loft between December 1981 and January 1982, and she saw the kitchen, a bathroom with a bath tub and a bedroom above the control room.

In March 1982, Feierstein bought the building. On May 21 of the same year, the Procuniars were served with eviction papers. Mullan was offered the floor the Procuniars had lived on with a five year lease. Feierstein wanted Mullan's space immediately for a metal working shop. He told Mullan that he needed that space to generate income to pay back the cost of buying the building. He proposed that he would take the front of her space immediately and charge her $450 a month for the rest of her loft, and that when he could get the Procuniars out, he would let her have their space for $750 a month. Mullan asked for something in writing so she could show it to her attorney. Offered into evidence as Exhibit 17 was a xerox copy of the agreement Feierstein drew up at that time. After consulting with her attorney, Mullan stated, she told Feierstein that she would not accept his proposal. Within an hour afterwards, Mullan had been served several times with eviction documents. In addition, Feierstein told her that if she did not accept the agreement, he would have to drop his rates and run the studio 24 hours. He also threatened that because of the eviction proceedings he would bring against her, she would spend all the money she earned on legal fees.

Mullan identified three documents received in evidence as Exhibit 29, as the three eviction notices she received in one day, posted on her door. Mullan testified that Feierstein called her again and asked her to reconsider and that after she told him she absolutely would not go along with the agreement, he threatened that he would wait for her some night in the street. She found this very upsetting, but when she asked him about it on a future meeting, he said he had been kidding.

Mullan stated that Mr. Feierstein kept calling her on and off and he would say that she should get out and the sooner she left the easier it would be for her, because it would cost more the longer she waited. Mullan also stated that she would get about five nuisance telephone calls a day. This began 86 within a few weeks after he bought the building. They also began having a problem with the lights being out in the hallway during this period. In addition, after she told Feierstein she could not accept his offer, his demeanor changed radically. She stated that he had always been nice and also cooperative about problems in the building. They were friends and might eat dinner together. Mullan stated that after she refused to vacate the fourth floor loft, the atmosphere became very toxic and Feierstein was slamming the doors and allowed the building to get very cold. He also started to drop the trap door, which was located about 15 feet from her sleeping area and made a horrendous noise. The building became a real battle ground.

Mullan testified that by April 1982 the noise from the studio was getting so bad that she called to complain three times. Then the noise became even worse, because people were jumping over her head and making her light fixtures sway. This noise sometimes occurred in the early hours of the morning, between 1 and 3 a.m. If she was disturbed by noise after 1 a.m., she would call the police. Feierstein had cameras set up outside the door and he would know when the police arrived, so by the time they got to his loft, there was no more noise. The police would talk to Feierstein after speaking with Mullan, and then leave.

Mullan stated that the first time she called the police was in November 1982, and Feierstein told the police that she was an illegal tenant. She also stated that she called the police probably about eight, nine or ten times in total. In addition, she indicated that she did not believe the noise was caused by recording sessions, because it sounded like fighting and throwing furniture, but was deliberate and was intended to annoy her.

Mullan further stated that she called Feierstein himself more than a half a dozen times to complain about the noise. Feierstein would say that he would see what he could do. Sometimes it would diminish and sometimes it would get louder and later. Mullan further testified that she went to the corner of Mercer and Canal Streets, and from there you could hear really loud synthesizer music from the fifth floor, and she could hear it all the way down the street around 11:30 at night.

Mullan stated that the tenants called Feierstein about the heat and nothing was done, so they started calling the heat inspector of the Loft Board. The inspector checked the heat and found that it was 58 degrees in her loft and he wrote it down. A couple of weeks later somebody came back to check the heat, at which time it was 61 degrees.

Mullan also stated that in 1983, she remembered that they took a lot of insulation down through the trap door, and they left it in the hallway of the fourth floor, by one of her doors, piled all the way up to ceiling. The insulation was pink and it was like fiberglass. It stayed there for about a year. When they started working on the first floor recording studio, they took it all downstairs.

Mullan described the problems she had had with the elevator. When she first moved into the building, she was allowed to use the elevator whenever she needed it. However, after Feierstein bought 86 the building, he would only let them use it if they had heavy packages, and he or one of his employees had to be present. Once, a professional photographer came to examine her work. His equipment was very heavy and they really needed the elevator. Mullan called for the elevator to go down and Feierstein said that she would have to wait a half an hour if she wanted it. It was about 2 o'clock in the morning, so they walked down the stairs, carrying everything with them. Mullan stated that on another occasion she had a dispute with Feierstein about the elevator and entrance security. He would not let her put a padlock on the entrance to the elevator on her floor and they had an argument about it, because without the padlock her loft was open to anyone who wanted to go in. He also wanted her to give him a key to the elevator padlock so he could get into her loft, but she would not give it to him.

Offered into evidence as Exhibits 50, 51 and 52, respectively, were a letter from Feierstein requesting an inspection of her loft for structural changes, a letter from Feierstein telling her that she could not install a washer because it affected the water pressure in the building, and her artist certification.

On cross-examination Mullan stated that she visited Morrison numerous times before she took over his lease, but that the only time she stayed in his loft was in September 1980. She further stated that although Morrison was a good friend of hers, he did not tell her of the extent of the noise problem from upstairs. She also indicated that she was not sure if she knew before taking over the lease that there was a recording studio upstairs. Mullan confirmed that she paid Morrison $5000 for his fixtures.

After Feierstein bought the building, Mullan stated that he told her he was not going to live there and that he would be living with a friend called Steve Long. She said she did not know whether he actually moved out, but suspected that he stayed someplace else once in a while and continued to stay at 19 Mercer Street a lot.

Mullan testified that she plays music while she paints. Her speakers are about 2' x 1' and she does not play the music very loud, nor does she play music to harass Feierstein. When Feierstein asked her to lower the music because he had a recording session going on, she did so.

Two tape recordings of telephone conversations between Mullan and Feierstein were played during cross-examination. One involved Feierstein's request for keys to Mullan's apartment, which she rejected, and the other involved a noise complaint by Mullan.

The respondents' next witness was Elias Moser. Received into evidence without objection at the start of his testimony were a number of documents including, as Exhibit 54, a waiver of artist certification. Also offered and received, over objection, were documents submitted in connection with the application for waiver of BRAC payments for the premises, rent documents for the Moser unit, and documents related to the parties' prior litigation. Received over objection as Exhibit 62 was a letter from Moser and Mullan to an attorney, Stewart Hammerman, dated July 13, 1981 indicating that they were no longer interested in purchasing the building. 86

Moser stated that he was brought up in Switzerland and later studied architecture in England, where he received the Royal Institute of British Architect's Degree, Part I, which is not quite the equivalent of a B.A. degree in the United States. Moser stated that he is married to Gail Brown, an artist, and has a child, Louis. He lives in the third floor loft at 19 Mercer Street. Moser stated that he operates a design and construction firm, PYT, which builds the structures he designs. He has done two construction projects for the Max Protetch Gallery. He stated that a store he designed had been written up in the September 1985 issue of Progressive Architecture, which was received in evidence as Exhibit 64. Received in evidence as Exhibit 65 was a book of photographs of the witness' significant projects.

Moser stated that he has also designed furniture, some of which is available on the market, and that he is interested in acoustics and audio equipment. He further stated that he has two large speakers in his loft which were left over from a project he was working on that never got off the ground. He does all his design work in his loft at 19 Mercer Street Moser stated that he has taken further courses at Pratt Institute in order to become a licensed architect and has been admitted to a two-year program at Columbia University, which, if completed, would prepare him for licensure.

Moser testified that he attended a meeting called by Feierstein with the other tenants in the building to discuss joining together to buy the building. Also in attendance, besides himself and Feierstein, were his wife and the Procuniars, as well as a representative of the theater on the first floor. Feierstein stated that he could not afford to move his business and wanted to know whether any of the others could afford to purchase their shares of the building. The people from the theater and the Procuniars decided not to get involved. Moser, Mullan and Feierstein met three times to discuss how much they would have to pay to buy the building, what sort of financing they could get and what sort of income the building would generate. They also attended one meeting with Feierstein's accountant and lawyer. Feierstein never discussed expanding his business during the course of these discussions. Moser stated that at this time he was told by a friend of his, a real estate investor, that no one would buy into a building like theirs because the Loft Law was already in the works and it looked as though tenants were going to be very well protected. Moser stated that he related this information to Feierstein on several occasions.

After the meeting with the accountant and lawyer, Moser testified, he and Mullan started to worry about the arrangements that were being made. They called Feierstein's lawyer, who they understood to be representing all three of them in negotiations, for some information and he would not talk to them without first speaking to Feierstein. As a result, they wrote a letter to Feierstein dated July 13, 1981 and received in evidence as Exhibit 63, stating that they were not interested in pursuing the matter further.

86

At the time Feierstein bought the building, Moser testified, his rent was $456 per month. Feierstein offered him a lease at $900 to $1000 per month, which Moser could not afford. Shortly thereafter, Moser received a notice of eviction, but he was not evicted because he won in court.

Moser testified that he can faintly hear sounds from the recording studios. He stated that he was present at the time of the sound test performed in December 1988 and thought that the sounds being made at that time were atypical in that they were louder than anything he had heard emanating from the recording studio before. He further stated that in doing the sound test with live drums, they left the door of the drum booth open, causing the drum noise to leak out of the booth into the studio. During the sound test with the drum machine, they had it turned up so loud that the capacity of the speakers was exceeded and they were making flapping, clattering noises.

On cross-examination, Moser testified that he, Mullan and Feierstein had some disagreements about buying the building. One issue that came up was access to the roof. Another was the establishment of reasonable projections for costs and income. Feierstein assumed that they were all going to contribute equal amounts to the purchase of the building, but Moser did not agree because Feierstein had the top floor with the most light and exclusive access to the roof. Feierstein also believed they could sell or collect large amounts of rent for the second floor, occupied by the Procuniars, right away, while Moser believed their tenancy might become protected and that high income from their space could not be counted on.

Moser testified that he never paid any money to Feierstein's accountant or attorney. However, he did not expect Feierstein's attorney to represent Feierstein against himself and Mullan. He further stated that he had no idea whether, after July 1981, Feierstein decided to expand his recording business because they were no longer involved in negotiations at that time.

Moser testified that he also has offices at 276 West 43rd Street. He has drawing tables in both locations. His wife at times assists him in his business and she works at home, on the drawing tables in their loft. His wife also uses the loft for her painting. At present, he uses an area of the loft only 10 x 15 feet for his business.

Moser testified that he was not inside the recording studio when the sound tests were conducted and indeed has never been in a recording studio when recording was going on.

Moser stated that he purchased the fixtures of the prior tenant for $7000 when he moved into his loft. He stated that he never suggested to Feierstein that he might accept an offer to move out of the building.

On redirect examination Moser stated that he never received a bill from Feierstein's lawyer or accountant for the meeting he attended with them. He understood that the purpose of the meeting was for all three of them to get the advice they needed about buying the building. 86

Moser testified that they use about 50% of their loft for Moser's business, his wife's painting and some sewing his wife does to provide income.

On recross, Moser testified that since 1985, when his wife moved into his loft, he has done most of his work at the office on West 43rd Street. His wife paints in the loft; she is a serious painter presently working on painted floor cloths, of which she sold several in the past year, and tries to make her living by painting.

