One man’s windfall is another man’s score: Part 8, “People think you’re taking money out of their pockets”

December 11, 2014 | Affordability, Affordable Housing, Co-ops, Democracy, Housing, Markets, Mitchell-Lama, New York City, Ownership, Privatization, Urban renewal, Urbanization, US News, Zoning | No comments 182 views

[Continued from yesterday’s Part 7 and the preceding Part 1, Part 2Part 3, Part 4, Part 5, and Part 6.]

By: David A. Smith

In my continuing coverage of Southbridge Towers’ proposed conversion to a market-rate co-operative, enabling its owner-shareholder-renters to cash in on their apartments’ value, yesterday’s Part 7 addressed at length the question of the owners’ civic duty, and whether that duty is fulfilled at some point.

do_your_duty_patton

And damn the consequences

Sources used in this post

New York Daily News (October 23, 2005; deep purple font)

Downtown Express, Letters to the Editor (November 2, 2006; robin’s-egg blue font (Michael Altman), gray-blue font (Jared Brown), teal font (Rosemarie Ferrara), and navy blue font (Michael Wishner))

Downtown Express, Letters to the Editor (February 1, 2007; lime font (Wallace Dimson), olive font (Stephen Seifer), and forest-green font (Seymour Schleimer))

Downtown Express (May 24, 2007; pink font)

Law360 (October 4, 2012; plum font)

Travel Studies blog (April 23, 2013; brick-red font)

Wikipedia on co-op flip tax; tangerine font

Should we privatize: No and Yes (Downtown Express, June 19, 2014; No from Victor Papa in red font, Yes from Jesse Mandel in green font)

DNA Info the vote (October 1, 2014; charcoal-gray font)

The Broadsheet Daily (October 7, 2014; pecan font)

Downtown Express (October 15, 2009; caramel font)

Broadsheet Daily (November 6, 2014)

The New York Times (November 14, 2014)

Because Mitchell-Lamas are highly regulated, any two minutes’ Googling will produce many more factual links, such as this, this, this [Its 2013 audited financial statement], this (search for ‘Macrucilli’), and this; eventually, in mental-health self-defense, I had to stop.

That, however, isn’t the only way to look at duty and public policy – we can also consider what kind of duty and how much duty current renter-shareholders owe to other residents.

southbridge_tenants_meeting

Save Our Seaport community meeting at Southbridge Towers

3.C. Does privatization change what the owners have?

Short answer: Yes.

yes_point

Homeownership has traditionally been considered a virtue, a source of pride. A home is usually the largest asset or source of financial security most homeowners ever possess.

Jesse Mandel

The owners will have more economics, more responsibility, and more financial exposure (from higher operating costs).

“It’s really torn the community up,” said Charles Chawalko, 26, who moved to Southbridge as a child. “People think that you’re taking money out of their pockets if you want to support Mitchell-Lama.”

Actually, you are.

helena_hovitz_charles_chawalko_ann_chowalko

Mr. Chawalko with his mother, Ann Chawalko (right), and Helainna Hovitz (daughter of Mr. Hovitz, chief opponent of privatization)

By blocking privatization the opponents, if they succeed, will in fact be preventing their neighbors from realizing money in their pockets.  That’s precisely why Mr. Chawalko’s neighbors feel that way.

“If you saw what’s been going on here, the acrimony, this place will never be the same,” said Paul Hovitz, 68, a retired special education teacher who has lived in Southbridge for 30 years with his wife, Denise, 61.

These money-or-stasis arguments always play out when a group of owners has a choice of a divergent and more lucrative path, whether these people own a mobile home park (as in Briny Breezes, Florida) that a developer wants to buy and demolish (eventually that deal collapsed), or a waterfront high-rise tower (Harbor Towers, Boston).

briny_breezes_1950

Wait sixty years and this could be worth half a billion

Additional equity will create the ability to refinance, and liquidity always has value:

The equity in one’s home is often a key or essential element in the ability to relocate, should a homeowner want or need to. What if a move to an assisted-living facility becomes necessary? What about getting a home-equity loan to help your children with education expenses? How about if you need a home-equity loan for any reason? What if you want to leave an inheritance to a loved one, to your child? How does Mitchell-Lama’s “limited equity” help with any of that? It doesn’t, not at all.

