By Andrew McIntyre

Law360 (May 18, 2021, 4:16 PM EDT) -- Opponents of project development and rezoning in New York have ramped up their efforts during the COVID-19 pandemic and such activism is likely to continue, one of Kasowitz Benson Torres LLP's real estate litigation leaders told Law360 in a recent interview.

Jennifer Recine, a partner and co-chair of real estate litigation at Kasowitz, said NIMBY project opponents are finding government agencies and even judges who are sympathetic to their cause, and such challenges are creating major headaches for developers, particularly those awaiting rezoning in areas like Brooklyn's Gowanus neighborhood.

In Manhattan, Recine recently won a court victory for owners of the Hotel Chelsea, who had faced a lawsuit seeking to block renovations at the historic property.

She counsels public companies, private corporations and partnerships, high-net-worth individuals, state and municipal governments and political bodies on a variety of litigation matters.

This interview has been edited for length and clarity.

Where would you say we are, if you think about the real estate litigation cycle as it relates to the pandemic?

To some extent, there have been lenders and borrowers and landlords and tenants who've gone out in front and filed some litigation. I still think for the most part, people are in workout mode. And I think that workout mode is somewhat complicated by the fact that things are kind of changing almost on a week-by-week basis.

So just as one example, at the end of the year, I had some hotel owner clients who were negotiating with the lender. … They started those negotiations before the announcement about the vaccine. The tenor of those negotiations changed with the announcement about the vaccine and, certainly we've seen — as things have progressed in terms of the vaccination rollout and now some of the changes in capacity limitations and restrictions — these workout discussions, the tenor of them just changes as the facts on the ground change. And that can be as often as daily. Or hourly, right? CDC says no masks and Governor Cuomo says we're still going to mask, right? All of those facts on the ground are changing the workout discussions, but I do believe that most people have either worked out or are still in workout.

What are some of the key considerations or issues that you're helping your hotel clients deal with … as they go through these workouts?

Just to back up, I wouldn't say that I'm working on a portfolio of hotel workouts. I was just citing one as an example. … For example, I represent both landlords and tenants who are trying to feel their way through what's going on. I think the key considerations are when everyone can get up and running. ... Whether you're a lender, whether you're a landlord, whether you're in the hospitality space somewhere. Or even in another industry that's been greatly affected. I, for example, represent some people in the studio production space. And in that [space], you couldn't do in-person stuff for so long, and that affected that industry as well. So any industry where you really had to be physically present, right? Or you needed people to be physically present. I think for all of them, they're trying to figure out a fair way to share the pain. Ninety percent of people are going to be reasonable and come to reasonable terms about it, and 10% of people are going to be unwilling to. And I think the litigation we'll see going forward is going to be around those 10%.

When you look at the litigation that you're seeing right now or that you've recently worked on, how much of this is involving force majeure or frustration of purpose?

Certainly some of it does, and I think that's been the really well tracked territory in discussions that lawyers have had with publications about the real estate market. I have a little bit of a different idea about some of what's affecting real estate right now. ... I think the rise of quote unquote activism in the state of New York is having a profound effect on the real estate industry. And I think that you see it in increased regulations on real estate owners. We saw it even before the pandemic in the form of the rent regulations. But now even in COVID, we're seeing sort of the rise of activism. There's this idea … that, by definition, if you're a developer, you're to be opposed. ... And the way that I've seen this in my practice over the last year is sort of intransigent, ideological positions that some small portion of a government agency might take. Or just the use of the courts to try and jam up development projects. And right now we're seeing that across the city as we're trying to move through the land-use process.

Even during COVID, you see quote unquote activists really trying to use the court system to just jam up, to the maximum extent possible, developers' ability to proceed, even with projects that in a world five years ago we would have looked at as really positive for the city. Projects that have lots of affordable housing and projects that have union labor. And in my view, it's a form of real NIMBYism. Sort of recasted activism. And it's affecting individual development, and it's affecting massive rezonings and small rezonings all over the city. That has a real effect on developers and, probably to some extent, a chilling effect on people's willingness to undertake … entitled projects in the city.

Would an example here be the Gowanus district and attempts to rezone that? My understanding is that that process has been quite a slow process, trying to get Gowanus rezoned. And it's created a lot of uncertainty for developers, especially developers trying to get 421-a tax credits.

Exactly. Gowanus is exactly what I'm thinking about, and I happen to represent the developer that has gotten very much caught up in that Gowanus sort of case in the sense that I represent the developer for the Franklin Avenue rezoning, which is in Crown Heights. … Some activists, three activist petitioners, have opposed that rezoning. It's in the [Uniform Land Use Review Procedure] process. New York City administrative law, black letter law 101, is that there's no stopping that process. You can critique it at the end, right?

But the judge who got the Gowanus case first got interested in this idea that ULURP in a virtual format might not meet requirements, notwithstanding the fact that the mayor's clarified it. … There are government orders about it. And then we ended up getting transferred to [the judge] and it's been very similar. That case has been caught up and unable to proceed for months because a judge has taken an interest in this idea that maybe a virtual format isn't totally fair. And it's caused tremendous pressure on developers … in Gowanus. But absolutely explicitly a developer that I represent who's trying to rezone Franklin Avenue. And so that's been very, very hard, and my understanding is now a similar challenge has been brought to the SoHo rezoning.

I know you also worked recently on the Chelsea Hotel case and uncovered some evidence in that case. I'm wondering: Was that also a case of activism or is that ... a separate issue?

To me, that falls into the same bucket in many respects. What happened there, and I think you might know that [our client] the developers did file a complaint, for setting out their side of that story. But what happened there was that the building had a classification that permitted it to get a permit to redevelop. It got that permit. And yes, [there were] some activist tenants, one or two, who knew better, right? They've been activist all along, and they were well acquainted with the fact that the building's classification had changed, [and they] went to an agency that they perceived to be friendly to them [and] lodged misleading complaints. … It's a very sort of NIMBYist type of story, which is that they didn't want the construction bothering them, right? Personally. Even if they got a rent abatement to mitigate their inconvenience, even if they were offered alternative accommodations while the construction was going on. They just wanted to stop it. Not In My Backyard, right? And they were willing to do really anything, including saying untrue things to an agency, and that agency … took up their cause. Wrongfully. Didn't do their homework. And I do think [there is] a bit of an activist culture within that particular agency.

How do you see this playing out … the rest of this year? ... The pandemic and also this question of activism. I don't know if there's a relationship between the two, but how do you see things playing out?

The relationship that I've seen between the pandemic and the activism is, in the case of Gowanus, in the case of Franklin Avenue, in the case of the SoHo rezoning, activists taking advantage of the pandemic to try to create obstacles to development, right? That is what I've seen. ... I think the energy to oppose development is still going to be there, and I think it will continue. We'll continue to see efforts by community groups to challenge development in the city. And I'm sympathetic to the idea that people don't like change, but I think the thing about New York is, the thing that's constant about it, is that it changes, right? That's sort of its nature, and developers are right in there in that space of the city's evolution. And so I expect to see it continue. How it plays out I think will very much relate to how elected officials and government, government agencies, how they respond. Courts as well, right?

There is at the Supreme Court level to some extent and in some cases an activist type of bent that you see. And then you see a reversal of that often on appeal. And that is not a criticism. It's one style of judicial review, and it's how the law changes and evolves. But that's the moment we're in right now, just looking at it objectively. I'm not casting judgment on it, but rather just sort of observing that fact.

You're talking about the New York Supreme Court, right?

Yeah, I mean, look, I haven't seen this in the federal court and this is not to say that these jurists aren't good jurists. They're just different jurists and looking at things in a different way.

--Editing by Jill Coffey.

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