At the close of Moser's testimony, counsel for the owner requested the opportunity to reopen his cross-examination to question the witness about a Notice to Cure, the receipt of which as Exhibit 57 had been stipulated to by the parties. Counsel for the owner asserted in an offer of proof that Moser and Brown had been away from the loft in 1987 for almost a full year in Switzerland. He stated that he did not wish the Notice to Cure to be used as an example of frivolous litigation engaged in by his client when there was a basis for serving a Notice to Cure in that the tenants were absent for almost a year. He further stated that Moser's testimony had been geared to show that he and his wife needed the loft for their work and that this was not really the case if they were absent for such an extended period of time. Finally, he stated that he had forgotten to ask about the document at the correct time because it was stipulated into evidence and counsel for the tenants asked no questions about it. Counsel for the tenants pointed out that Exhibit 57 was a Notice to Cure served in 1984 and had nothing to do with his client's absence from the loft in 1987, which he further stated to have been a period in which the owner consented to let them sublease the loft as they were going abroad on business. The request to reopen the cross-examination was denied as untimely and also because the offer of proof was directed to events which took place in 1987, while the Notice to Cure on which questions would be asked was dated in 1984.

The respondent’s next witness was Carolyn Procuniar. She testified that she lives in the second floor loft at 19 Mercer Street with her husband, Stephen, and her son, David. They have occupied the premises since late November or early December 1974. She stated that when they moved into the loft, her son was two years old. He has always been healthy and a good student and there have been no discernible ill effects on him as a result of living in the loft.

Ms. Procuniar testified that she and her husband were the first residential tenants in the building. When they moved in, they painted the loft and had electrical work done, consisting of a hot water heater, a stove and some outlets. The next tenant in the building was Al Feierstein, who arrived in January or February 1975. His roommate was Lenny Fisher. His girlfriend Sarah stayed with him a lot. She had a small daughter. Within the next six months after Feierstein moved in, the building filled up with residential tenants. Ron Morrison and Miriam Bloom became the residential tenants of the fourth floor and Patty Hauck moved into the third floor. There were some problems with the building, so the tenants worked together to get the management to try to clear them up and came to know each other quite well. Ms. Procuniar testified that she was in Feierstein's loft in 1975 and that he was not operating 86 a recording studio there at that time. The problems in the building were therefore unrelated to Feierstein's operation of a business in the building, which, to the witness' knowledge he did not do until 1978, but having to do with heat, water pressure, security and so forth. In fact, Feierstein and all the other tenants, identifying themselves as residential occupants, wrote a letter of complaint, received in evidence as Exhibit 67, concerning a bean sprout farm operating in the basement in 1975.

Ms. Procuniar recounted a conversation with Feierstein with regard to the eviction moratorium for loft tenants in which she told him he was entitled to request an additional year's lease extension from the owner. She further stated that she and Feierstein consulted with Paul Gulielmetti, Esq. at that time concerning impending legislation in favor of loft tenants.

Ms. Procuniar also described the meeting of all the tenants in the building concerning buying the building, as recounted by Elias Moser in his testimony. She stated that she and her husband said at that meeting that although they did not have enough money to participate in the purchase of the building, they had rights as tenants and would not be leaving.

After Feierstein bought the building, Ms. Procuniar stated, he offered them a lease at a 100% increase. Thereafter, he seemed to have a campaign of lawsuits and eviction notices. He told her at one point that she should find another place to live because he was going to continue suing her and the price of other places was just going to go up. Also, after Feierstein took over, there were problems with the heat in the building, with building security and with water pressure. As a result of these conditions, they stopped paying the rent. Ms. Procuniar stated that during one of the lawsuits, Feierstein stated that he needed just one more floor for his business and offered $50,000. They agreed to accept the offer, but then he decided he wanted another floor.

Ms. Procuniar stated that they have never had noise problems from the fifth floor recording studio. They did have noise problems with Soho Rep when it was on the first floor of the building, but they worked those problems out with Soho Rep. Since the first floor has become a studio, they have occasionally heard noise, but it is muffled. It does not disturb her husband's work or her son's studying. On the day of the sound test, they did hear sounds which she characterized as atypical in that they usually do not hear any sound at all.

On cross-examination, Ms. Procuniar testified that at the time of one of the lawsuits, they were not paying their rent. She stated that she did not know Feierstein's intent in initiating the lawsuit, whether it was to get them to pay their rent or to inconvenience them or cost them money. She further stated that she would rather have paid the rent and received the services than withhold the rent because of building conditions. She further stated that when Feierstein took over the building, he reduced the number of hours a day in which heat was provided. Ms. Procuniar further stated that she testified in a Supreme Court proceeding that Feierstein moved out of the building soon after buying it. At the end of the case, Feierstein was found to have harassed them by, among other things, making excessive noise in the staircase of the building. 86

Ms. Procuniar testified that she did not know for sure whether Feierstein was doing any professional recording prior to 1978. She stated that she had been in Feierstein's loft more than once or twice before he bought the building, but that she did not "hang out" there. She said that her son used to play with the daughter of Feierstein's girlfriend, but that they played in the Procuniar loft so they could play with David's toys.

On redirect examination, Ms. Procuniar testified that in a Supreme Court proceeding, she testified that Feierstein had told her husband he moved out of the building for legal reasons. She further stated that Feierstein first tried to evict them when they would not accept the lease with the 100% rent increase, a case which was also fought on appeal. He then brought a nonpayment proceeding against them, as well as a lawsuit for damages. He also brought an action before the Loft Board and sued other tenants, as well, more than once. She stated that in all, over 10 lawsuits were brought against the tenants of the building.

Ms. Procuniar further pointed out that in 1983, when Feierstein offered to buy out any one tenant for $50,000, he wanted one additional floor. Although a buyout of the Procuniars did not come to pass in 1983, in 1984 he obtained possession of the basement and first floor because Soho Rep moved out; this space was bigger than any one of the other floors.

On recross-examination, Ms. Procuniar testified that the negotiations concerning the $50,000 buyout were conducted through counsel and not directly between the parties. She further stated that she was the first tenant Feierstein moved to evict. A couple of months later, he started a proceeding against Mullan and then a couple of months later, a proceeding against Moser.

Procuniar further testified that she never had trouble with the water pressure in the building until Feierstein bought it. While it might be true that something broke in her unit, causing the problem, it was Feierstein's obligation, as the owner, to fix it and not her obligation. She did not know whether Feierstein took the position at that time that her husband had broken it and therefore they should be responsible for fixing it. She further stated that although she had not complained to Feierstein about the noise in the halls prior to taking legal action, she did complain to him about heat problems, but he hung up on her. She further stated that recently, they had agreed that if she had a problem in the building, she would call her lawyer, who would call counsel for the owner, to try to get things resolved. However, she stated that this system had not been successful and that when she calls a city inspector to come in, the problem gets resolved. She further stated that she does not call for inspections to get Feierstein into trouble, but because she wants the services.

The tenants also called as a witness on this phase of the case Arthur Atlas, a licensed architect with specialization in Loft Law issues whose qualifications were detailed in connection with his testimony on the financial infeasibility phase of the case. He was qualified as an expert in architecture with a subspecialty in interim multiple dwellings. 86

Atlas testified that when an architect files plans with the Department of Buildings, he is acting as an officer of that agency and must accurately reflect on the plans the current use of each area of the building. Further, a change of use of any floor of a building from what is stated on the certificate of occupancy requires the filing of an alteration application. At the premises, based on Exhibit 26 in evidence, the certificate of occupancy, the fifth floor may be used for storage, manufacturing or shipping, and this is also listed as the proposed use; it is not shown as a recording studio or as joint living working quarters for artist. In addition, installing sand in a building for sound insulation requires the filing of an alteration application.

Concerning the owner's 1983 alteration application for the premises, Exhibit 25 in evidence, Atlas stated that it is incomplete; that it projects the legalization cost for three living lofts as $2500, an unrealistic figure, perhaps to save money on the filing fee; and that it does not list the fifth floor as residential, despite Judge Glen's decision to the contrary, thus avoiding the need to seek a waiver of BRAC payment for that floor. Atlas further stated that under the Building Code, if a building is renovated under the New Code, STC readings must be taken before a noisy use can be placed adjacent to residential tenants. The owner's plans to legalize the premises could have been prepared under the Old Code, but he elected to legalize under the New Code. Under the Old Code, he stated, no noise tests are required and the owner could make noise in excess of 45 decibels in his recording studio without its being illegal. Further, there are procedures available under the New Code for variances of noise ordinances which the owner here should be required to utilize.

On cross-examination Atlas stated that he has appeared before the Loft Board only on behalf of tenants, but that he has handled Department of Buildings and Loft Board matters for owners and tenants jointly at times. He further stated that while he has prepared New Code filings for other types of buildings, such as brownstones, he has never prepared an Old Code filing for an interim multiple dwelling. He stated, however, that he thought that §23 of the Reference Standards for the New Code tells you what materials you have to use to comply with sound transmission standards.

Atlas further testified that he designed one recording studio, High Rise Sound, which is no longer in operation, and consulted with Robert Mason of 12 E. 12th Street, who has a recording studio in a coop interim multiple dwelling and has had noise complaints from a neighbor and more recently from the coop board. Looking at the plans for the first floor recording studio, which were received in evidence as Exhibit 2, he stated that he did not see any insulation materials, but did see alterations on the plans which might be for the installation of insulation materials, such as a dropped ceiling. Atlas further stated that STC ratings are only for residential buildings, but that a New Code filing for a loft building is subject to such a noise inquiry, because the building is a multiple dwelling.

No new, relevant material was raised on redirect or recross-examination.

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Toward the end of their case, the tenants called as their sound expert Bruce Cameron, who testified that he holds a BA degree in theater from the University of Wisconsin and that since 1978 has worked professionally assembling sound systems. He stated that he has worked in a number of fields in the sound business, including engineering Broadway productions such as Dreamgirls, Starlight Express, Lily Tomlin's most recent show on Broadway, and a Jackie Mason show. He stated that he is familiar with sound measurement devices and uses a variety of instruments to measure sound. In addition, he belongs to the Audio Engineering Society and to other professional societies for backstage employees and has done some work insulating or isolating sounds from neighbors.

On voir dire concerning his qualifications, Cameron stated that his specialty is sound reinforcement (producing sounds in a theater), rather than sound isolation, but that he has done sound isolation for the purposes of creating a certain sound in the theater. He further stated that he is a recording engineer and has been involved in the construction of five recording studios but that the construction of recording studios is not his specialty. He was qualified as an expert in the field of sound recording.

Cameron testified that he came to 19 Mercer Street in late November or early December 1988 and was present at the time of Ostergaard's testing. He stated that he did not know in advance what tests would be used. He described Ostergaard's test procedure essentially as Ostergaard had done. He further stated that at the time the test was performed, noise was coming into the building from the street and, at one time, from next door. He further stated that no attempt was made to test the sound being transmitted as it was heard in the front, middle and back of each loft and that the placement of the mike was not very scientific, since Ostergaard just wandered around with it. He in addition stated that if the door to the drum booth, the doors or the windows were open, this would have made a difference in the test results; that the steam pipes, which can transmit sound, are not insulated; that the elevator shaft may not be insulated; and that if some of the noise in the lofts comes from the street, the windows should be insulated.

