[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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Regarding Starrett City, which followed Stuyvesant Town as the next big-top extravaganza New York City affordable rental sale, a few weeks ago we paged a white knight, and in fulfillment of one of the easier predictions I’ve made recently, at the eleventh hour — really, at five minutes to twelve — in has rushed an out-of-town white knight:

When AHI calls, I come!

As reported in Friday’s New York Times:

August 3, 2007

With Starrett City Deal Nearly Dead, Developer Tries Again

By CHARLES V. BAGLI

Only days before the expiration of his $1.3 billion contract to buy a sprawling Brooklyn housing complex, David Bistricer is throwing the real estate equivalent of a Hail Mary pass.

If the Times can invoke a hoary metaphor, the least we can do is show the most famous one of all time

Federal and state officials have twice rejected his bid to buy the complex, Starrett City, a cluster of 46 buildings and 5,881 apartments wedged between Canarsie and East New York on Jamaica Bay.  And along the way, Mr. Bistricer, an investor from Borough Park, says he has been publicly and unfairly vilified by Mayor Michael R. Bloomberg and the state attorney general, Andrew M. Cuomo.

The grammarian in me asks, What precisely would be ‘fair vilification’?

When you deserve it, young man

Adds the spousal grammarian, peering over my shoulder, “What’s the point of privately vilifying someone?”

Now, with his deal for the nation’s largest federally subsidized project set to die on Tuesday [That would be August 7 -- it's been previously reported as August 9 -- Ed.], Mr. Bistricer has gone to the sidelines, sending in a new team to try to buy the project: the Provident Group, a nonprofit housing developer from Baton Rouge; and the New York City Central Labor Council.

Not one but two white knights — and an interesting pair of allies. 

Provident.  I know absolutely nothing about them [Is that a Narcissistic indictment? -- Ed.; No, it's just an observation -- Auth.], so what follows is from their Web site.

Who’s the cleverest blogger of them all?

Provident appears to come from the health-care side of the business, not housing:

In the pursuit of its charitable mission, it is Provident’s goal to become a national non-profit organization committed to the development, ownership and operation of state-of-the-art health and senior living facilities and communities and supportive services across the country.

Its affordable housing portfolio is limited:

As of December 31, 2001 [Why no update since then? -- Ed.], Provident owned seven properties with approximately 1847 units of which approximately 20% to 40% of units are available for residents qualified as very low, low, and moderate income families. These activities are included in the Affordable Housing Division. Provident is developing and implementing its “Service Enriched Housing Programs” to which include health, social and education programs to address the needs of its residents and to improve their quality of life and potential for personal growth. Examples of programs currently available at various sites are computer training, adult basic education, money management, after school care, tutoring & homework, health-care screening and education, support groups, food and nutrition classes, and job readiness training. Program service expenses for affordable housing operations in 2001.

In terms of development, New York City is one of the most insular and anti-xenophilic places I know, and I would never dream of doing business there without strong home-grown talent.  Yet Provident has no New York City experience, and I can think of few places less similar than New York City and Baton Rouge, Louisiana.

They don’t cook like this in New York: Cajun microwave

Its nearest property to New York appears to be in Conyers, Georgia.

Hey, it’s only 900 miles, y’all

The long reach to Baton Rouge for a non-profit, where you’d expect a Cajun to be working in the Big Easy and you’d expect the Big Apple to be a-swarm with non-profits (which, by the way, it is), invites this question:

Why is it Mr. Bistricer found no New York City non-profit?

It’s almost as if he were being shunned by the New York City affordable housing community.

Mr. Bistricer, you’re just not one of us

New York City Central Labor Council.  About Mr. Bistricer’s other partner, the NYCCLC, the Web offers even less.  Here’s its site, as of Saturday, August 4:

Well, that’s reassuring, isn’t it?

Should organized labor even be here?  What do I have to do with housing?

(One presumes their sterling qualities are political rather than cyberspatial.)

Remarkably, as of Saturday, neither partner’s Web site makes any mention of the Starrett City transaction.  Not exactly a vote of confidence.

The groups say they would work with Mr. Bistricer, but unlike him, they say they would preserve the complex forever as a haven for moderate and middle-income families at a time when housing costs are escalating beyond the reach of many tenants.  Mr. Bistricer, they add, would become a bit player, with a stake in the shopping center and any future development, but little power.

All along, Mr. Bistricer has emphasized the site’s increased development potential, some of which is visible from space:

Particularly south of the ironically named Louisiana Avenue

I believe him when he says that this additional land development is part of his plan. 

