Affordable Housing Institute : US

 

No sooner had the residents of Starrett City celebrated their administrative victory :

 

HUD said No!

 

with HUD’s second rejection of the proposal by David Bistricer than it has now occurred to them that the devil they knew may be better than the devil to come, as reported in this highly sympathetic story from the New York Times:

 

The tenants at Starrett City, the sprawling middle-income housing development wedged between Canarsie and East New York in Brooklyn, say they know one thing for certain: their fate and that of the 33-year-old complex are still up in the air.

 

The fates will have it?

 

On Monday [July 9, 2007 — Ed.], federal housing authorities dealt what appeared to be a mortal blow to plans by a real estate investor, David Bistricer, to buy the 46 buildings, with 5,881 apartments, at Starrett City for $1.3 billion, formally rejecting his plan for a second time.

 

Though their sizes are similar, Starrett City is not Stuyvesant Town, which though subject to New York City rent control was and is an entirely private property, whose preservation would require new public resources.  Starrett City is different, for not only is it currently regulated by HUD, it also is subject to the state’s Mitchell-Lama regulation. 

 

The state has its hand on the money flow

 

At issue in Mr. Bistricer’s offer were two distinct questions: (1) could Mr. Bistricer buy the property? and (2) would the owner (current or future) exercise its contractual option to go market?  HUD said No to the first, and I believe that this rejection will stick.  But HUD had no standing in the second question:

 

But many tenants and politicians said that decision was only a temporary reprieve. The longtime owner of the complex, a group led by Disque D. Deane, has made clear its desire to sell, or to pull out of the state’s Mitchell-Lama program, which subsidizes middle-class housing, as a prelude to creating a more upscale project.

 

Long-time New Yorker Mr. Deane surely knows that removing a property from Mitchell-Lama, however legal it may be, subjects the owner to a constant stream of vituperation from some or many residents, activists, journalists, and elected officials.  By selling he hoped, in the political parlance, to put the crap on someone else’s plate. 

 

I don’t want to do it, you do it

 

After more than three decades, Mr. Deane’s group now has the right to buy its way out of the Mitchell-Lama program.  

 

That is the awkward phrasing used in Mitchell-Lama; technically, the owners pay off the Mitchell-Lama loan, which gives them the right to eliminate the legal entity now owning the property (the Mitchell-Lama housing company), and in so doing cancel the regulatory schema. 

 

He could file a notice of his intention to repay his $234.4 million, no-interest mortgage [Sic: it’s low-interest, not no interest — Ed.] and begin the year-long process of leaving the program.

 

Government officials could impose a number of conditions, but many housing experts say that it would be hard to block Mr. Deane.

 

I’ve watched several Mitchell-Lama dissolutions up close, and heard stories of many more from my now-deceased good friend and colleague Al Walsh (of Seward and Kissel, and as he put it, “a former everything”).

 

Often the procedural hurdles are creative and deliberately obstructive, designed to delay the process as long as possible, and make it expensive to pursue.

 

“We’ve thought up some new rules you need to comply with.”

 

Even so, there is too much money at stake to expect the owners, Mr. Deane’s group or otherwise, to give up. 

 

Indeed, some of the same investment firms and developers that have gobbled up everything from real estate trophies in Manhattan to brick tenements in the Bronx are still circling Starrett City.

 

Got any more properties I can buy?

 

Note the populist lingo — ‘gobbled up,’ ‘circling Starrett City.’ 

 

I hear Starrett City is for sale

 

Can there be any doubt where the Times’s writer stands?

 

“I think we should acknowledge that a sale is inevitable,” Marie Purnell, president of the Starrett Tenants Association, said at a Congressional hearing at the complex yesterday. “However, retention of all subsidy programs should be a priority.”

 

For more than seven months, the 14,000 tenants at Starrett City have been racked by rumors and fears that a potential new owner would raise the rents, oust residents and cut services at the 140-acre complex, which is an economically and racially mixed community.

 

One should note that Mr. Bistricer sought to put those fears to rest, including a passionate Op-Ed in the New York Daily News,

 

Forget the facts, torpedoes away. It is shameful that some so-called “leaders” and community activists have waged an irresponsible campaign of disinformation to frighten Starrett City residents about my firm’s plans to purchase the development. They have stirred up such hysteria that death threats have been made against some of our supporters, including the Rev. Calvin Butts.

 

Death threats! Why? Is it because we propose to sustain and uplift Starrett City as a model of affordable housing? Is it because we have the temerity to suggest creative ideas for affordable home ownership, community redevelopment and local empowerment?

 

The overriding objection to our plan is that Starrett City cannot remain affordable with a $1.3 billion purchase price. This objection is just plain wrong. We can make it work, with the availability of relatively low-cost financing, better management, creative planning and the continued support of government.