Cameron further stated that he did not note any isolative attempts when he visited the fifth floor studio. He further stated that while the first floor studio was very deluxe, he did not know what isolative measures had been taken. He further stated that if you isolated with a foot of sand between the ceiling of the first floor and the floor of the second floor, the transmission of sound would be reduced by something between five and ten decibels. Some additional reduction would be achieved by insulating the pipes, but he was unable to say how much reduction would be derived. He additionally stated that constructing the studios with floating floors so that they are like rooms within rooms would be the best way to achieve sound isolation. He further stated that in a recent issue of MIX Magazine, an industry publication, there was an article by John Storyk in which he discussed insulating with fiberboard so as to achieve a sound reduction of 60 decibels.

On cross-examination, Cameron stated that he brought his own equipment with him to Ostergaard's test, but that he did not need to use it because Ostergaard's measurements were taken 86 scientifically. He further stated that Ostergaard enjoys a fine reputation in the field of noise measurement which is the subject of this proceeding. He also said that he was sure the pipes were not insulated in the first floor studio, and that if he went up a ramp or steps to enter the fifth floor studio, he did not remember having done so. He also indicated that if 60 decibels of sound reduction is already in place, it is not possible to add another 60 decibels to achieve a 120 decibel reduction, since sound reduction devices do not add cumulatively.

The remainder of the cross-examination, as well as the redirect and recross-examinations, provided no new, relevant information.

On his rebuttal case, the owner recalled Alan Feierstein. He stated that he moved into the building on January 13, 1975 or thereabouts and offered into evidence as Exhibit 1-R a check dated January 13, 1975 for two months' security. He further stated that he and Lenny Fisher lived in the unit at that time, and that both of them had workshops there, as well. Feierstein paid 70% of the rent because he used 70% of the space. He offered into evidence as Exhibit 2-R receipts for supplies used to build the studio, including 70 bags of sand for insulation, which was placed under the floor of the studio. He stated that all of the construction supplies were used within a few days of purchase because he had no room to store them, and as a result, the studio was usable for rehearsal or recording by March 1975, as he was able to determine from a receipt to Atkins Glass for the glass between the studio and the control room, following the installation of which he was able to use the studio.

Even after the studio was usable, he continued work and in April 1975 installed 18 rolls of six- inch insulation between the inner and outer sheetrock walls to control the noise in the studio. Feierstein further stated that he had been able to use the studio prior to the installation of the insulation, because as of April 1975, he and the Procuniars were the only tenants in the building. The third and fourth floors were filled with rolls of fabric stored there by the former owner, which is a good insulator.

Feierstein further stated that he did not know when he moved into the building that the second floor would be residential. After he moved in, he saw lights on the second floor and saw someone painting it. He later learned that Steve Procuniar was about to move in. The fourth floor became occupied residentially by Ron Morrison about four months after he moved in; he remembered having a conversation with Morrison in which Morrison was dismayed to learn about his recording studio because he had lived under musicians previously. Thereafter, Feierstein stated, Morrison and his roommate Miriam Bloom complained about the noise from the studio.

Feierstein testified that as of 1979, he was booking about 10 recording sessions per week, lasting from four to eight hours each. In 1980 and 1981 his business increased, and there were even more recording sessions. He offered into evidence as Exhibit 3-R a New York Times article which appeared on August 6, 1977 describing his ambitions for the his business at that time.

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Feierstein then denied many of the allegations against him by the tenants. He stated that he was "framed" by Judge Kristin Booth Glen when she found him to have harassed the residential tenants; that he has not reduced the heat in the building below 68 degrees and as a result is paying $3000/year in fuel oil bills; that the tenants' sound expert did not take any readings at the premises, although he has suitable equipment for doing so, and that he testified concerning flanking transmissions of sound, which is in fact not a problem in this building. He also said that he had to rush to file an alteration application in 1983 because he applied for a waiver of the requirement from the Loft Board and did not get a timely response; some of the papers were filled out by Feierstein and some by the architect and Feierstein was unaware that there was a certificate of occupancy for the building which was at odds with what he filled out on the alteration application. He further stated that Moser has gone away for long periods several times in the past few years, such that he had to file notices to cure, and that Moser does not utilize his unit primarily as living or office space but has filled it up with a large pool table and two enormous speakers. Feierstein stated that he is in Moser's unit regularly because the elevator room is located there.

No new or relevant information was elicited on cross-examination.

The owner's second witness on rebuttal was Antonio Argibay. He stated that on August 1, 1989 he filed an alteration application, received in evidence as Exhibit 5-R, to legalize the existing recording studio on the fifth floor at the premises, and as of the time of his testimony, had received an objection sheet, which was received in evidence as Exhibit 6-R. He further stated that a recording studio is an as-of-right use in this zoning district, and that he has another client who has installed a recording studio in an interim multiple dwelling, placing a "sandwich floor," used for commercial purposes, between the IMD and the studio.

On cross-examination, Argibay stated that he had been convicted after trial of sale of a controlled substance, a class A felony.

On redirect examination Argibay stated that he was arrested for this offense while he was a college student, in 1976, and that although he had been tried and convicted, he continued to maintain his innocence. He further stated that prior to licensing him as an architect, the State of New York held a hearing and seem to have approved his character, since they granted him a license.

POST-HEARING MEMORANDA:

The owner's main brief asserts, with regard to the adverse impact portion of the case, that he must be permitted to expand his business, not out of choice but out of necessity, to avoid displacement. He states that his gross profits have decreased annually between 1982 and 1987. He further stated that it is neither efficient nor cost-effective to use studios as mix rooms, as they have in the past, and that to be fully utilized, the first floor studio must be associated with a separate, specialized space for overdubbing and mixing and is not competitive without this additional facility, which must be located on 86 the third floor to isolate it from any sounds emerging from the first and fifth floor studios. He suggests that the fifth floor studio can be used only to make "demo" records and must be renovated by installing new control and vocal booths. In addition, he indicates that additional space is required for manufacturing, which will take up a whole floor.

The owner then describes the noise problems in the building, indicating that the noise to which the fourth floor residential tenant is subjected from the fifth floor studio is in excess of that permitted under the Administrative Code, and that the second floor residential tenant is subjected to similar and impermissible noise from the first floor studio, and that the only possible remedy is to vacate both tenants. He suggests that only isolating the floors with recording facilities from one another with a heavy material such as concrete would resolve the problem, and that for example, in the case of the fifth floor, adequate sound isolation would be achieved only by building a concrete room inside the fifth floor and installing a concrete floor between stories, but this is impossible because the wooden beams of the building could not hold such a heavy structure. Alternatively, the recording facilities must be isolated by placing a floor without recording activities between each floor where recording activities take place. He further states that the tenants complained about noise from the fifth floor recording studio prior to the initiation of this action and might do so again, if the hardship application were not pending.

With regard to the economic infeasibility issue, the owner seeks to add to the Loft Board's accepted deficit of 15% during the actual period and 24% during the projected period, additional expenses as follows: $22.63 of additional fuel costs proved at the hearing; additional water and sewer charges not presented to the auditor ($425.01 for a seven month period in 1983-84, based on an actual bill, projected for 12 months); attorney fees for a successful application to reduce taxes; accounting fees for the actual period, though billed later, in the amount of $1500; fees and permits in excess even of the evidence presented at hearing; additional repairs and maintenance in the amount of $1900 for an elevator repair not included by the auditor; an increase in the auditor's projection of 10% increase in insurance costs for the projected period. The owner further seeks confirmation of the allowances for labor and electricity as granted by the auditor, a ruling that the operation of the elevator is a building expense and a ruling that if the tenants prevail in their argument that certain costs allowed by the auditor are deferred maintenance, these items should be allowed as expenses in the projection period. In addition, the owner argues that the rents he is charging Acoustilog are appropriate rents, as demonstrated by their expert witness, who he claims to be more qualified than the tenants' expert by virtue of his experience as a broker in the Soho market.

The tenants' brief asserts that the owner did not meet its burden of proof in showing hardship. Rather, they characterize the facts presented at hearing as showing that the owner was increasingly successful in his business and decided after the passage of the Loft Law that his need to expand was inconsistent with the continued occupancy of his artist neighbors. Therefore, according to the tenants, he has deflated the rental value of the floors he occupies and inflated the cost of legalization to demonstrate a hardship where no hardship exists.

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First, the tenants seek the dismissal of the application on two technical grounds. They suggest that because Feierstein both lived and worked in his unit on June 21, 1982, he is not a nonresidential conforming use occupant, a required predicate for a finding of hardship. In connection with this claim, they point out that Feierstein did not at that time have a proper certificate of occupancy for the fifth floor recording studio, nor has he since acquired such a certificate of occupancy, and that his use cannot, therefore, be considered conforming. They also seek dismissal of the application on the ground that the 1983 alteration application filed as a condition precedent to the initiation of the instant hardship proceeding cannot fulfill the condition because it does not state the actual prior and proposed uses of the fifth floor, and further, that this ALT is incomplete and also has not been approved for substantive reasons, including the failure to obtain a waiver of the BRAC payment.

The tenants further question the credibility and integrity of Alan Feierstein, who was the primary witness in support of the owner's position. His credibility is attacked, inter alia, in that he has brought repeated, unsuccessful litigation against the tenants at the premises, and in fact has been found by a Civil Court judge to have harassed them; was found untruthful in denying his residential occupancy at the premises by a Civil Court judge, who ruled that the premises was an interim multiple dwelling subject to Article 7-C; and has twice, in 1983 and 1984 alteration applications, misrepresented the use of the fifth floor at the premises in making filings at the Department of Buildings.

Additionally, the tenants assert that the testimony of the owner's architect, Antonio Argibay, was not persuasive because he is inexperienced in loft conversions and lacked knowledge of the specialized legalization requirements for interim multiple dwellings. Further, they pointed out that Argibay should not be considered a trustworthy witness as he admitted on the witness stand that he was convicted after trial of a criminal offense, sale of narcotics, a class A felony.

With regard to the adverse impact phase of the proceedings, the tenants advance many claims concerning the issue of noise at the premises. First, they question the owner's proof that sounds emanating from the first floor studio will violate Local Law 92 based on defects in the filing made with the Department of Buildings in 1984 when the studio was installed. Among other things, the filing does not state that there are residential tenants in any part of the building, thus avoiding more stringent insulation requirements that would otherwise be imposed and does not refer to the installation of any insulation whatever. Additionally, the tenants state that if the first floor studio was built pursuant to an Old Code filing, it would be permitted to operate at decibel levels in excess of those allowed under Local Law 92, and further state that Local Law 92 provides a variance procedure.

In addition, on the noise issue, the tenants argue that there has been no showing of imminent peril to the tenants because the owner's sound tests were invalid for a number of reasons, including methodological concerns and failure to replicate the actual daily recording conditions in the studio, which does not make loud noise constantly. The applicable standard, they suggest, is that actual activities so integral to his business that their discontinuance would necessitate displacement of the commercial tenant are inconsistent with residential occupancy and assert that the record demonstrates neither that 86

Feierstein's actual activities violate city noise ordinances, nor that insulation cannot resolve the problem. They additionally point out that the record demonstrates that the noise complaints made by tenants over the years have been very limited, and that Eileen Mullan would never have agreed to assume Ron Morrison's lease for the unit directly below the fifth floor studio, having previously stayed in his unit, if the noise were intolerable. They further suggest that some of the noise problems in the building were deliberately caused by Feierstein, and that the evidence does not show that tenant noise complaints actually impacted on Feierstein's business.

