Affordable Housing Institute : US

 

[Continued from yesterday’s Part 1.]

 

Yesterday we saw that David Bistricer, who for more than six months has been trying, with increasing exasperation and apparent desperation, to resuscitate his widely-scorned (albeit not widely analyzed) proposal to buy Starrett City, remove it from Mitchell-Lama regulation. 

 

Time’s running out on your bid, sir

 

Now he’s made his last throw, bringing in a combination of two entities, the Louisiana non-profit Provident Group, and the New York City Central Labor Council. 

 

Let us in to the ring; we’ll help!

 

He’s counting on the combination of non-profit credentials and political visibility to carry the day with the various regulatory bodies — HUD and New York City’s HPD — and many people doubt that he will succeed, but before the bureaucratic whirlpool, Mr. Bistricer must navigate past the nearer monster:

 

The seller.

 

Not only is Mr. Bistricer asking the seller group to reduce its price by $200 million [Hey, it’s just over $1 billion — Ed.; But the real issue is what the seller’s best alternative will fetch — Auth.],

 

What’s $200,000,000 among friends?

 

he is also asking the sellers to grant him more time.

 

There’s plenty of reasons why the seller will not:

 

1.         Regulatory antipathy.  The regulatory bodies (to say nothing of the elected officials!) have made clear their dislike for Mr. Bistricer’s plans and proposals.  However, if the sellers wish to realize value from Starrett City, they will have future encounters with the regulators.  They must either (a) pay off its mortgage, dissolve the Mitchell-Lama Housing Company, and go market themselves, with all the fun that implies, (b) select a new buyer after Mr. Bistricer’s offer expires or is finally rejected, or (c) stand shoulder-to-shoulder with Mr. Bistricer.  “Standing shoulder to shoulder” is not a phrase that normally passes a seller’s lips.  The sellers will be discreetly edging away from Mr. Bistricer — in fact, they already have been:

 

“Bistricer has a contract until August 9. We haven’t decided what we’re going to do,” said Martin McLaughlin, spokesman for Starrett City Associates [On July 30 — Ed.], a limited partnership of 250 individuals, families and other investors.

 

We could go either way

 

2.         Litigation potential.  If Mr. Bistricer’s offer expires, he may well decide to sue someone, including quite possibly the sellers.  The sellers’ attorneys have likely counseled that they are best served simply by doing absolutely nothing until the current offer either closes or expires.  Such a move will end any obligations they may have to Mr. Bistricer without giving the buyer any grounds whatsoever for claiming that the seller obstructed, discouraged, or otherwise interfered with the buyer’s efforts to win approval.  Such a posture is clearly echoed in the sellers’ spokeman’s comments:

 

When pressed for details about what will happen when the contract expires, McLaughlin said, “We haven’t made up our mind what we’re gonna do. And when we do, we’ll tell everybody.”

 

3.         Earnest money.  Normally in a transaction of this kind, some amount of earnest money will have been tendered; it will become non-refundable (’go hard,’ in the vernacular). 

 

There are no properties to be had … not even for earnest money

 

Keeping it salves the sellers’ wounds — and doesn’t forfeit any other options (since the marketplace seems to have made clear that the Bistricer price was well higher than any other bidder).

 

4.         Regaining optionality.  A seller who’s gone to agreement and seen the buyer come a-cropper may have lost confidence in that buyer’s ability to close.  There’s every reason to step back, take a deep breath, and evaluate options.

 

I thus expect that the sellers will decline the proposal on general principles, although they will probably cite the regulators’ refusal to approve as their reason as well.

 

“I don’t think this Hail Mary pass is going to get completed,” said one executive who has talked to the sellers.

 

Unfortunately for Mr. Bistricer, each group — regulators and sellers — can point to the other as its reason for not moving forward.

 

 

It’s all his fault

 

Still, this anticipates the future.  Mr. Bistricer’s proposed new partners sounded, if not precisely upbeat, at least on-message:

 

Steve E. Hicks, president of Provident, said that his company’s mission was to build and preserve affordable housing, not to make a profit. He said his team could be successful at Starrett City because they can issue tax-free bonds that would lower their costs.

 

Adding a non-profit to the team is eminently logical: Section §501(c)(3) non-profits can issue tax-exempt bonds.  (There used to be a $150 million cap per §501(c)(3) entity; this appears to have been repealed in 1997.)  Aside from his presumed out-of-town-naivete, Mr. Hicks is a bond finance expert:

 

Steve Hicks, Founder of Provident, serves as Provident’s Chairman and Chief Executive Officer. Mr. Hicks practiced law for 25 years.  […]

 

That’s Steve E. Hicks, not Stevie Nicks

 

Mr. Hicks specialized in the area of public finance with additional concentration in the area of legislative law. He participated in many public finance issues over the past 25 years in a variety of roles including bond counsel, underwriter’s counsel, and counsel to the issues.

 

Lawyers, as both they and developers will quickly tell you, are not developers.  Knowledge of advice is not always the same as knowledge of decision.

 

He played a major role in the formation of the Louisiana Public Facilities Authority (“LPFA”), one of the nation’s largest issuers of debt securities for a wide range of public projects.

 

Though both use tax-exempt bonds, housing finance is quite distinct from municipal finance, Mr. Hicks’ specialty.  The collateral, risks, and underwriting differ materially.  So does the principal credit source, since municipal finance is from a government, which has ongoing revenue streams (that’s euphemism for ‘the power to tax’).

 

He was the primary attorney for the largest tax-exempt financing undertaken in the history of the State of Louisiana and one of the ten largest in the United States – the LPFA’s $1,315,210,000 financing for the bailout of the State’s Unemployment Compensation Fund.

 

A fine thing, but in essence a financing of a known sovereign income stream, a far cry from rental apartments in the nation’s most complicated housing finance ecosystem.

 

While practicing public finance law, Mr. Hicks was the principal or supervisory partner on approximately $12 billion in project financings from 1973 until 1996 for acute care general hospitals, nursing facilities, affordable housing and numerous other health care and other essential state and local government projects.

 

Although his credentials are relevant, according to its Web site Mr. Hicks’ non-profit operates only seven properties totaling 1,850 apartments.  Starrett City by itself is more than three times larger, in a brand-new state, and one of the toughest cities for an outsider to do business. 

 

“We want to preserve Starrett City as an affordable, work-force housing property,” he said. “You won’t see us trying to sell it for a profit.”

 

You have to give Mr. Bistricer credit for trying:

 

 

Executives working for the unions have said that this may be the last chance for a positive outcome. Otherwise [channeling AHI — Ed.], they suggested that Starrett City Associates might withdraw from state and federal housing programs and then sell to another buyer who would raise rents and oust the current tenants.

 

True enough; nothing is risk-free.  As I pointed out before:

 

This is the nagging detail that Senator Schumer and others are declining to mention.  Converting Starrett City to market is not some theoretical option to be created by a buyer, it is a contractual right possessed by the current owners — who do not have the proposed debt Mr. Bistricer was anticipating.  Their path out of regulation is straightforward, if fraught with public opprobrium. 

 

Navigating our bureaucracy is really quite easy, as you can see

 

Meanwhile, Mr. Bistricer’s other new partner, the NYC CLC, brings resources of its own:

 

Some politicians and advocates for low- and moderate-priced housing are reluctant to oppose the labor council, normally an ally.  But New York Acorn, a community organizing group, continues to oppose the sale and held a demonstration with about 35 tenants on Wednesday at the office of Starrett City Associates.

 

Thirty-five tenants, that’s not many out of a community of over 10,000 adults.  A pretty tepid response.

Any minute now, we’ll be overrunning the place

 

Allow me my cynical perspective on Acorn, whose objection was entirely predictable.  Acorn could be self-interested in either of two ways:

 

1.         Since advocacy groups depend in part on members who are worried about something, they have an incentive to keep crises alive, rather than resolve them, settle them, or allow them to be defused.  (Nowhere was this more apparent than in Massachusetts’ November, 1994 hysteria over the impending rent control repeal referendum — which passed — with world-will-end horror scenarios, none of which came true.)

 

2.         Acorn is aggressively positioning itself both as the arbiter of an acceptable solution (its 35 demonstrators speaking for all 10,000) and as a troll whose toll must be paid to cross the bridge of regulatory approval. 

 

Me and my ten thousand have a voice

 

In other situations, I have frequently seen resident-advocacy groups prolong crises in hopes of securing a piece of the deal for themselves.

 

“This plan leaves tenants and taxpayers on the hook for substantial rent increases and reductions in services,” said Bertha Lewis, executive director of Acorn.

 

Nice sound bite, Ms. Lewis — but what’s the alternative?

 

When Starrett City withdraws from Mitchell-Lama, the residents will be on precisely that same hook, and with worse facts, fewer resources, and less leverage.

 

We’ve still got a grip on the issues

 

“While this plan says nice things about housing middle-income families, it ignores the fact that the vast majority of Starrett City residents earn less than $40,000 per year or are senior citizens on fixed incomes,” she added.

 

Sophistry. 

 

Offering whatever argument you need, whenever you need it

 

Those residents would receive Section 8 enhanced vouchers enabling them to stay in Starrett City, paying the same tenant contribution, for more or less as long as they like.

 

Enhanced Vouchers, also known as Sticky Vouchers, differ from standard vouchers in several ways:

 

·         Special allocation - the vouchers are designated specifically for the residents of the affected units

·         Higher Income Limits - the income eligibility standards for Enhanced Vouchers are 95% of the Area Median Income, as opposed to the 80% limit for standard vouchers, shown above

·         Higher Payment Standards - the rents for Enhanced Vouchers are not limited to the HPD Payment Standard, but can be up to reasonable, market rents for the units affected

·         Different Minimum Tenant Shares - Enhanced Vouchers are designed to protect residents, not confer a benefit, so the minimum rent that an Enhanced Voucher participant pays is the tenant’s payment prior to conversion.

 

These differences for Enhanced Vouchers apply only while the participant household resides in the housing development that converted. If the household moves outside the affected development, the Enhanced Voucher reverts to a standard Section 8 Housing Choice Voucher.

 

(I particularly like that language because it’s a direct and unattributed quote from the summaries I and my company wrote a dozen years ago — but that’s okay, we’re happy to see them propagating through cyberspace!)

 

“This plan can’t work and should be rejected.”

 

Whether it can work, and whether it should be rejected, will both be proven irrelevant.  The sellers will pull the plug before the regulators have to act.

 

But thanks for playing our game

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