Jesse Mandel

All of that is upside, echoed by another Southbridge Towers resident:

I refuse to debate the philosophy of Mitchell-Lama since like religion and politics; that is a matter of one’s belief, to which all are entitled. When you talk about privatization, you are discussing something else and that is attaining freedom, which we do not have under Mitchell-Lama.

freedom_braveheart


The freedom to stay or sell

Freedom to take an equity loan for investment or any other purpose

Freedom to take a home equity line of credit on the value of your apartment, which in my case would probably allow me to live here rent-free for at least 50 years

Freedom to renovate bath and kitchens desperately in need

Freedom from oversight/control by government agencies

Freedom to sublet apartments under supervision/for a fee making legal what is seriously done secretively now

Freedom to return the value of the Southbridge Towers property to the co-op through a flip tax where the seller and S.B.T. will both gain on any sale

Freedom to leave my owned apartment to my designated family member.

baby_braveheart

I want my co-op birthright!

What we are talking about in going private is the attainment of the American dream — which is owning your own home. At this moment we are cooperators with leases and do not own one nail or cabinet.
Seymour Schleimer

sy_schleimer

Seymour Schleimer at the Salamagundi Foundation

3.D. Does it undermine affordability?

Yes, it does, at least for those who privatize, rather than those who choose to remain as rentder:

Jared Brown, a board member and the founder of Southbridge Rights, said everyone will be better off if they go private, but any skeptics will have an opt-out clause that will be tied to inflation or Rent Stabilization so they will be able to afford to stay.

Most directly, real estate taxes will go up:

Privatizing assumes financial risk, particularly for the type of tenant the program was designed to serve — someone who can barely afford the current costs. No longer eligible for tax abatements, Southbridge would have to pay at least $8.1 million a year in real estate taxes, significantly more than the $1.64 million it now pays.

In round numbers, that’s another $325 per month per apartment ($3,900 per year), which is certainly enough to notice.

(Of course, the City will be gaining $6,500,000 in additional money – why doesn’t someone ask the City to dedicate that revenue stream to other affordable housing initiatives, and not to include it in the city’s general revenues?)

de_blasio_side_eye

Are you trying to tell me how to do my job/

For Southbridge Towers, however, the baseline for continuing under Mitchell-Lama has to include the cost of renovations:

The additional loans that Mr. Altman trumpets will only increase the proportion of Southbridge’s budget that will be needed for debt service, currently 11%, effectively strangling Southbridge’s ability to operate.

Wallace Dimson

waters_flamingo

‘Strangling’s an overstatement, don’t you think?

And maintenance:

Incidentally, have reconstitution opponents failed to notice the 46% rise in maintenance at Southbridge since 2001 under Mitchell-Lama? 

On the other hand, the pro-privatization converters have a different strategy for maintaining ongoing affordability: charge those who cash in their equity and sell.

The co-op anticipates that about 50 units will sell every year, bringing in enough revenue through the flip tax to cover any cost increases. “There is so much intrinsic value in the property that the increase in real estate taxes should be offset by the sale of apartments,” said Stuart M. Saft, the lawyer who helped Southbridge develop the offering plan.

saft_hk

Making sure the privatizers get the Saft

Not enough has been of the ‘internal subsidy’ of the flip taxes, as their impact seems to be overlooked by some outside commenters.

If privatization goes through, and “you want to sell, then there is this incredible opportunity to cash out and get a windfall,” said Max Weselcouch, the director of the Moelis Institute for Affordable Housing Policy at the Furman Center.

max_weselcouch

Putting the privatization on the Weselcouch

“If you don’t want to sell, then you are locked into paying higher maintenance and taxes. Your living expenses rise.”

Actually, low-income elderly residents (of whom there were 50 in 2009, probably more now) would be protected with an internal subsidy from the co-op itself:

[2009]  For some seniors, the monthly maintenance fees are already too taxing. Residents of about 50 Southbridge apartments receive additional help from the city’s Senior Citizens Rent Increase Exemption Program, which is for people 62 and older whose household disposable incomes are less than $29,000.