Yet the land-development potential has been largely ignored by all commentators and stakeholders, who seem united by a single goal: to stop Mr. Bistricer:

But this last-chance gambit is likely to suffer the same fate as previous proposals, judging from the reaction of housing advocates and state and federal officials who were briefed on the plan this week in Washington and New York. Its sale must be approved by government officials.

Even if I sacrifice my profits, I’m still rejected?

Deborah Van Amerongen, the state housing commissioner, said she was waiting to see the details, but both sides acknowledged that their meeting did not go well.

I believe I understand your position

“When it comes to Starrett City,” said Steve O’Halloran, a spokesman for the Department of Housing and Urban Development, “the devil is in the details.”

A safe non-answer, Mr. O’Halloran, appropriate when responding at short notice to a late-arriving and complicated proposal.

Knowing nothing but what I read in the paper [Yikes, how credulous are you? -- Ed.], plus my experience, I suspect that the commenters are correct, Mr. Bistricer’s latest proposal will fail as well, because he is suffering a public relations hangover from the bad reputation he made with his original bid. 

One point three bill?

The $1,300,000,000 price was so jaw-dropping that many people immediately concluded it could be achieved only by jumping rents and evicting current residents.

Shaun Donovan, the city’s housing commissioner, said that the new proposal, like the previous two, seemed to be predicated on raising rents to market levels and subsidizing what he called an extravagant purchase price with large government subsidies.  “That would not be acceptable to the city,” he said.

Shaun’s both smart and fair, so I give his criticisms meaningful weight.  He was also careful enough to caution his comments with ’seemed’ and a conditional conclusion (’would’ not ‘will’).  With Section 8 enhanced vouchers, rents can rise to market and residents can remain in place.  Many agencies, such as Massachusetts, have used precisely this tool to provide ongoing post-HUD affordability, so it’s by no means clear that rejecting a friendly Mitchell-Lama dissolution is in the public interest.

For this deal to be successful, Mr. Bistricer, Provident and the unions need some sign of support from government officials over the next four days in order to persuade the owners, Starrett City Associates,

1.       To lower its sale price by as much as $200 million and

2.       To grant a contract extension that would allow them to work out the details.

There lies Mr. Bistricer’s biggest problem with his whole transaction:

[Continued tomorrow in Part 2.]

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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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When, a year ago, the preservation forces were utterly unable to derail the juggernaut multi-billion dollar battle for Stuyvesant Town, I speculated that whoever followed Stuy Town would face a spectacular backlash.  In that maelstrom tottered David Bistricer, whose clipper Equity group offered the astonishing sum of $1.3 billion for the 5,881 apartment complex covering a quarter of a square mile. 

Mid-rise housing in Brooklyn

Many of the 14,000 residents of the 140-acre complex — which comprises 5,881 apartments, a shopping center, schools, churches, a synagogue and a power plant — have been in an uproar since they learned of the pending sale last November.

A complex unto itself in Canarsie

Mr. Bistricer, a relatively unknown Brooklyn real estate figure, won the bidding in February for Starrett City, the largest federally subsidized housing project in the country.

Now, entirely predictably, HUD has for a second time rejected Mr. Bistricer’s proposal, as reported in New York Times:

For the second time in four months, federal housing officials yesterday [i.e. July 9, 2007 -- Ed.] rejected a real estate investor’s $1.3 billion plan to buy Starrett City, a working-class enclave of 46 apartment buildings on Jamaica Bay. They said that the proposal by the investor, David Bistricer, was not “financially feasible to sustain the project as a long term affordable housing resource.”

My $1.3 bill isn’t good enough?

Under HUD’s Transfer of Physical Assets rules (the world-famous Chapter 13 of HUD Handbook 4350.1 — and no, I am not making these numbers up), HUD may reject a proposal only if it fails what are called the ‘determinative criteria,’ which basically mean that the property will be physically sound, as cited in Section 13-12:

In order to approve the proposed transfer, the Director of Housing Management must determine that the project will be restored to sound physical condition within 24 months from the date of transfer.

Although I know no more of the property than what I’ve been reading in the newspaper, I have very serious doubts as to whether HUD in fact had valid grounds for denying its approval … but what I think matters not a whit. 

In a letter to Mr. Bistricer’s group yesterday, the secretary of Housing and Urban Development, Alphonso R. Jackson, said that the group “has not demonstrated that it has the organizational or financial capacity to immediately perform under the proposed financial plan.”

Even this explanation is questionable, to say the least.  Either Mr. Bistricer can perform, in which case HUD’s reason disappears, or he cannot, in which case he will be unable to close.  As he himself put it:

Our critics charge we offer no assurances and our plan might change. Wrong again. Our plan must be approved and guaranteed by city, state and federal government, scores of elected officials, and at least a half dozen governmental agencies. It will be the most scrutinized, verified, analyzed – and guaranteed – housing plan in the nation.