 

Mr. Bistricer then laid out elements of his plan (and, I presume, provided additional details in other contexts).  Nevertheless, the residents did not believe him, partly because of the voices of elected officials:

 

The battle against the sale quickly became a cause celebre among politicians of all stripes, who were well aware of the growing public dismay over a real estate boom pushing housing prices beyond the pocketbooks of many New Yorkers.

 

The developer is picking our pockets!

 

Among New York state officials, there is awareness that the property is at risk:

 

Deborah Van Amerongen, the state housing commissioner, who opposed the deal with Mr. Bistricer, said she recently contacted Mr. Deane’s group, suggesting a meeting with federal, state and city officials before making any decision on the future.  

 

Observe the difference in behavior between an official who thinks he can veto (Secretary Jackson) and an official who knows she has no veto (Commissioner Van Amerongen).

 

She said she thought there were a variety of ways to ensure that Starrett City remains affordable for teachers, firefighters, retirees and other middle-income residents.

 

Ways such as money?

 

We print the stuff so you can spend it

 

One possible option under discussion would allow the Deane group to get a larger mortgage and take out some cash, while staying within the affordable-housing programs.

 

I doubt Mr. Deane will meet with Ms. Van Amerongen — or anyone else for that matter — until after Mr. Bistricer’s offer formally expires on August 9. 

 

Mr. Deane, or another owner, would also have the option of building additional housing and stores on the property.

 

Even should Mr. Bistricer’s efforts come to naught, he has highlighted additional value that can be created from the site, simply by putting additional buildings on the current site, which have ample green space particularly on its periphery.

 

Room at the edges, to say nothing of going farther up?

 

Starrett City, with its manicured lawns and towers with balconies, was designed in the 1970s as a subsidized middle class co-op, not a rental building.  But it initially had difficulty attracting residents.  Over time, the complex acquired an array of rent subsidies for poor and moderate-income tenants.

 

The subsidies served two purposes: (1) sustaining property financial viability (keeping it out of foreclosure), and (2) allowing very low income residents to live there.  Both private and public sector benefited.

 

Mr. Deane and his group, Starrett City Associates, provided the financial backing for the project. In return for a series of tax breaks, the owners agreed to maintain affordable rents and limit their profit to 6 percent.

 

That description is an oversimplification.  What is capped are annual cash distributions, and they are limited to 6% of ‘mortgagor’s original equity,’ an amount normally equal to one-ninth of the mortgage (don’t ask why) and quite a bit less than the investors actually contributed.

 

“They did better than any other tax shelter in the history of America,” said Robert C. Rosenberg, who oversaw construction and management of Starrett City for years.

 

Much though I like and respect Mr. Rosenberg, who’s a houser to the core with whom I’ve worked over the years, I suspect that here he has been quoted out of context — and in any case, his statement is both anticipatory (predicated on future event) and arguable. 

 

With rapidly escalating real estate prices, Mr. Deane’s group decided to sell the complex last year to benefit his aging investors.  Mr. Bistricer, from Brooklyn, won the auction with a $1.3 billion offer.  But state and federal officials, who must approve a sale, said the price was too high because it would require a substantial rent hike or cuts in services.

 

Which, I noted yesterday, is not valid grounds to deny the sale — so HUD listed other reasons as well.

 

Yesterday, Senator Charles E. Schumer sent a letter to Mr. Deane asking him to lower his sights from $1.3 billion.  He said he did not object to the owners making a profit.  

 

Nice of him.

 

You can make a profit this big

 

But, Mr. Schumer wrote, “it cannot be done at the expense of middle class New Yorkers,” nor should the seller’s profit from the sale be reaped from a new infusion of government money.”

 

In his comments yesterday, Mr. Deane said: “The receipt of those subsidies by the tenants or the project did not transform Starrett City from a privately owned asset to a public work.”

 

Translation: you take it, Senator, you pay for it.

 

Mr. Deane knows he holds the trumps.

 

My future’s looking good

 

Since 1990, the owners of more than a quarter of the 119,785 subsidized apartments in New York City have left the programs and another 18 percent may soon follow, according to a report by the Community Service Society, an advocacy group for low-income New Yorkers.

 

What’s striking is that the obvious solution has yet to surface:

 

Answer coming up!

 

Starrett City needs a friendly purchase by a non-profit or other mission owner.  The new buyer will use the enormous contingent resources already present (deferred loan due the state, Section 8 enhanced vouchers, ongoing real estate tax abatement) plus the probability of releasing surplus land for additional development, to craft a preservation-oriented purchase that gives the current owners something approximating market price and preserves affordability (at some restructured level).

 

There are also a number of real estate groups interested in buying the complex, real estate executives said, including the Related Companies and Apollo Real Estate Advisors.

 

Current residents are worried that a buyer may appear?  They should be rooting for the right  buyer — the white knight — to come forward.

 

Won’t you rescue me?

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