This was written in 2009 and I found no indication it had changed; in fact, the opponents’ silence on the point seems to me conclusive that it was retained.

Those residents will not be eligible for the assistance program if Southbridge exits Mitchell-Lama, but the red herring offers the seniors an identical program, paid for by the building rather than the city. The building’s program would stay in effect for as long as the city’s program exists. The red herring also extends the program to anyone who becomes eligible within the first six months of privatization, but anyone who turns 62 after that would not receive assistance.

As for the remaining residents, the higher costs (figured above at $325 per month for real estate taxes, say another $100 a month for maintenance) would represent about a 2% annual assessment on the $250,000 (or more) of increased equity they will possess if the property privatizes.

Contrary to the long-term fear-mongering by opponents, the Black Book’s most reliable budget forecast, and the history of similar “limited equity” co-ops which have reconstituted, indicates that maintenance will not increase after reconstitution.

Still, no one knows for certain what the increased costs will be until they happen, just as no one knows the flats’ resale prices, or the rate of resales. 

To gauge how well Southbridge apartments might sell, brokers point to the Seward Park Cooperative, a midcentury Lower East Side development that was once part of the sprawling affordable housing complex known as Cooperative Village. Seward Park, built by the United Housing Federation [Which also developed Co-op City –Ed.], was privatized in 1995.

seward_park_coop_street_view

Seward Park Co-op

Of the 54 units that sold in the first three quarters of the year, the average sales price was $664,000, according to CityRealty.

seward_park_coop_plan_floor_18

Three elevator banks; twenty apartments per floor

The complex has proven its market appeal:

“Anything in Seward Park is really selling in the first one to two weeks on the market,” said Jeremy Bolger, a salesman for Halstead Property.

jeremy_bolger

Urging buyers to act fast: Bolger

Seward Park has endured its own growing pains in the years since privatization, with older or original residents often resisting costly improvements favored by newer shareholders, some of whom paid substantial sums for their apartments.

That tussle is shades of Harbor Towers – and it’s a legitimate issue of majoritarianism in governance for the world inside.

Nevertheless, maintenance has held relatively steady over the years, helped by a substantial flip tax, according to Mr. Young, who has lived in Seward Park since 2001. For example, the maintenance for a one-bedroom listed for $600,000 on Streeteasy.com was $523 a month.

That cost of occupancy works out to 1% of value annually.

being_cheap

It certainly helps

Transfer fee revenue is a key factor in maintaining small maintenance for the majority of shareholders who wish to remain at Southbridge. A very modest increase from the historical, and unprofitable, apartment turnover rate assures a budget surplus with no maintenance increase. 

Probably due to space limitations, Mr. Mandel’s explanation above buries a key point.  In today’s Southbridge Towers, people move out only when they have to, and when they go they gain no equity appreciation.  Combine those factors and the annual turnover rate must be extremely low :

Of the 383 apartments that sold in the financial district in the first three quarters of the year, only 35 were co-ops, according to CityRealty.

For convenience, let’s assume that half of the 35 co-op sales were in Southbridge; this means annual turnover in Southbridge is roughly 25 apartments, or 1½%.  In effect, the development’s population is frozen in time (except for intra-familial transfers via inheritance). 

With privatization, that will surely rise.

[Continued tomorrow in Part 9.]

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One man’s windfall is another man’s score: Part 7, “If the city wants more affordable housing”

December 10, 2014 | Affordability, Affordable Housing, Co-ops, Democracy, Housing, Markets, Mitchell-Lama, New York City, Ownership, Privatization, Urban renewal, Urbanization, US News, Zoning | No comments 489 views

[Continued from yesterday’s Part 6 and the preceding Part 1, Part 2, Part 3, Part 4, and Part 5.]

By: David A. Smith

The end of yesterday’s Part 6 of our Southbridge Towers exhaustive review had concluded our assessment whether the money to be made, if made it will be, is a windfall or simply a massive liquidity event.

facebook_ipo

Wealth creation or just liquidity event?