Unfortunately, I doubt that Mr. Bistricer will get far trying to litigate this matter, either before an administrative law judge or in an undoubtedly hostile New York court. 

Mr. Jackson also expressed reservations about the group’s “desire to increase tenant rent.”

Such political dicta, as Secretary Jackson must know, is entirely irrelevant to HUD’s decision — and its inclusion in his rejection statement tends to undermine the credibility of the Secretary’s stated reasoning.

My decision is based on a solid foundation, solid

Still, it’s all moot.

A spokesman for Mr. Bistricer and his group, Clipper Equity, declined to comment. Federal officials had rejected their first proposal in March for similar reasons.

No, ‘moot’ not ‘mute’

Mr. Bistricer’s purchase effort seems dead.

“His proposal — it’s dead, Jim.”

Time for the residents to celebrate, right?

The proposal, which requires state and federal approval, ran into a storm of protest from tenants, housing activists and elected officials. They feared that anyone paying such a heady price, which critics said was closer to $1.4 billion when all the fees are included, would have to raise rents and displace tenants in order to make the deal work financially.

Starrett City has gotten an unusual array of subsidies since it opened in 1974, and Mr. Bistricer’s proposal would have involved even more. But officials were reluctant to put more money into the complex solely so that the current owners could get a windfall from the sale.

Although I’m entirely sympathetic to the value of preservation, this is a classic blame-the-developer calumny.  The money would not be going to give the developers a windfall (that is, an undeserved profit), for both current owners and any buyer have the legal right, now, to go market (via an incredibly cumbersome process known, for historical and legal reasons that I will forebear from explaining, as ‘dissolving the housing company’). 

Any new money going in would be to buy future affordability, not reward the owners. 

Not that there’s any new money on offer

“No deal that preserved affordability was possible for a sale price of $1.4 billion,” said Senator Charles E. Schumer.

Raising eyebrows at the buyout price

Perhaps that is true, Senator Schumer, but once again the cart is preceding the horse.

Where all the money gets eaten up

“I commend Secretary Jackson for taking action to preserve our dwindling stock of affordable housing.  Now let’s all go back to the drawing board to craft a plan that preserves affordable housing for Starrett residents and ensures that Starrett City remains a middle-class oasis well into the 21st century.”

As Senator Schumer doubtless knows, this will take either winkling the owners out of their rights, or a great deal of money to close the cost-value gap.  (Atlantic Yards in Brooklyn is projected to require $1.4 billion in volume cap to produce many fewer affordable apartments.)  To whom will Senator Schumer be offering money, or threatening new rent-control laws?

The buyer?

[Mr. Bistricer's] contract to buy the property expires Aug. 9. 

The current owner?

“We still have an agreement in place with Clipper Equity,” said Martin J. McLaughlin, a spokesman for Starrett City Associates. “We haven’t made a decision yet on what we’re going to do.”

For the current owners, who have signed a contract to sell, to anticipate events publicly would be a foolish mistake.  Undoubtedly they will remain mum until after August 9.

I could leak what they’ll do, but boy would I get in trouble if I did!

Another buyer?

The current owners, Starrett City Associates, can either hold a new auction, or, as they have indicated they may do in recent months, make required payments to withdraw from state and federal housing programs.

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

As Mr. Bistricer himself wrote, in the New York Daily News:

What’s the alternative? The current owners of the development can and have said they will remove Starrett City from the Mitchell-Lama program. That would also remove it from government regulation and subsidy programs, allowing rents to escalate. We propose a different course: protect existing tenants, modernize and enhance community facilities and infrastructure, promote home ownership and create thousands of affordable housing units.

Even the Times seemed to notice this inconvenient fact:

Critics of the deal say it could be harder to block the current owners from leaving the state’s middle-class Mitchell-Lama housing program than to stop Mr. Bistricer.

Curious phraseology, that.  “Critics of the deal” say?  Anyone who knows the program, supporter, critic, or mere innocent bystanding blogger, knows that.  Mr. Bistricer again:

Our plan is not a threat. To the contrary, it provides the last, best hope to preserve, protect and enhance Starrett City as an enduring model of high-quality, affordable housing for this generation and generations to come.

The current owners have a legal right to exit.  They could have started that process themselves, even before putting the property on the market.  Now, more than likely, they will. 

“The fight to save Starrett City is not over yet,” said Bertha Lewis, executive director of New York Acorn, a community-building group that has organized opposition to the deal.

Lewis says it’s not over yet

“Hopefully this fight has shown the owners of Starrett City that Acorn and the Starrett tenants’ association will not let that happen.”

Paging a white knight?

I’m from the government and I’m here to help you

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