Concerning the claimed need to expand the business to preserve its present position in the market, the tenants argue that the gross receipts of the owner's business and the number of employees rose annually except in 1983-84 and 1984-85; that the gross payroll increased annually except in 1985; that the first floor studio, which was financed largely from the proceeds of Acoustilog's existing business, cost at least several hundred thousand dollars, documenting the financial health of Acoustilog at that time; that there has been no proof of loss of existing business nor proof of what additional business could be expected if the studio were expanded; that the owner's claim he needs to expand to preserve his existing place in the market is not persuasive in light of the fact that by recapturing the first floor and basement after the filing of the initial hardship application in 1983, he obtained 2/3 of the space he said he needed at that time; that the record does not bear out the owner's claim that his clients now select other studios because he does not have a mix room, and if it did, he should remove the fifth floor studio and construct one there; that Feierstein's manufacturing component needs to be adjacent to the recording studio only for his convenience and not for business reasons; and that the need to use some of the fifth floor, upon legalization of the premises, to make a bulkhead on the roof, is not occasioned by the presence of residential tenants in the building, but rather by the use of the fifth floor for any use other than storage, the use permitted on the certificate of occupancy.

With regard to the infeasible costs phase of the hearing, the tenants attack the ex parte nature of the audit as conducted by Helene Murrin, the Loft Board auditor, as well as her refusal to consider the square footage of the basement as other than a common area, when it is actually used by the owner to conduct his business; her calculation of the income derived from the Soho Rep space, for which the owner was entitled to collect escalators but did not do so; her failure to apportion the fuel bills for the building between Feierstein's business and the residential tenants; her inclusion of the cost of legalizing the elevator, which is not a required legalization expense here; her allowance of interest at 14% for 15 years, without an exploration of whether the owner was required to borrow money to finance the legalization work or proof of prevailing interest rates in 1985; her allowance of management fees without proof that such fees were incurred and of legal fees for unreimbursable matters; her failure to correctly determine the rental income which might be derived from the building, including her acceptance of the owner's rents as representing the fair market value of the spaces he occupies; and the allowance of excessive legalization costs based on the recommendations of Antonio Argibay, who is not well versed in conversions pursuant to Article 7-B of the Multiple Dwelling Law, and who presented as legalization costs an elevator renovation, which is not required, as well as maintenance items and a fire escape which are not reimbursable. 86

With regard to the issue of self-created hardship, the tenants suggest that Feierstein himself is responsible for his present difficulties because he should not have established a recording studio in a wood-frame building filled with residential tenants prior to the time he acquired an interest in the premises by the assignment of Fisher's lease to him in 1977 and had an operational recording studio. Further, they suggest that Feierstein was aware of the impending passage of the Loft Law when he purchased the building in 1982 and should not have done so with the expectation of recovering residentially occupied units.

The owner's reply memorandum asserts, on the adverse impact phase, that Feierstein's residential use of the fifth floor does not preclude him from obtaining a hardship exemption from the Loft Law based on his concurrent commercial use of the space; that under the Loft Board's decision in Matter of the Application of Landau, Loft Board Order #834, the inaccuracy of the owner's submissions to the Department of Buildings does not preclude him from obtaining a hardship exemption from the Loft Law, provided that the manner in which he is using the premises is permitted under the Zoning Resolution; that the peril to the well-being of the residents as a result of their proximity to the recording studios must be taken seriously; and that the applicant's need for more space for his business has been partially addressed by taking back the first floor and basement, but this is not a complete solution to his need for space and cannot substitute for the recapture of three floors of contiguous space. With regard to the infeasible costs phase, the owner argued that the Loft Board should not consider the rental value of the first floor and basement as improved because the tenant, Acoustilog, made the improvements; that the proposed elevator conversion in the building is to make the existing freight elevator into a service car, attaching an estimate for this conversion in the amount of $59,680; that the testimony of the tenants' architectural expert and appraiser should not be credited; and that the cost of heating the building is correctly apportioned at 50% to the owner, for his three floors, and 50% to the tenants, for their three floors.

OPINION:

The first section of this opinion (Part I) sets forth the law and rules applicable to hardship applications. The second section (Part II) analyzes the infeasible costs portion of the owner’s application. The third section (Part III) analyzes the adverse impact portion of the owner’s application. Then, because we find a hardship under the infeasible costs analysis, the fourth section of the opinion (Part IV) establishes the appropriate remedy for the hardship.

I. The Applicable Statute and Regulations

Pursuant to section 285(2) of the Multiple Dwelling Law (“MDL”), an owner of an interim multiple dwelling may apply to the Loft Board for a hardship exemption from Article 7-C, provided that he demonstrates that "obtaining a ...residential certificate of occupancy would cause an unjustifiable hardship either because: (i) it would cause an unreasonably adverse impact on a nonresidential 86 conforming use tenant within the building or, (ii) the cost of compliance renders...residential conversion infeasible." See also the Loft Board's Hardship Regulations, 29 RCNY §2-03(b). The standard for determining whether an unreasonably adverse impact has occurred is "whether residential conversion would necessitate displacement" of the nonresidential tenant. Id. See also 29 RCNY §2-03(b)(2)(i). The standard for determining cost infeasibility is "that of a reasonable return on the owner's investment not maximum return." Id.; accord, 29 RCNY §2-03(b)(2)(ii). Multiple Dwelling Law § 285(2) also requires the Loft Board to consider whether the owner's hardship is self-created and to fashion the minimum relief necessary to alleviate the owner's hardship. See also 29 RCNY §§2-03(b)(3)(i) and (c)(1).

The burden of proof in a hardship application is upon the owner of the premises, who must show by a preponderance of the evidence either that legalization of loft units at the premises would cause an unreasonably adverse impact on the nonresidential occupant, In Re Landau, 174 A.D. 2d 466, 571, N.Y.S.2d 463 (1st Dept. 1991), or that the cost of code compliance renders legalization of lofts at premises for residential purposes infeasible.

Pursuant to 29 RCNY §2-03(b)(2)(i), displacement of a nonresidential tenant may occur where:

(A) all or a critical portion, adversely affecting the conduct of business, of the space of an existing nonresidential conforming use occupant would be lost as a result of the residential conversion;

(B) the nature of an existing nonresidential conforming use would render legal residential conversion to be infeasible or illegal by causing an imminent peril to the health and safety of residential occupants;

(C) the result of the legal residential conversion would be unreasonably disruptive to the business of the nonresidential conforming use; or

(D) the inability of an owner who purchased the building before June 21, 1982 to expand his...business which is an existing nonresidential conforming use due to legal residential conversion would result in the elimination of existing jobs.

Pursuant to 29 RCNY §2-03(2)(ii)(a), a reasonable rate of return on the owner's investment is determined to be a net annual return of five percent or more, “where net annual return is the percentage amount by which the annual earned income from the building exceeds the annual operating expenses of the building.”

II. The Infeasible Costs Test:

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Introduction

Analysis of the infeasible costs portion of the application requires the Loft Board to make findings regarding the owner’s actual and projected costs of operating the building and actual and projected income. The staff audit is the starting point for such an analysis but, as explained below, the subequent hearing on the application leads to findings of fact as to costs and income that differ from those of the staff audit. These findings of fact are set forth below.

Careful review of this portion of the application in light of the Loft Board’s audit and facts developed at the subsequent hearing indicates that a hardship has been demonstrated. As explained more fully below, the owner has proven a negative 7.4 percent rate of return for the actual year and a negative 5.4 percent rate of return for the projected year. Thus, he has proven a financial hardship under the definition of reasonable rate of return contained in 29 RCNY § 2-03(b)(2)(ii)(A), which defines such a return as a net annual return of five percent or more.

Infeasible Costs Findings of Fact

The tenants' initial contention that the Loft Board audit was improperly conducted and worthy of no weight because the owner had ex parte contact with the auditor, while they were not permitted to participate, must be rejected. On this point, the Board's prior decision in Matter of the Application of Hertzoff, Loft Board Order #1072 (July 26, 1990) is controlling. Hertzoff finds that the intent of 29 RCNY §2-03(a)(3)(iv)6 is that the owner of a building for which a hardship exemption from the Loft Law is sought must first go through an audit by the Loft Board auditor that results in a possible finding of hardship. Thereafter, "once a finding of hardship is recognized under the ex parte circumstances of an audit, the hearing becomes the proper vehicle in which to obtain more detailed information concerning the expenses and income of the building and to permit the tenants to contest the information and evidence previously provided ex parte to the auditor." Id. at p. 13. Thus, the audit was properly conducted on an ex parte basis, as intended by the rules. The tenants were not adversely affected because they had ample opportunity to dispute the determinations made in the audit at the time of the hearing.

Except as specifically set forth below, the Board accepts the figures contained in the staff audit. The auditor's determinations to accept only bills paid within the audit period and to credit all the rent that could have been collected in a given period, regardless of actual collection, are approved. See 29 RCNY § 2-03(b)(2)(ii)(B) (“[e]arned income shall mean the maximum annual collectible rent for the building”) (emphasis added). Also approved are her selection of a 10% increase in costs for the projected period, her allowance of labor costs for six hours/week based on an estimate of the amount of time an Acoustilog employee spends maintaining the building and her allowance of management fees

6 Cited in Hertzoff as Hardship Regulations Section I(C)(5).

86 at 5% of the income of the building. See, Matter of Hertzoff, at p. 17. Additionally, the claim advanced by the tenants that the auditor incorrectly handled the fuel oil as a building expense rather than as part of the expense of the commercial tenant is meritless, on these facts, since none of the tenants provide their own heat and thus the owner's heat is not properly an expense of his business. Furthermore, the tenants’ claim that the exclusion of the parts of the basement used by the owner from the commercial space in the building was incorrect is also lacking in merit because the evidence shows both that in the commercial market the basement is rented with the first floor and generally lacks a value on its own, and that the owner has removed the first floor and occupies the basement and first floor as one space, with greater depth, but no more square footage, than the other single floors of the building. Also without merit is the tenants’ claim that the auditor should not have accepted the owner’s contention that the prevailing interest rate during the projection period was 14 percent for the construction loan, both because the owner proved it was a reasonable rate in the summer of 1984 and because the tenants have not set forth evidence to prove a different interest rate.

Claims by the owner that he should be reimbursed for water and sewer charges based on bills issued outside the audit period and for legal expenses paid outside the period are rejected because, as discussed above, the auditor’s determination to accept only bills paid within the audit period has been approved. In addition, those expenses excluded from legalization costs because they are found to be deferred maintenance cannot properly be added to the expenses of operating the building during the projection period because they are too hypothetical in nature, having already been deferred past the time at which they should have been done, and it is impossible to determine whether they would eventually have been done in the projection period. Nor can insurance increases be credited in the projected period at more than a 10% increase; this increase is projected as an across-the-board figure and the actual increases may be more than 10% in some categories and less than 10% in others. Based on the same theory, however, where the owner's claim for increased allowances in the base year has been approved (with regard to fuel and repairs and maintenance), the allowances in the projected year have also been increased.

With regard to the calculation of the fair market rental value of the commercial leases, the owner's expert, Stephen Tarter, is credited with greater expertise than the tenants' expert, in view of his extensive background in commercial rentals in Soho. His ability to provide information about units comparable to the first and fifth floor units rented by Acoustilog, all of which were located in Soho, stood in stark contrast to the background of the tenants' expert, Andrew Fields, who had little experience with commercial rentals, seemed to have more familiarity with Tribeca and areas outside the city than Tarter, and could cite only one specific property with which he had been involved in Soho, a residential unit. Therefore, the adjustment of the rents paid by Acoustilog to fair market rental levels is based on Tarter’s testimony.