Sources used in this post

New York Daily News (October 23, 2005; deep purple font)

Downtown Express, Letters to the Editor (November 2, 2006; robin’s-egg blue font (Michael Altman), gray-blue font (Jared Brown), teal font (Rosemarie Ferrara), and navy blue font (Michael Wishner))

Downtown Express, Letters to the Editor (February 1, 2007; lime font (Wallace Dimson), olive font (Stephen Seifer), and forest-green font (Seymour Schleimer))

Downtown Express (May 24, 2007; pink font)

Law360 (October 4, 2012; plum font)

Travel Studies blog (April 23, 2013; brick-red font)

Wikipedia on co-op flip tax; tangerine font

Should we privatize: No and Yes (Downtown Express, June 19, 2014; No from Victor Papa in red font, Yes from Jesse Mandel in green font)

DNA Info the vote (October 1, 2014; charcoal-gray font)

The Broadsheet Daily (October 7, 2014; pecan font)

Downtown Express (October 15, 2009; caramel font)

Broadsheet Daily (November 6, 2014)

The New York Times (November 14, 2014)

Because Mitchell-Lamas are highly regulated, any two minutes’ Googling will produce many more factual links, such as this, this, this [Its 2013 audited financial statement], this (search for ‘Macrucilli’), and this; eventually, in mental-health self-defense, I had to stop.

Now for the related Question 2 that I posed in Part 1: Is privatization good public policy?  Should civic-minded bystanders cheer or boo?

booing_cheering

Are you guys even related?

3. Is it a ‘bad policy outcome’?

Having explored whether the result is a windfall to the point where readers can form their own view, the question now arises: Setting aside self-interest of the co-operators, what should bystanders want to see happen?  Although bystanders have no vote and may not have a genuine stake in the outcome, that the story made the New York Times indicates it’s a topic worthy of public interest.  What then is the right policy outcome?

southbridge_towers_near_pearl

A courtyard in Southbridge Towers, near Pearl Street

3.A. What about rehab?

Properties age, and as they age, they both deteriorate (things wear out) and obsolescence (what was market before is below-market today); this is more true now than it ever was before, because housing has become technological. Consider all the following features that a normal resident would regard as necessities of the evolving modern urban home that would have been almost unimaginable in 1970:

Broadband

Green technology/ sensitivity

Cable TV

Home media rooms

Required environmental remediation of lead-based paint and asbestos.

Microwaves

Combine them all the home’s demand for electricity has tripled or quadrupled.   Older properties also need new windows (energy conservation requirements are much higher than they were, plus windows age and leak air and water), new HVAC systems (thanks, Harbor Towers!), certainly new elevators (if not already replaced once or twice), and probably new roofs. 

Besides interior gardens, a playground and a community room, Southbridge Towers has several commercial tenants, including a Key Foods, parking, a bakery and a restaurant.

While rehab isn’t referenced in the public reports (and it could be financed within Mitchell-Lama, but only at the price of extending affordability), it’s often a major impetus for a financial transaction and a change in occupancy/ rent/ tenure patterns.

3.B. What is your ‘civic duty’?  Do you have one?

doin_ma_civic_duty

Twarn’t nothing, ma’am

Both proponents and opponents of privatization directly referenced the question of ‘civic duty’, and it’s apparent this was on the minds of many Mitchell-Lama co-operators, not just those in Southbridge Towers. 

Critics of privatization argue that the residents have already enjoyed the financial rewards that come with living in affordable housing.

Everyone from Southbridge Towers who voiced an opinion about privatization referenced the civic duty, starting with those who wanted to ‘go private’, for instance by appealing implicitly to the purpose of affordable housing – namely for improving one’s life and one’s family’s prospects:

YES —  By JESSE MANDEL:  One wonders if there is anybody anywhere, outside of Southbridge Towers possibly, who would prefer to say they live in a “public housing development” or in “subsidized housing,” rather than that they own their own home in a very desirable location.

Against that, opponents argue that residency in an affordable apartment is somehow a public obligation:

By selling their apartments, they are denying other New Yorkers the very opportunity that enriched their own lives.

Curiously, and I think relevantly, the ‘resident’s public duty’ argument is never raised in the context of rent control or rent stabilization, where the duty is somehow imposed on the non-occupant owner. Those favoring privatization argue the civic duty had a time limit (like, say, enlisting in the armed forces) and theirs has been discharged:

honorable_discharge

Can I get out of the army faster than I can get out of Mitchell-Lama?

As your editorial correctly suggests, we have fulfilled our mission of urban renewal as pioneers of Downtown Manhattan living (Editorial, Oct. 13 – 19, “Southbridge Towers’ big decision”). Rather than “leaving” Mitchell-Lama, this final step of becoming an independent co-op is fulfilling the very vision of middle-income empowerment that these two forward looking state legislators espoused some 40 years ago.
Jared Brown
Board member of Southbridge Towers and president of Southbridge Rights

Mr. Brown’s statement is buttressed by a disinterested witness who was there, on the government side, all those many years ago:

“The deal for this development, and others like it,” says a retired New York State housing official who oversaw the development of Southbridge Towers (and who asked to remain anonymous), “was always that the benefits received by the developer would expire after a set number of years, and so would the benefits received by the public in the form of below-market-rate housing.”

[NB These statements also align with those I heard from Al Walsh, the “former everything” as he introduced himself to me back in the mid-1980’s when we first met. – Ed.]

bowery_early_1970s

Individual entrepreneurs in lower Manhattan, 1970s

He’s referencing, among other things, the favorable depreciation (now all used up) and the original mortgage (paid off or refinanced in 2004, I believe).

“So the original intention behind Mitchell-Lama was that the housing would eventually become market rate.

Yes, it was, as it was for the parallel HUD programs, Section 221d3 and Section 236 – and there the Federal government, to its shame, breached its contract with the owners (ELIHPA and LIHPRHA), and there ensued first litigation and then legislation to

“But nobody in the 1960s was thinking about what conditions would be in the 2010s.”

I disagree with the blanket statement ‘nobody’.  Lyndon Johnson thought that the government would always be in the business of producing affordable housing, and that as some properties rolled off affordability and went market, there would be new production to take its place.\

johnson_signs_fair_housing_act

President Johnson signing the Fair Housing Act

Ed Brooke at his right, Walter Mondale to his left, Thurgood Marshall just beyond

“If the public will of the State is that we need more subsidized, middle-income housing like Southbridge, it will take a new law to make that happen.”

Actually, I believe Mitchell-Lama is still on the statute books; it’s just never been appropriated new money.

We did our duty for the 20-year expectation of Mitchell-Lama residents, and then some. Our tour of duty is up. Let us reap the benefits without frightening the elderly that they will be thrown out if we go private.

Michael Wishner

As to those who feared that affordability would be lost, the proponents of privatization included an enormous self-imposed giveback, in the form of a ‘flip tax’:

To cover the increased costs [Of operating post-privatization, including higher real estate taxes – Ed.], original shareholders would pay the co-op a flip tax as high as 33% when they sell.

In fact, as with so many of the words in this debate, ‘flip tax’ is a double misnomer:

wrong_wrong_wrong

1. It doesn’t apply to flippers (people who buy a property and then swiftly resell it), but to all owners.

zipper_flippers

We’re against these, not owners

2. It’s not a tax, it’s a fee assessed by your own co-operative (Wikipedia on co-op flip tax; tangerine font):

A flip tax is a fee paid by a seller or buyer on a housing co-op transaction typically in New York City. It is not a tax, and not deductible as a property tax. It is a transfer fee payable upon the sale of an apartment to the co-op.

Flip taxes are considered a method to help raise money for a co-op’s overhead expenses without raising the maintenance fees or assessing flat charge to all residences. Charging the fee to those who are leaving the building seems to be the most politically feasible.

Thus, in the case of Southbridge Towers, those favoring privatization have concluded they should leave behind as much as one-third of their gain, for benefit of those who stay behind and those who move in.  That’s an enormous concession, not mandated by the Southbridge Towers bylaws (cf. in particular Article 7.3), one given negligible credit by the opponents.

Southbridge Rights would have you believe that the flip tax would be “manna from heaven,” and be our savior.

It wouldn’t be manna – it comes not from God but from the departed – and as for being a savior, that’s an actuarial question.

east_river_housing_coop

No pets allowed, and don’t discover a disability after you bring one in


Some residents of S.B.T. have friends and relatives [
And pets – Ed.] at the East River Co-op and Seward Park Co-op.  From information obtained from them, and from the Co-op Village bulletin board, I find that these co-ops, eight years after privatization, are millions in the red. East River’s deficit is over $750,000 each year for the past three years.

seward_park_housing

As I couldn’t find any background information, we can treat these statements as ‘possibly true, possibly oversimplified.’

Maintenance has been raised twice in the past two years

All this is basic post hoc ergo propter hoc logical fallacy; Y happened after X but one cannot conclude that X caused Y, especially when a dozen other possibilities come to mind).

Parking fees have doubled.

I realize that we must obey our metal overlords, but to me raising parking fees seems simple equity, as not everybody in the co-op will own a card, and those who don’t shouldn’t be subsidizing those who do.

Seward Park has raised their flip taxes on all sales.

Is this a bad thing?  To me it suggests that the co-operators are prudently managing their actuarial expectation, and of course ‘flip taxes’ are an assessment on gains from privatizing; without privatization, there would be zero such.

Future shareholders would pay a 2.5% flip tax.

backflip

Two and a half percent each time

For converting shareholders, the flip tax will be 28% to 33%, so the incumbents are proposing to ‘charge’ themselves twelve times as much as they will charge new residents for the same appreciation.

Southbridge shareholders have the ability to determine for ourselves what’s in our own best interest. We need not be misled or misinformed by local propagandists with their own agendas. Understand reconstitution, and how successfully it’s worked elsewhere, and you’ll vote yes when the time comes.

Jesse Mandel has been a resident of Southbridge Towers for 37 years.

Another resident has a simpler view:

David Feiner, 55, a cabinetmaker who moved to Southbridge Towers in 1981 with his wife, Susan, 53, supports privatization. “If the city wants more affordable housing, they should build it.”

Spoken like an owner.

[Continued tomorrow in Part 8.]

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One man’s windfall is another man’s score: Part 6, “We built the Little Leagues”

December 9, 2014 | Affordability, Affordable Housing, Co-ops, Democracy, Housing, Markets, Mitchell-Lama, New York City, Ownership, Privatization, Urban renewal, Urbanization, US News, Zoning | No comments 170 views

[Continued from yesterday’s Part 5 and the preceding Part 1, Part 2, Part 3 and Part 4.]

By: David A. Smith

At the halfway point of our continuing saga of Southbridge Towers’ quest for market value to its occupants via the mechanism of Mitchell-Lama privatization, we’ve addressed six of the attributes that I submit people use in judging: sudden, unexpected, large, unearned, out of proposition, and passive.

tshotchka

You’re out of proportion

Sources used in this post

New York Daily News (October 23, 2005; deep purple font)

Downtown Express, Letters to the Editor (November 2, 2006; robin’s-egg blue font (Michael Altman), gray-blue font (Jared Brown), teal font (Rosemarie Ferrara), and navy blue font (Michael Wishner))

Downtown Express, Letters to the Editor (February 1, 2007; lime font (Wallace Dimson), olive font (Stephen Seifer), and forest-green font (Seymour Schleimer))

Downtown Express (May 24, 2007; pink font)

Law360 (October 4, 2012; plum font)

Travel Studies blog (April 23, 2013; brick-red font)

Wikipedia on co-op flip tax; tangerine font

Should we privatize: No and Yes (Downtown Express, June 19, 2014; No from Victor Papa in red font, Yes from Jesse Mandel in green font)

DNA Info the vote (October 1, 2014; charcoal-gray font)

The Broadsheet Daily (October 7, 2014; pecan font)

Downtown Express (October 15, 2009; caramel font)

Broadsheet Daily (November 6, 2014)

The New York Times (November 14, 2014)

Because Mitchell-Lamas are highly regulated, any two minutes’ Googling will produce many more factual links, such as this, this, this [Its 2013 audited financial statement], this (search for ‘Macrucilli’), and this; eventually, in mental-health self-defense, I had to stop.

Now we get to the seventh attribute – risk – which we actually have to split into the past (risks already taken) and the future (risks to be taken).

past_and_future

Risk … or opportunity?

2.G. Did those who gained take risks in its pursuit?

Investment (like the Feiners’) is by definition risk-taking.  Nor is that the only risk taken by the early occupants of Southbridge Towers:

The area near the South Street Seaport was not always a desirable market. When Southbridge Towers opened in 1971, the neighborhood was pretty much without shops or restaurants.

They were urban homesteaders.

Garden innovators; Apr'13; Novella Carpenter, Oakland

Urban homesteader in Oakland, CA

The Fulton Fish Market made its odoriferous presence known. Battery Park City did not exist. Schoolchildren had to walk many blocks to get to the nearest public school.

battery_park_city_map

All this came later

The area was an urban wasteland, and for the next five to seven years it would get worse, not better.

Straddled alongside the Brooklyn Bridge in an area which was once blighted and forbidden, and since revitalized in the early ’70s, Southbridge was built through an urban renewal plan. At the time of its opening in 1970, prospective residents had to be practically enticed to consider living there, which is why the first residents of Southbridge are known to be the true pioneers of frontier residential living in Downtown Manhattan.

The more time that has passed since a risk was taken, the more it is forgotten and the less it is valued.

Southbridge residents — a mix of teachers, government workers and artists — spent decades improving their apartments and volunteering in the neighborhood at a time when few wanted to venture to the eastern end of Fulton Street.  Yet while the area has blossomed around them, many residents believe they have not profited from the change.

The Southbridge residents have profited experientially, but not financially (except insofar as they have been insulated from the potential for market eviction).

southbridge_satellite

A neighborhood that’s risen spectacularly over the last forty-plus years

“We and our friends built that community, we built the Little Leagues, we demanded the schools,” said David Feiner, 55, a resident.

Like many others, I have long emphasized the importance of urban homesteading, and of sweat equity, as the glue to bind communities.  Place is made through continuous reinvestment, ‘urban nitrogen fixing’ as I have called it, and of the commitment of private capital to complement public infrastructure as part of the formula for urban revitalization.

“What we helped create was a 24-hour community that now everybody wants to live in –

tru_dat

“– and the city has made a fortune on that.”

Mr. Feiner’s point is much more profound than is commonly credited.  Cities win when people want to live in them; people are what distinguishes a city from a wasteland or an industrial/ office park.  All these people living in New York pay New York City taxes (including New York City sales taxes); they generate retail demand, transportation demand, and attractions for tourists.  Foreigners go where locals feel safe, and locals feel safest in places they live in and own. 

2.H. Will gaining the money entail future risks?

Up to now our windfall definition has focused on the retrospective, but in writing this exposition I found that those who oppose the Southbridge Towers privatization has inadvertently presented an eighth element, one applicable only to a future windfall – namely, that to get it, one must not only be active (referenced above) but also taken new risks.  And the privatization opponents have identified several:

skeptical_cat

Ideology and philosophy aside, a vote for the dissolution is fraught with risks –

Grammatical curiosity: have you ever seen the word ‘fraught’ used except when in the context of risk, almost as if it’s an autofill meme.  For that matter, recriminations are always ‘bitter’ … as opposed to what?

– as itemized prominently in the Special Risks Section found in the front pages of the prospectus we received a month ago. The risks not only affirm the worst fears of the opponents –

That bit of hyperbole I cannot let pass; the risk factors section of a securities offering lists all sorts of things that may be infinitesimal probabilities.

These problems are being spun into non-existence by Southbridge Rights.

Stephen Seifer

In a case like this, with the attorney general’s dogs yapping at their heels, the proponents undoubtedly contorted themselves extremely to list every conceivable risk, just so they could get the document into the shareholders’ hands and have a valid vote.

inconceivable_princess_bride

Put it into the prospectus anyway

– they have converted once ardent supporters of privatization into vocal advocates against. Among one of the major risks is the uncertainty about whether the proposed reconstitution triggers both the city and state real property transfer tax, which at the point of dissolution, could cost the shareholders up to $27.7 million. The uncertainty lies in the pending Court of Appeals case between Trump Village and the city, which will likely be decided after our vote on reconstitution.

Later in this post [Oh, so very much later – Ed.], I’ll examine the ‘transfer tax’ argument legally (hint: it’s a bogus argument), but for now, here is the proponents’ rebuttal of that point:

As to the infamous $26 million real property transfer tax, it currently does not exist. It’s been struck down in two different court rulings, one by the New York State Supreme Court Appellate Division, the other by the New York City Tax Tribunal — both rulings indicating [x] the tax is inapplicable to Southbridge’s circumstances — and the tribunal further finding that[y]  the use of fair-market value to determine the tax is without basis.

Jesse Mandel

If one is losing an argument on the merits, one can change the subject to attack the other side’s motivations or character:

ad_hominem_you_idiot

On the other hand, the SBT Cooperators for Mitchell-Lama [committee] has no vested interest. They are not looking for a sudden windfall, but are concerned about the major financial problems that must occur if privatized.  This alone should separate the straight from the crooked.

Stephen Seifer

Other opponents saw risk in the operations as well:

Privatization as an alternative is potentially very perilous. There is no guarantee that real estate taxes, which are re-assessed annually, would not be greatly increased as the years passed.

Michael Altman

In that Mr. Altman is right; real estate taxes could and undoubtedly would rise.  Southbridge has that risk now – in fact, it maintains outside counsel on retainer to contest its appraised value every year – but after privatization the city would win more from a higher value than it wins now (with the affordability ‘shelter rent’ assessment in place).

There is no guarantee of how many apartments would sell each year and for how much money. We could not, therefore, count on how much flip tax would accrue to Southbridge annually.

Over the years we could end up with greatly increased taxes coupled with much less money being raised in the form of flip taxes than the privatizers hope for. The only way to deal with this situation would be to make large increases in the maintenance charges for our apartments.
Michael Altman

To this also the proponents have an answer:

In his letter (Jan. 19 – 25), Michael Altman reiterates the erroneous belief of those who oppose the reconstitution of Southbridge Towers as a shared equity cooperative that only by remaining under Mitchell-Lama can Southbridge remain affordable. While risk is a component of any financial transaction, those who are uncomfortable with accepting any degree of uncertainty will be permitted under a reconstitution plan to opt not to participate.

Procedurally, this is a hugely important point: even if the property privatizes, those that remain as tenants will preserve the exact same bargain they had before.  The Mitchell-Lama privatization is thus economically identical to a UK council housing (public housing) ‘right to buy’ privatization.  As I posted back in May, 2005:

More than two million people have bought their council homes since Margaret Thatcher gave them the right to buy in 1980. 

 

Right-to-buy, a quick primer

 

Under right-to-buy, residents in housing estates (as public housing is known) who have lived there in a ‘secure tenancy’ may be eligible to buy their apartments, usually at a discount from fair market value, which discount is recaptured (‘clawback’ in British parlance) if the home is resold within specified intervals.  Once the home is purchased, the tenant is now a homeowner within the home association still run by the same housing council as before, so the new homeowner is responsible for his or her share of charges.  

0315_rtb_garage

A UK council housing property with right-to-buy: can you spot the garage of the right-to-buy owner?

As in UK right-to-buy, those who decline to be owners can remain as renters on the same terms as before:

Those who opt out will be guaranteed that their future maintenance increases will be no greater than those offered to residents of rent-stabilized apartments, thus providing them with greater maintenance certainty than they would have by remaining in Mitchell-Lama.

Wallace Dimson

[Continued tomorrow in Part 7.]

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One man’s windfall is another man’s score: Part 5, “You hit the lottery when you came in here”

December 8, 2014 | Affordability, Affordable Housing, Co-ops, Democracy, Housing, Markets, Mitchell-Lama, Ownership, Privatization, Urban renewal, Urbanization, US News, Zoning | No comments 156 views

[Continued from Friday’s Part 4 and the preceding Part 1, Part 2, and Part 3.]

By: David A. Smith

As we saw yesterday in Part 4, windfall is a term that we apply to someone else’s good fortune, and I submit we make that value judgment based on a cluster of attributes, of which the first is: Was the money gained suddenly?

sudden_gunfire

But if the sign warns you of it, will it really be sudden?

Sources used in this post

New York Daily News (October 23, 2005; deep purple font)

Downtown Express, