Affordable Housing Institute : US

[Previous Stuy Town posts here: Part 1, Part 2, Part 3.]

 

Last week’s three-part post opened our coverage of a billion-dollar battle that will be a huge story in New York City for many months and years: the potential sale of Stuyvesant Town and Peter Cooper Village (collectively “Stuy Town”) and its likely consequent recapitalization, repositioning (physically and operationally), and therefore very probable change in its affordability and resident income mix.

 

And the buyers are off!

Stuy Town’s current owner, MetLife, fired the starting gun with its announcement of proposed sale. Many people leaped quite naturally to the (correct) conclusion that buyers are likely to be more aggressive in moving Stuy Town to market — and that, in turn, led to immediate responses from housing affordability agencies and elected officials, as reported (twice) in the New York Times:

 

Mayor Michael R. Bloomberg has vowed to create and preserve 165,000 units of low- and moderate-income housing by 2013; administration officials say they have produced more than 17,000 units in the last fiscal year alone.

But housing experts say thousands [Out of over 1.1 million. — Ed.] of other moderately priced apartments are disappearing from [a] the rent regulation system and from [b] state and city subsidy programs that had kept rents low.

 

At the outset, we must distinguish between and (a) apartments whose rents have been judicially suppressed through rent control or rent stabilization, and (b) apartments that are affordable because of a contractual bargain with financial incentives. The former — the judicially suppressed affordability — are and have been living on largely unjustified borrowed time.

 

Time … is not on their side, no it’s not.

The latter — economically affordable apartments — are affordable because their owner voluntarily undertook an agreed time period, so the residents and city should absolutely get what they bargained for (as should the owner).

 

The administration has worked to preserve low-priced apartments in older buildings whose owners received government subsidies in return for keeping rents low under programs like the state’s Mitchell-Lama program.

 

Once the contractual affordability period is up (and for most Mitchell-Lama’s, it expires twenty years after completion, a deadline that is long past), the owner has contractual options, but the state has an established interactive relationship with the owner, leading to the obvious possibility:

The administration has offered owners incentives to remain in those programs, with some success.

 

That’s to be expected, and in it lie the seeds of hope: people who have operated affordable housing for years and decades come to like delivering affordability. They tend to embrace the mission, at least insofar as they can square it with their fiduciary and financial obligations.

 

But it has less leverage in a strictly private sale like that of Stuyvesant Town and Peter Cooper Village.

Translation: in the rent-suppressed inventory, the state paid nothing, gave nothing to the owners. The state (or city) has neither legal nor moral superiority over owners, who had their economic value first captured and then steadily extracted over the years and decade. Even if owner resentment dims to a dull ache, owners do not forget. When the chance arises, they exit.

 

After 32 years of being hit on the head lessons, you remember

 

The state (and city) does have one asset, political clout (which, let us be clear, is a very significant asset) with which to create a bully-pulpit climate of preservation:

 

New Yorker Teddy Roosevelt invented the term and pounded the bully pulpit

 

Emily A. Youssouf, president of the city’s Housing Development Corporation, which encourages private investment in low- and moderately priced housing through things like low-interest mortgages and the issuance of bonds, said her agency could, for example, use its reserves to make a loan to a buyer that would enable them in turn to offer the apartments to current residents at prices they could afford.

 

We’ll come back to the financial structure in a bit; for the moment, we’ll stay with the imperatives:

[1] “From the seller’s perspective, they can get the same price,” Ms. Youssouf said.

[2] “As long as they can make as much money, I think that’s probably their primary concern.

[3] Remember, MetLife built these properties with help from the city.

[4] Do they have any obligation to do something like this? I think the answer is no.

[5] But as long as they can still make a good return on it, why would they not want to do it?”

Let’s parse the words that Ms. Youssouf evidently chose with appropriate thought and care. She acknowledges that the owner has no legal obligation to stay (Point 4), and a probable financial imperative (Point 2), indeed likely a fiduciary duty to maximize value. From these two planks, she posits (Point 5) that if an affordable sale can match the conventional market return, then a current owner very likely will be amenable to a recapitalization … if the seller can get the same price (Point 1).

 

Can we get our price up to the owner’s target?

 

Meanwhile, Point 3 is the basis for many an ‘equitable recompense’ argument. Yes, city money contributed to the development … but what was its economic effect? Had the city money been absent, conventional financing could have been found; had that occurred, the property would have been built, and the resulting rents would have been higher. In other words, the city’s money bought affordability, as distinguished from being a donation or equity transfer. Thus the answer to Ms. Youssouf’s Point 3, as she certainly knows, is that the city money has been fairly paid for already.

 

In fact, Stuy Town got 25-year money and has been affordable for 60 years (since 1947), 32 of which it categorically did not bargain for, and were in fact imposed on it judicially (the Rent Stabilization Act of 1974). It would be equally fair — actually, less unfair — for the owner to say, “remember, the city has being taking our economic return for 32 years already, and is still taking it.”

 

I’m mad as hell, and I’m not going to take it any more!

 

Nevertheless, hope springs eternal, at least in the mind of a city councilor who has many reasons to care, as also reported in the New York Times:

Daniel R. Garodnick, who grew up in Stuyvesant Town and Peter Cooper Village and now represents their 25,000 residents on the City Council, intends to announce today that he is organizing a group of investors who, with the backing of tenants and the Council speaker, will try to buy the two complexes and keep them affordable to the middle class.

 

For the moment, we will draw a veil of the Other People whose Money Mr. Garodnick hopes to tap, and concentrate on the impeccable political and strong policy logic he offers:

“Stuyvesant Town is a middle-class community, and we do not want to lose that identity to the highest bidder,” said Mr. Garodnick, who, like his parents, still lives in Peter Cooper Village. “The tenants are not going to sit by and watch it become a place of pieds-a-terre. This is a place where people live and work in New York City.”

The people who could displace the current residents would certainly be working in New York City, and there is no apparent reason to suppose that they would be the sort who could casually buy in-town and live at greater distance.

 

Mr. Garodnick said he wanted to ensure that current tenants could continue to live in their apartments, either as renters or by buying units at prices they could afford.

How low can you go?

 

Mr. Gardonick, like many others, instinctively (or perhaps consciously) recognizes that any effort to marshal the scale of funding required to meet a market price will necessarily compel a tenure shift — from rental to homeownership (whether by condo or co-op). Already, therefore, everyone at Stuy Town will be realizing that the current rental model is doomed, and now the question is, what will take its place?

Lacking judicial value suppression, what can the city do? Turn to the second product of the government factory, money, and buy extended affordability, through voluntary negotiation:

Two years ago, the city helped persuade the owner of West Village Houses, a 420-unit apartment complex that had become eligible to leave the Mitchell-Lama program and begin charging market-rate rents, to convert the complex to a co-op and sell the apartments to the tenants at a discount rate.

This was a voluntary-contractual affordable property, and the owner signed a new voluntary contract:

As part of the agreement, the administration agreed to forgive $19 million of interest accrued on a city mortgage loan and to recommend a tax exemption for 12 years.

 

The city demonstrated another advantage of soft debt as a financing tool: it rolled over existing financing, in effect recontributing the $19 million that it would have collected on a market conversion. And it added an income subsidy, in the form of a tax abatement.

That’s constructive engagement.

 

The same thing happened on two other properties:

Earlier this year, the tenants of two large working-class apartment complexes, Lafayette-Morrison and Lafayette-Boynton, near Soundview Park in the Bronx, said they had arranged for a group of real estate investors to buy the buildings and sell the units to tenants. In that case, the city extended the existing real estate tax abatement on the buildings to help make the deal possible and keep the price of the units low.

Doris White, President of Tenants Association at Lafayette Morrison

In another case, the city helped arrange tax breaks and other incentives that enabled CPC Resources Inc., which develops moderately priced housing, to buy Parkchester, a 12,000-unit apartment complex in the Bronx also built by MetLife.

 

The only problem is that Bronx values are a tiny fraction of Lower East Side values. Stuy Town will be much, much more expensive:

“Clearly, the potential sale of Stuyvesant Town and Peter Cooper Village is of significant concern to the administration and the mayor and we would very much want to work with any potential buyer to preserve affordable housing in these properties,” Shaun Donovan, commissioner of the Department of Housing Preservation and Development, said yesterday.

 

Hence the city is raising its hand as a potential source of funding to maintain affordability.

How far will it be able to go?

Looks like a long way up.

[Continued tomorrow in Part 5.]

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