Tarter stated that commercial tenants usually have long leases without increases in rent, but have to pay escalators after the first year, for a variety of reasons, including increases in fuel oil costs, increases in property taxes, as well as for other reasons, depending on their leases. He further stated 86 that on a 10 year lease, this would add $2.50 to $3.50 per square foot per year to the rent paid by a commercial tenant. Feierstein's lease to Soho Rep, which was in effect in 1982-83, permitted him to collect escalators, but he testified that he never did so. He did not indicate how much the escalators would have been, nor could the tenants be expected to have demonstrated this figure, since the records on which it would have been based are in the owner's control. Therefore, the rent attributed to the actual year has been increased by $3.00 per square foot (at 2175 square feet, $6525 per year) for escalators which he was entitled to collect, but did not collect. The $3.00 figure was selected since it is midway in the range of $2.50 to $3.50. The rent paid by Feierstein for the fifth floor space in 1982-83 is credited as the fair market value of the unit, since it was about $5.85 per square foot, within the range stated by Tarter, but the lease seems to have been atypical in that it did not provide for escalators. These would not have been payable in 1982-83, the first year of the lease, but must be added to the 1984-85 projections. At 2050 sq. ft., this amounts to an addition of $6,150.00 per year bringing the rent to $24,300.00 in the projected year. Finally, the base rent received for the first floor, in its first year of operation as an Acoustilog facility, is slightly below the prevailing rates cited by Tarter in his testimony, and the fair market value has been increased to $17,400.00 from $16,200.00, as accepted by the auditor. The tenants' contention that Acoustilog should be paying the rent that would be paid by a fully renovated recording studio is rejected, since in each instance Acoustilog was responsible for renovating its spaces and cannot, therefore, be expected to pay the rent that would be paid by a tenant moving into renovated space.

Further adjustments are likewise allowed in the projected year for an additional $22.63 in fuel bills and an additional $1900.00 elevator repair proved by the owner at the hearing. Also, in view of the adjustment made to the income of the building based on fair market rental value, the permitted management fees for the actual year are increased to five percent of the revised income of the building (from $2480.00 to $2794.80). The remaining allowances accepted by the auditor are adopted. With regard to the projected year, similar adjustments have been made. All of the rents for the projected year have been revised from the auditor's original report to include the previously mentioned escalators for the commercial leases and to show the residential rents as adjusted for certain rent increases as described below. The management fees for the projected year have also been adjusted to five percent of the revised total income. Construction costs have been adjusted to reflect one year’s worth of principal and interest on the loan needed to do the necessary code compliance work, as computed on a 15-year loan at 14 percent interest.

However, the primary reason for revision of the projected year’s figures is that the owner's plan to legalize the building is not consistent with his obligation under the Board's code compliance rules to do the minimum renovation necessary to bring the building up to code, therefore resulting in the disallowance of many of his claimed expenses in the code compliance process. The requirement that the owner of an interim multiple dwelling be compensated only for the minimum code compliance costs is found in 29 RCNY § 2-01(j), which specifies that reimbursement is available only for costs "necessary and reasonable to achieve minimal code compliance in the building." The testimony of the owner's expert, Antonio Argibay, with regard to the work necessary to bring the building up to code 86 was not as persuasive as that offered by the tenants' expert, Arthur Atlas. Argibay has very limited experience in loft conversion, while Atlas is a well-known specialist in this field. Moreover, Argibay was unfamiliar with Loft Board regulations insofar as they permit reimbursement only for minimum code compliance and repeatedly stated that he recommended work he thought was reasonable and would prudently be done in connection with code compliance, but was not strictly required to bring the building up to code. Furthermore, Atlas persuasively stated that the best way to bring the premises up to code is as a joint living working quarters for artists under Article 7-B of the Multiple Dwelling Law, which contains reduced standards for residential conversion for artists' lofts, while Argibay projected a conversion under the New Code, which imposes requirements far in excess of minimal code compliance. Therefore, the starting point in determining the allowable costs of code compliance is the Loft Board auditor's report, as modified by Atlas' testimony and by the parties' stipulation as to the square footage of the various units in the building, which differs from the square footages obtained from the owner's architect and used by the auditor.

A point raised by the tenants concerning the allocation of building-wide costs must be rejected. They have properly asserted that under 29 RCNY § 2-01(k), all units in the building must share costs for common areas not exclusively attributable to the residential tenants. At the premises, these expenses include the extension of the stairs to the roof, the fire rated stair enclosure and repair to the bulkhead, fire escape repairs, a boiler enclosure, a boiler, new water risers and mains, sprinkler heads and fans for the air shaft, because the owner's use of the building for recording studios also mandates the installation or refurbishing of these items. However, the auditor correctly apportioned these costs among all the floors of the building, and insofar as they are concerned, the auditor's report does not require revision.

However, the tenants’ argument is accepted that common area code compliance work should not include demolition and replacement of all the stairs in the building, demolition and reconstruction of the lobby, installation of a fire rated stair enclosure from the basement to the first floor, replacement of the cellar engineer's hatch, removal of existing concrete from wood surfaces in various areas, rebuilding of the wall and platform in the third floor hallway, painting of surfaces which are not newly constructed, installation of two-hour fire rated gypsum board and fire separations between the residential units, and installation of new lighting in the resurfaced hallways. Acceptance of this argument is based on the fact that the tenants’ architect, Arthur Atlas, persuasively testified that these items are not required to achieve a minimum legalization of the premises under Article 7-B, and that they are not authorized by the Board's schedule of costs, is accepted.

The tenants have also correctly stated that deferred maintenance is not reimbursable as a cost of code compliance. Atlas's testimony that the windows in the elevator shaft need not be replaced to achieve minimum code compliance, but have needed repair for some time so that the existing windows will work properly, is credible and is therefore accepted, and the cost projected by the owner is disallowed.

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Items for which the costs allowed by the auditor have been reduced, based on Atlas's credible testimony, include: the extension of the parapet (to $600 from $3850); the repair, rather than replacement of the existing bulkhead (to $250 from $2500); the reconstruction of the third floor hallway platform (to $200 from $1100), the installation of only one new fire door (at $400 from $2800), and the use of one hour fire rated gypsum (at $300 from $4000).

Certain legalization expenses contested by the tenants must be allowed. They include: wall insulation for noise, for reasons developed more fully in the discussion of the adverse impact test (Part III below); the replacement of plumbing, which, although borderline, is not seen as deferred maintenance but as the replacement of a building system, which appears to be failing, for the mutual benefit of all the occupants; and the replacement of the boiler, for similar reasons. Additionally, the elevator in the building is found to be a building-wide expense. While the expert testimony shows that the premises is less than six stories high and less than 85 feet high, and therefore an elevator is not required by the Multiple Dwelling Law, the tenants' previous leases, although expiring before June 21, 1982, entitle them to the use of the elevator Monday through Friday between 8 a.m. and 6 p.m. and on Saturday mornings. These leases do not indicate whether the existing service was passenger or freight in nature. One of the tenants, Eileen Mullan, has suggested that prior to March 1982, when Feierstein bought the building, the tenants were allowed to use the elevator at all times and for all purposes, but that afterwards, they were permitted to use it as a freight elevator only. Feierstein has suggested that even after he bought the building, the tenants were allowed to use the elevator for all purposes, provided that he supplied an operator. Regardless of which of these statements is more accurate, the Board concludes that based on their prior leases, the tenants would suffer diminution of services if an elevator they could properly use for all purposes were not provided post-legalization. Therefore, the legalization of the existing elevator as a service car is found to be a building-wide expense, and the allowance of the auditor, which is in the range of cost of a service car, not a refurbished passenger elevator, is approved.

As to the legalization costs of the individual units, based on the persuasive testimony of the tenants' architect, Arthur Atlas, the owner’s claims for reimbursement based on the removal of noncompliant fixtures, the removal of the cement pad under the hot water heater, and the installation of new ceilings between units are disallowed, as is the allowance for the replacement windows, since these windows should be repaired and are deemed to be a deferred maintenance cost. Also based on Atlas' testimony, the tile work in the bathroom is reduced to $25.00.

In sum, then, the approved building-wide legalization costs are:

New fire-rated stair enclosure, top floor to roof $ 1000 Extension of parapet 600 Repair of bulkhead 250 Skylight 600 Fire escape 6800 Rebuild platform -- 2nd floor 2200 86

Cover underside of stairs to 3rd floor 600 Rebuild platform around hallway -- 3rd floor 200 Vestibule at building entry 1400 Lobby metal doors 700 Fire doors -- 4th floor only 400 Bulkhead door and frame 350 Plaster/paint brick wall 1080 Gypsum board -- 1 hour fire rated 300 Enclose boiler 1750 Wall insulation 363 Mail boxes, floor signs, peephole, bells, chains on doors, smoke 670 detector Auditor’s elevator allowances 40970 Central boiler, new water riser, new water main 7500 Sprinkler heard replacements; sprinkler cellar to first floor 1020 Turbine fan for air shaft 150 Ventilation for enclosed heating system equipment 1000 Total $ 69903

The allowed costs for the second floor tenant’s unit are:

Demolish suspended ceiling $ 540 Demolish non-fire-rated partitions 165 New entrance door lock 100 Bathroom enclosure 216 Tile work -- bathroom 25 Sprinkler system 360 Air fan, wall exhauster 600 Fire damper and grill 50 Total $ 2056

The same costs are allowed for the third floor tenant’s unit. The same costs are allowed for the fourth floor tenant’s unit, with the addition of four radiators at $1,400.00, for a total for that unit of $3,456.00.

Analysis of Infeasible Costs Facts

The total allowed legalization costs for the building are $83,668.68. This total is arrived at as follows: The sum of the building-wide costs plus the individual unit costs is $77,471.00. Architectural fees and legal fees, each computed at four percent of this sum, equal $3098.84 apiece. When these fees are added to the sum of the building-wide and individual unit costs, the total equals $83,668.68. 86

In order to determine the projected income for the post-legalization projected year (the total accepted costs and income for which are listed below), it is necessary to calculate the individual unit rent increases that would result from apportionment of the allowed legalization costs pursuant to 29 RCNY § 2-01(l). Under section 2-01(l)(3), the individual unit share of the code compliance costs for work in the common areas of the building is represented by the formula

S = (TC x RA/TA)/R where S equals the share per residential unit, TC equals the total allowable code compliance costs of work in common areas, RA equals the sum of the floor area of the residential units, TA equals the total floor area of the building, and R equals the maximum number of residential units.

In this case, as discussed above, the allowable building-wide costs (TC) total $69,903.00. The sum of the residential floor area (RA) equals 5,445 square feet and the total floor area of the building (TA) equals 10,575 square feet.7 The maximum number of residential units in the building (R) is three. Therefore, when these values are placed in the equation above, the share per residential unit for the allowable building-wide costs equals $11, 997.54.8

The projected code compliance income for the legalization year for each residential unit is computed as follows: First, the unit’s share of the building-wide costs is added to the allowable costs for that individual unit. See 29 RCNY § 2-01(l). To this sum is added the unit’s proportionate share of the allowed architectural and legal fees, and the unit’s proportionate share of the interest on the construction loan. See 29 RCNY § 2-01(l); see also 29 RCNY §§ 2-01(p)(12) (architectural and legal fees) and 2-01(k)(2) (interest on construction loan).9 The total for each unit is then divided by 15

7 As stated above, the parties stipulated that the ground floor is 2375 square feet, including 200 square feet for the lobby. They stipulated that the second, third, fourth, and fifth floors each totals 2050 square feet. This figure includes a common area of 225 square feet on the second floor and common areas of 240 square feet on the third, fourth, and fifth floors. Thus, the residential floor area on the second, third, and fourth floors equals 1825, 1810 and 1810 square feet, respectively, for a total of 5445 square feet. (The fifth floor is nonresidential.) Under the stipulated numbers, the total area for the building equals 10,575 square feet.

8 $11,997.54 = ($69,903.00 x 5,445/10575)/3.

9 The Loft Board’s rules do not specify how to compute a unit’s proportionate share of allowable architectural and legal fees. Consequently, the following formula was developed: In order to compute each unit’s proportionate share of the allowed architectural and legal fees, the sum of the unit’s individual costs and its share of the building-wide costs are divided by the total construction cost. The resulting percentage is then multiplied by the total allowed architectural and legal fees, which, as 86 to obtain the income attributable to the “cost of code compliance increase” for each unit for the projected year, because the total costs of code compliance are amortized over a 15-year period when a loan is taken to pay for the costs of code compliance and the owner seeks reimbursement for the interest on the loan. See 29 RCNY §2-01(k)(2)(ii) (requiring amortization over a 15-year period when the owner chooses to include the cost of a construction loan in the costs of code compliance). In this case, the income from the individual units in the projected year attributable to the cost of code compliance increase is thus: second floor -- $2,320.83; third floor -- $2,320.83; fourth floor -- $2,552.03. These numbers were calculated as follows:

discussed above, equal $3,098.84 each in this case. Thus, for example, the second floor’s proportionate share of the fees equals $1,124.28: $11,997.54 for the building-wide costs, plus $2,056.00 for the second floor costs, is divided by the total construction cost of $77,471.00; the resulting percentage is multiplied by the total fees of $6,197.68 to get the proportionate share of the fees for the second floor tenant, which equals $1,124.28. In equation form, the second floor tenant’s proportionate share is: $1,124.28 = (($11,997.54 + $2,056.00)/$77,471.00) x $6,197.68. The equation for the third floor tenant is the same, because the individual unit costs for that unit are the same. The equation for the fourth floor tenant is: $1,236.28 = (($11,997.54 + $3,456.00)/$77,471.00) x $6,197.68.

The Loft Board’s rules do not specify how to compute a unit’s proportionate share of the interest on the construction loan. Consequently, the following formula was developed: In order to compute each unit’s proportionate share of the interest on the construction loan, the sum of the unit’s individual costs and its share of the building-wide costs are divided by the total amount of the loan, which in this case would be $83,668.68. The resulting percentage is then multiplied by the total interest on the loan in order to get the unit’s proportionate share. See 29 RCNY § 2-01(k)(2). In this case, involving a loan for $83,668.68 at a 14 percent rate of interest, the total interest on the loan amortized over 15 years would be $116,896.40. Thus, the proportionate share of the interest on the construction loan for the second and third floor units is computed as follows: $19,634.69 = (($11,997.54 + $2,056.00)/$83.668.68) x $116,896.40. The proportionate share of the interest on the construction loan for the fourth floor unit is computed as follows: $21,590.67 = (($11,997.54 + $3,456.00)/$83.668.68) x $116,896.40.

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A B C D E Unit Common Unit Code Unit Share of Construction Code Unit Area Share Compliance Arch. and Loan Interest Compliance Number ($) Costs ($) Legal Fees ($) Share ($) Total ($) 2 11,997.54 2,056 1,124.28 19,634.69 2,320.83 3 11,997.54 2,056 1,124.28 19,634.69 2,320.83 4 11,997.54 3,456 1,236.28 21,590.67 2,552.03

The Code Compliance Total set forth in column E is calculated by adding the figures in columns A, B, C, and D, and dividing that sum by 15.

With this calculation, the total projected income for the residential units in the projected year can be determined. For each unit, an increase pursuant to 29 RCNY § 2-06 has been made to the base rent at the time of the application. Pursuant to 29 RCNY § 2-06(c)(1)(i), the increase for each of the units in question would be seven percent. Furthermore, since the projected year is post-legalization, an RGB increase, pursuant to 29 RCNY § 2-01(i)(1), has been added to the base rent for each unit as modified by the section 2-06 increase. The Board assumes that the tenants would have elected a one- year RGB increase. On September 1, 1984, the first day of the projected year, the RGB increase for a one-year increase was four percent. Finally, the code compliance total for each unit for the projected year has been added to the modified base rent. The total projected income for the residential units in the projected year is thus: second floor -- $10,769.21; third floor -- $8,550.28; fourth floor -- $11, 433.29.10 These numbers were calculated as follows:

A B C D E F Code Base Rent With LBO #1 With RGB (Col C x Compliance Total Income Unit Number ($) (Col B x 1.07) ($) 1.04) ($) Cost ($) (Cols D + E) ($) 2 7,592.00 8,123.44 8,448.38 2,320.83 10,769.21 3 5,598.00 5,989.86 6,229.45 2,320.83 8,550.28 4 7,981.00 8,539.67 8,881.26 2,552.03 11,433.29

10 It should be noted that, pursuant to 29 RCNY § 2-03(b)(2)(ii)(B), earned income is defined in terms of the “maximum annual collectible rent for the building” (emphasis added). Thus, the Board has not considered the issue of whether the owner will in fact receive in the projected year all of the rent to which he is entitled.

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As described above, the Total Income set forth in column F is calculated by adding the figures in columns D and E.

Finally, in order to compute the complete costs and income for the projected year, it is necessary to list the accepted costs and income for the actual year because, as discussed above, the Board has approved the auditor’s selection of a 10 percent increase in costs for the projected year over the actual year. The accepted annual operating expenses for the actual year, August 1, 1982, to July 31, 1983, are as follows:

Fuel $ 2675.72 Labor 1872.00 Utilities 624.16 Real estate taxes 7964.16 Fees and permits 562.80 Service contracts 501.43 Repairs and maintenance 3626.39 Insurance 2158.00 Parts and supplies 0.00 Management fees 2794.80 Legal fees 8800.00 Administrative costs 0.00 Mortgage interest 29037.72 Total $ 60617.18

The accepted annual earned income for the same actual year is as follows:

Floor 1 $ 22725.00 Floor 2 7592.00 Floor 3 5598.00 Floor 4 7981.00 Floor 5 12000.00 Vault 228.00 Total $ 56124.00

Pursuant to 29 RCNY § 2-03(b)(2)(ii)(A), “reasonable rate of return” is defined in terms of the owner’s net annual return. “Net annual return” is defined in that rule as “the percentage amount by which the annual earned income from the building exceeds the annual operating expenses of the building.” Based on this definition, the figures above show an annual return for the actual year of negative $4,493.18 ($56,124.00 - $60,617.18), which equals a net annual rate of return for the actual year of negative 7.4 percent (negative $4,493.18/$60,617.18). 86

Based on all of the above, the accepted costs for the projected year, September 1, 1984, to August 31, 1985, are as follows:

Fuel $ 2943.29 Labor 2059.20 Utilities 686.58 Real estate taxes 8760.58 Fees and permits 619.08 Service contracts 551.58 Repairs and maintenance 3799.03 Insurance 2373.80 Parts and supplies 0.00 Management fees 3634.04 Legal fees 9680.00 Administrative costs 0.00 Mortgage interest 28383.75 Construction loan principal and interest 13371.00 Total $ 76861.93

The accepted income for the same projected year is as follows:

Floor 1 $ 17400.00 Floor 2 10769.21 Floor 3 8550.28 Floor 4 11433.29 Floor 5 24300.00 Vault 228.00 Total $ 72680.78

Based on the definitions contained in 29 RCNY § 2-03(b)(2)(ii)(A) (in which “reasonable rate of return” is defined in terms of the owner’s net annual return and “net annual return” is defined as “the percentage amount by which the annual earned income from the building exceeds the annual operating expenses of the building”), the figures above show a net annual return for the projected year of negative $4,181.15 ($72,680.78 - $76,861.93), equaling a rate of return for the projected year of negative 5.4 percent (negative $4,181.15/$76,861.93). Thus, under the definition of reasonable rate of return contained in 29 RCNY § 2-03(b)(2)(ii)(A), which defines such a return as a net annual return of five percent or more, the owner in this case has proved a hardship under the infeasible costs theory.

III. The Adverse Impact Test:

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Introduction

As discussed below, we find that the owner has not met his burden of proof of showing that a residential conversion of the premises would displace Acoustilog. Consequently, he is not entitled to a hardship exemption from the Loft Law under the adverse impact test set forth in MDL § 285(2)(i).

Threshhold Issues

As threshhold issues, the tenants have argued that the application should be dismissed because (1) Feierstein is not a nonresidential tenant, having lived in the fifth floor loft during the window period; (2) Acoustilog is not a conforming use occupant, since the certificate of occupancy for the premises does not indicate that a recording studio is the permitted use of the fifth floor; (3) there were other residential tenants in the building prior to Feierstein, permitting their prior use of the premises to prevail over any subsequent incompatible use, such as Feierstein's recording studio; and (4) that there is no approved alteration application for the premises, a condition precedent for the maintenance of a hardship application. As discussed below, these contentions must be rejected, and therefore the tenants’ requests for dismissal of the application as a matter of law must be denied.

Under 29 RCNY §2-03(b)(2), an applicant for a hardship exemption must be a "nonresidential conforming use occupant." The record clearly demonstrates that Feierstein began to occupy the fifth floor at 19 Mercer Street in 1975 for both residential purposes and as a recording studio. A finding that he did not use the loft as one of his residences at least until the time he purchased the building in 1982 would be inconsistent both with the record herein and also with the Civil Court decision finding the premises to be an interim multiple dwelling, Feierstein v. Mullan, Index No. 37466/83 (Civil Court New York Co., July 15, 1983). However, the record also shows that long before the effective date of the Loft Law, June 21, 1982, Feierstein was operating a recording studio in his loft, as well as living there. The intent of the Hardship Regulations is to protect Feierstein's rights as the owner of the building, and those of the commercial tenant, Acoustilog, which was one of the occupants of his loft long before the effective date of the statute. The fact that Feierstein himself lived in the loft, and that therefore the loft was used for both living and working, does not preclude him as a matter of law from obtaining a hardship exemption based on the presence of the nonresidential occupant, Acoustilog.

A further claim has been advanced that because the permitted use for the fifth floor at 19 Mercer Street is storage, and not a recording studio, according to the certificate of occupancy, the nonresidential use occupant is not "conforming," as required under 29 RCNY §2-03(b)(2). However, this argument had been foreclosed by the Loft Board's prior decision in Matter of the Application of Landau, Loft Board Order # 834 (October 25, 1988), rev'd on other grounds, 174 A.D. 2d 466, 571 N.Y.S.2d 463 (1st Dept. 1991). In Landau, the Board ruled that a conforming use, for purposes of 29 RCNY §2-03(b)(2), is a use permitted under the Zoning Resolution. In Landau, despite the fact that the applicant did not have proper permits from the Fire Department to conduct the type of hazardous business he maintained at the premises his application was not dismissed. Similarly, while we cannot 86 condone Feierstein's failure to obtain a proper certificate of occupancy for his present use of the fifth floor at 19 Mercer Street, particularly as he has filed two alteration applications for the premises subsequent to the passage of the Loft Law, his right under the Zoning Resolution to install a recording studio in this district has never been seriously contested. Therefore, under Landau his failure to have an accurate certificate of occupancy does not, as a matter of law, prevent him from obtaining a hardship exemption from the statute.

In addition, the tenants have taken the position that the Procuniars had a lease for the premises, and indeed lived in the second floor loft, prior to Feierstein's arrival in the building, and in addition point out that he was not the lessee of the fifth floor until 1977. They therefore claim that their prior residential use entitles the tenants to preference in the use of the building as against a subsequently arrived tenant. However, 29 RCNY §2-03(b)(2) requires only that the nonresidential conforming use occupant have been in place on June 21, 1982. Therefore, while it is difficult to determine from the record whether the Procuniars were actually in residence on the second floor prior to Feierstein's arrival on the fifth floor, the record clearly establishes that the recording studio was operational in 1975, long before the required date, June 21, 1982, making unnecessary a resolution of the dispute concerning the first residential tenancy in the building.

Finally, the tenants have suggested that Loft Board regulations require an applicant for a hardship exemption to have an approved or active alteration application, and that if this condition precedent is not met, the hardship application should be dismissed. However, the tenants' position does not accurately reflect the rule in the Hardship Regulations, 29 RCNY §2-03(a)(2)(iv), which requires only the filing of the alteration application. Thus, while the owner here filed an alteration application as required but did not pursue it after objections were issued, and while the application may now have lapsed, it was filed as required under the applicable regulations, and the application may not be dismissed on this basis.

Analysis of Adverse Impact

Turning to the merits of the owner's application based on the adverse impact test, he has prosecuted this matter based on all four theories suggested by 29 RCNY §2-03(b)(2)(i): (1) that loss of space for the nonresidential occupant as a result of residential conversion would result in displacement of the commercial tenant; (2) that the nature of the existing nonresidential use would render residential occupancy infeasible or illegal by causing an imminent peril to the health of the tenants; (3) that the residential conversion would be unreasonably disruptive to the nonresidential tenant; and (4) that the inability of the nonresidential use tenant to expand will result in the elimination of existing jobs. Only limited proof has been offered concerning the first and third of these theories, and insofar as the owner's case is based on these theories, his position must be rejected at the outset.

The only suggestion concerning reduction of the owner's space as a result of the residential conversion is that part of the fifth floor will be lost due to the need to continue the building stairs to the 86 roof and construct a bulkhead. However, the tenants' architect, Arthur Atlas, has persuasively shown that the use of the fifth floor for anything except a storage facility, the permitted use on the certificate of occupancy, and including its present use as a recording studio, will require the owner to continue the stairs to a rooftop bulkhead, and therefore any difficulty this requirement may cause the owner cannot be attributed to the residential conversion.

As to the disruption which would be caused by the residential renovation, the owner appears to advance two contentions: that the existence of residential tenants in the building is per se inconsistent with his operation of a recording studio because they are rude to his clients, and that he will have to close down his recording facilities as a result of the noise and confusion caused by the residential renovation. With regard to the rudeness of the tenants to Feierstein's clients, if Feierstein's testimony is true and unexaggerated, the conduct of the tenants, however infrequent, is inexcusable. However, Feierstein's conclusory testimony on this point, devoid of numbers of incidents, dates of incidents, and specific repercussions to his business, is insufficient to justify the granting of a hardship exemption. It is to be hoped that this warning to the tenants, coupled with the reduction of tensions in the building which may occur as a result of the disposition of this application, will be sufficient to remedy any minor problem which may have occurred in the past. Concerning the general disruption to his business as a result of the residential renovation, it must first be noted that much of the construction foreseen by Feierstein, as a result of his architect's plan to legalize the building under the New Code, appears to be unnecessary, as noted in the discussion of the infeasible costs phase of the proceedings, and other work contemplated by the owner, such as the extension of the stairs and creation of a bulkhead, is necessitated not only by the residential tenants, but by requirements imposed under the Labor Law based on Feierstein’s use of the fifth floor of the building, and would be required even if this application were granted and the tenants were directed to vacate. Additionally, a renovation to legalize residential units in a mixed use building will always impose some inconvenience on an existing commercial tenant, but may not meet the standard of unreasonable disruption set forth in 29 RCNY §2-03(b)(2). In this case, the owner has stated that he will have to close his business for the duration of the renovations -- probably a true statement, in view of the noise made by construction and the nature of a recording studio -- but no estimate of the duration and cost involved has been provided, nor have other special claims rising to the level of unreasonable disruption been advanced. In addition, it should be noted that to renovate the basement and first floor, the owner voluntarily endured a period during which the fifth floor recording studio could not be used to capacity and therefore it appears that he may be able to do so again.

More serious argument, as well as substantial proof, has been directed to showing the existence of a hardship based on the infeasibility or illegality of a residential conversion in a building also occupied by a recording studio, and concerning the inability of the owner, who owned the premises before June 21, 1982, to expand his business, with a resulting loss of jobs. However, on these points, too, the owner's position is ultimately unpersuasive.

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It must first be noted that the record does not support the owner's contention that the tenants cannot lawfully or safely live at 19 Mercer Street because of the noise levels produced by the recording studio. Most of the noise ordinances cited by the owner as precluding legalization with the present tenants in place are inapplicable to these premises. It is true that §84 of the Multiple Dwelling Law contains a noise control provision, but §84 is inapplicable to conversions to joint living working quarters for artists under Article 7-B of the MDL. See generally MDL §278. Likewise, §27-768 of the Building Code concerns noise tests which must be conducted in connection with a residential conversion under the New Code, but, as advanced in the discussion of the infeasible costs phase, in minimally legalizing the premises, pursuant to the policy of the Loft Board's Code Compliance Regulations, a conversion under the Old Code is required, and §27-768 is therefore inapplicable. Moreover, there is no provision analogous to §27-768 for conversions under the Old Code.

Finally, the owner has relied heavily on §24-241.1 of the Administrative Code as prohibiting noise in excess of 45 decibels which penetrates residential units, and he has demonstrated, by conducting professional sound tests the methodology of which was approved even by the tenants' expert, that such noise, at certain frequencies, can penetrate all the residential units at the premises. Further, the owner has credibly established that sound recording comprises about three-quarters of his business, a proportion of major significance, and that making large amounts of noise for extended portions of the day and night is reasonable in the operation of a recording studio, which cannot be expected to adhere to normal business hours. However, the owner did not present documentation of actual readings during actual recording sessions. He also did not present evidence that the fifth floor studio was used for sessions that actually resulted in excessive sound penetration into the residential units. Nor did he provide evidence that such sessions could not be held in the first floor studio.

The record also shows that certain sound reduction materials are in place between both of the studios and the residential tenancies, and does not persuasively show that the owner deliberately removed insulation materials from the fifth floor studio, as suggested by the tenants. However, the record also shows that the noise reduction required, based upon the owner’s demonstration, for the second and third floor tenancies is 10 decibels, at most, and that this figure may have been somewhat exaggerated during the sound test by leaving open the door to the drum booth and by the production of the maximum typical noise. Both Antonio Argibay and Paul Ostergaard, experts called by the owner, conceded that five to seven decibels of reduction could be achieved relatively easily, and the tenants' expert, Bruce Cameron, advanced specific suggestions, such as small uninsulated areas which might be remedied. The evidence also shows that achieving large amounts of sound reduction, such as 40 decibels, is difficult to accomplish without installing heavy materials which cannot be supported by this building, but no proof has been offered to show that the materials required to achieve 10 decibels of reduction cannot safely be installed in this building. The record thus shows that the sound levels in the second and third floor lofts, given a little effort on the part of the owner, can be brought into compliance with the requirements of the Administrative Code.

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Bringing the fourth floor loft into compliance with the Administrative Code, as a result of possible sound penetration from the fifth floor studio is a more difficult matter involving 20 decibels of necessary reduction, an amount which cannot be achieved by minor methods, or without the installation of heavy materials which the building will not support. However, the owner has not met his burden of showing that the fourth floor tenancy cannot be legalized because a pattern of excessive noise penetrating repeatedly into this unit has not been established. The owner has not presented evidence that sound intrusion into the fourth floor unit has exceeded safe levels during actual recording sessions. Even though substantial evidence of a potential for sound intrusion was presented, the lack of data collected during actual recording sessions renders the owners case incomplete and ultimately unconvincing. In view of the long-term tenancy of the fourth floor tenant, Eileen Mullan, in her loft, and the lack of noise complaints registered with the Department of Environmental Protection, a correlation between a possible noise situation and the actual situation in this loft cannot be assumed.

It should also be noted that, apart from attempting to show statutory illegality as a result of failure to comply with regulations intended to protect public health and safety and therefore with a resulting danger to the tenants, the owner has not demonstrated by medical evidence or otherwise that the tenants' continued residential occupancy will be unsafe for them, or will damage their health. With regard to the alternative regulatory standard of infeasibility, the owner's argument is that the tenants make noise complaints which interfere with the operation of his business. However, the record shows few recent complaints and few, if any, ill effects on the owner's business as a result of complaints which may have occurred in the past, and these incidents do not rise to the level of making it infeasible for the owner to operate his business with the tenants in place. Therefore, the owner has not met his burden of showing that residential conversion is illegal or infeasible in light of his operation of a recording studio at the premises, and he cannot obtain a hardship exemption under 29 RCNY § 2-03(b)(2)(i)(B).

The owner's final opportunity to demonstrate a hardship pursuant to an adverse impact theory falls under 29 RCNY §2-03(b)(2)(i)(D), requiring him to demonstrate that he must expand his business or it will fail and existing jobs will be lost. The record shows that on June 21, 1982 Feierstein operated a recording studio on the fifth floor and that, because of the nature of the facilities he had installed, as well as his technical competence, which is unquestioned, he operated a first class, state of the art facility among recording studios as they existed at that time. His testimony concerning his performance of repair, rental, consulting, sales and manufacturing functions as of the effective date of the Loft Law is also credited. The record also shows that the recording business has become more technical, and that to continue to operate a first class facility, the services Feierstein must offer and the space he must occupy have both increased. However, the record does not support his claim that he cannot continue in business with a first class facility unless he takes over all three residential floors at the premises, especially in light of his recovery of the basement and first floor, where he expanded his business after the filing of the hardship application.

Feierstein has made much of his long-term subjective intent, upon buying the building, to expand his studio and to remove all the residential tenants. However, although his subjective intent may 86 explain his disappointment at the intervening passage of the Loft Law and the responsibilities it has imposed upon him as a landlord, it did not provide him with substantive rights superior to those of the residential tenants to use the entire building as he wishes, absent a demonstration, as permitted by the hardship rules, that inability to expand will result in the failure of his business, and thus his intent at the time of purchase is not controlling in this matter. The statute and regulations permit him to expand his business only insofar as necessary to maintain a viable operation, and do not permit him to expand his business to the point that he has as many recording studios as he wishes and provides as many services as he can think of, to the fullest extent possible. Additionally, since the record shows that Feierstein derives about three-quarters of his income from the recording studio and less than 5% from consulting, about 12% from sales and only 2.1% from rentals, his insistence on maintaining all of these operations at 19 Mercer Street, in vastly increased amounts of space, based on his convenience more than on business necessity, is not permitted, under Loft Board regulations, at the expense of the rights of the statutorily protected tenants.

In analyzing the evidence presented on this point, it should be noted that the owner filed the initial hardship application when he was in possession of only the fifth floor; he sought possession of the three residential floors, but not of the space occupied by Soho Rep, then the tenant of the basement and first floor. Since that time, he has evicted Soho Rep, and while the space he recovered is not the full amount he would acquire upon the removal of the residential tenants, he has obtained possession of the first floor of the building, stipulated to be 2050 square feet, and of the basement apart from the common areas, which appears to be about 2165 square feet. These areas have been made into one duplex studio, which, it has been demonstrated, has an excellent reputation in the field, but is less successful than it would be if there were a mix room in the building. The fifth floor studio also remains, but the record shows that it is no longer current and therefore has become a grade B facility. No explanation has been offered concerning why it was necessary to use all of the first floor and basement to build a studio, instead of building a mix room, making the fifth floor into a mix room or expanding other facilities into all or part of the space he acquired. Nor has a full explanation been offered -- except to state that most big recording facilities have more than one room -- for maintaining the fifth floor as a studio if the owner's most lucrative clients will no longer record there. Kaplan, one of the owner's experts, stated that the fifth floor studio could be converted into the needed mix room, and Storyk, another expert on behalf of the owner agreed that this could be done if the roof were raised. Feierstein intends to raise part of the roof anyway, upon legalization of the building under his architect's plans, so as to rearrange the fifth floor studio and provide room for stairs to the roof and a bulkhead.

In sum, with regard to recording facilities, the record shows that with the basement, first and fifth floors, the owner has square footage available to him which is comparable to some of the other facilities with which he competes, and he may allocate this space as he wishes. If the fifth floor is made into a mix room, he can have facilities equivalent to studios such as those he described as competitors. While it may be true, as he suggests, that other studios, some of which are not in New York City, have facilities which exceed his, these studios presumably do not have responsibilities to statutory residential tenants who live in their buildings, and against whose needs for expansion the needs of the residential 86 tenants must be balanced. In addition, the record suggests that Feierstein may be especially able to hold his place in the New York City market in view of the special characteristics of the first floor studio, described at hearing as one of the best spaces of its kind anywhere, with special movable panels which can be used to change the sound of the room.

Permitting the owner to expand based on the need for additional space for peripheral services he provides, such as consulting, sales and rentals, which together make up only about a quarter of his business, would be inconsistent with the purposes of the Hardship Regulations. It has not been shown that terminating these services altogether (with the exception of equipment repair and rentals or loans necessitated in the course of the sessions, which do not appear to require specialized space) would affect the health of Feierstein's business. Moreover, if he chooses, he can continue to provide these services, either by reallocating the space he has or by relocating them to another building in the vicinity. His witness, Kaplan, stated that it would be possible to relocate sales and repairs to another location. The consulting part of his business has never taken place in special, dedicated space and can take place at the client's facility; and while the manufacturing function would be performed quite conveniently at the premises, it has not been demonstrated that it must be performed there.

The crucial issue in determining whether the owner has the right to expand his business into floors now residentially occupied is whether it will otherwise fail, resulting in the loss of existing jobs. However, the evidence presented on this point showed that while the owner is very well-versed in what he does and may be able to run a truly extraordinary studio given unlimited space and resources, his business is not in danger of failing if he cannot build a mix room in additional space he does not already occupy and expand his peripheral operations at the premises, rather than in some other location. Rather, the business appears to have generally grown and improved, as demonstrated by the gross receipts, except during the renovation period, and that it has generated enough return to finance an expensive renovation of the basement and first floors, largely cash. While the gross profits margin has decreased from its high in 1983, 59%, to 30% in 1988, this may be attributable to factors other than the inability of the owner to expand, including the financing of the renovation or changes in the industry. Questions such as whether a gross profit margin of 59% is usual in the industry, as of 1988, and whether it is necessary to the maintenance of a successful business that it operate with such a high margin are unanswered.

Nor does the evidence show that the owner has already laid off an employee or employees, as he has suggested, based on his inability to expand. The owner's testimony on this point was halting, and he offered several different suggestions as to whom he might have laid off for this reason, stating that it happened a long time ago and that even after reviewing his records, he was unable to recall. In addition, he did not document a reduction of staff by showing the number of active employees in man- days or man-hours per week or month (necessary because of the mixture of full-time and part-time employees in his business). In sum, because the evidence of impending failure of the business in the event it cannot be expanded at 19 Mercer Street is unconvincing, no hardship exemption is available to the owner under 29 RCNY §2-03(b)(2)(i)(D). 86

IV. Fashioning an Appropriate Remedy:

Because the owner’s application for a hardship finding on the basis of infeasible costs may be granted on the facts presented here, we must reach the issue of whether the owner’s hardship is self- created. If we find that the hardship is not self-created, we must go on to determine the minimum relief necessary to relieve the hardship, as required by MDL § 285(2) and 29 RCNY § 2-03(c)(1).

The doctrine of self-created hardship, as presented in this case, is not especially apposite to the existence of a hardship under the infeasible costs theory. The tenants have argued that the owner has created his own difficulties by establishing a recording studio in a wood frame building occupied by other residential tenants at the time the studio opened its doors. However, since the application for hardship based on the adverse impact theory has been denied, and since relatively little of the legalization costs are attributable to soundproofing -- only $363.00 -- these arguments do not assist in the resolution of this apparent hardship based on infeasible costs. Therefore, as previously noted, the Loft Board makes a finding of hardship based on a theory of infeasible costs.

However, in light of the statutory and regulatory mandate that the Loft Board fashion only the minimum relief necessary to relieve the hardship, the Board may not grant the relief requested by the owner -- the removal of the residential tenants. It must be noted that the allowed legalization costs of the residential units are very small compared to the costs of systems work needed in the building, which the owner will have to do anyway to remain legally in occupancy with his recording studios. Furthermore, the financial hardship proved by the owner is relatively small. Therefore, this is a situation where the Loft Board is justified in fashioning a remedy for the owner’s financial hardship that is less disruptive than requiring the tenants’ eviction, namely by simply raising the rents of the residential occupants.

For the owner’s financial hardship to be relieved, the rent levels of the current residential occupants must be raised to a level that will give the owner a five percent net annual rate of return, pursuant to 29 RCNY §2-03(b)(2)(ii)(A). The Board finds that it is appropriate and fair that, in determining the amount of such increases, it must apply the rent rules that are currently in effect rather than those that were in effect when the application was filed or in the projected year (1984-1985). Therefore, the Board will apply the incentive increases contained in MDL § 286(2)(ii) and 29 RCNY § 2-12, even though these increases did not exist at the time of the hardship application or the projected year. If these increases were not applied, the increases given now to remedy the owner’s hardship would be greater than necessary under current law to cure the hardship.

The necessary increase for each of the residential units is computed as follows: The accepted costs for the projected year were $76,861.93. Thus, the income that would be necessary to give the owner a five percent rate of return would be $80,705.03. While the projected income for the projected 86 year was $72,680.78, comparison to this figure is not appropriate, as discussed above, to grant the minimum necessary relief. The needed income of $80,705.03 must instead be compared to the projected income as calculated with reference to the MDL § 286(2)(ii) incentive increases for the residential units. Such projected year income for the residential units is calculated as follows:

A B C D E F G H I

Total Income for Unit Year (Cols No. G + H) Base Rent Base rent + sec. 2-06 rent increase (Col. B x 1.07) Col. C + 6% increase pursuant to MDL 286(2)(ii)(A) Col. D + 8% increase pursuant to MDL 286(2)(ii)(B) Col. E + 6% inc. pursuant to MDL 286(2)(ii)(C) Col. F + RGB increase Code compliance increase in income per year ($) ($) ($) ($) ($) ($) ($) ($) 2 7592 8123.44 8610.85 9299.72 9857.70 10252.01 2320.83 12572.84 3 5598 5989.86 6349.25 6857.19 7268.62 7559.36 2320.83 9880.19 4 7981 8539.67 9052.05 9776.21 10362.78 10777.29 2552.03 13329.32

When these projected year totals are added to the projected year’s projected income for the commercial units, the total income for the projected year is $77,710.35. This amount subtracted from the income necessary to give a five percent rate of return in the projected year ($80,705.03) leaves a balance of $2,994.68. This is the amount of extra income needed in the projected year to give the owner a five percent rate of return. Divided equally among the three residential units,11 the extra yearly income needed from each unit is $998.23, which equals $83.19 per month.

Thus, in order to relieve the owner’s financial hardship in this case, the base rents for the residential units must be raised by $83.19 per month. This rent increase shall become effective on the first day of the first month following the date of mailing of this order.

Finally, it must be noted that, by using the projected year code compliance and RGB figures, the Board’s calculation of this remedial rent increase necessarily required it to make assumptions about what these figures will actually be in the future when the owner does the work necessary for code compliance. Therefore, because the goal of the remedy herein is to provide the owner with an actual five percent rate of return following legalization, the following element must be added to the remedy: At the time the owner applies for a final rent order, including a rent adjustment based on the costs of code compliance pursuant to 29 RCNY § 2-01(i)(2) (even if, at the time, the owner waives his right to such an adjustment), he shall produce, as part of the

11 The Board finds it fair to divide the extra income needed evenly among the three units, because the differences between the units relating to the costs of code compliance have already been taken into account in the projected income for the projected year. 86 application, evidence, subject to audit, of (1) the income and expenses for the building at the time of the application and (2) the projected income and expenses for the year following the Board’s setting of the initial legal regulated rents pursuant to 29 RCNY § 2-01(m). In setting these rents, the Board will compute the initial legal regulated rents pursuant to the rules set forth in section 2-01(m) and then adjust them, as necessary, so that the initial legal regulated rents will provide a five percent rate of return.

ORDER:

The application for a hardship exemption from the Loft Law for the premises located at 19 Mercer Street, New York, New York is denied insofar as it is based on an adverse impact theory (MDL § 285(2)(i)). However, the owner of the premises has demonstrated that a hardship based on an infeasible cost theory exists (MDL § 285(2)(ii)).

Under MDL § 285(2) and 29 RCNY § 2-03(c)(1), the Loft Board shall grant the owner the minimum relief necessary to relieve the hardship. As discussed above, the appropriate remedy in this case requires increasing the base rents for the residential units so that the owner can achieve a post- legalization rate of return of five percent.

Therefore, it is hereby ordered that the rents for each of the residential units shall be increased by $83.19 per month, effective on the first day of the first month following the date of mailing of this order.

In addition, it is hereby ordered that, at the time the owner applies for a rent adjustment based on the costs of code compliance pursuant to 29 RCNY § 2-01(i)(2) (or at the time the owner waives his right to such an adjustment), he shall produce, as part of the application, evidence, subject to audit, of (1) the income and expenses for the building at the time of the application and (2) the projected income and expenses for the year following the Board’s setting of the initial legal regulated rents pursuant to 29 RCNY § 2-01(m). In setting these rents, the Board will compute the initial legal regulated rents pursuant to the rules set forth in section 2-01(m) and then adjust them, as necessary, so that the initial legal regulated rents will provide a five percent rate of return.

DATED: April 25, 1996

DATE LOFT BOARD ORDER MAILED:

Members Concurring: Chairman Klasfeld; DeLaney; Gulotta; Lansden; Wilde; Vauss (6)

Members Dissenting: Jacobs (1)

Members Abstaining: Navaretta (1)

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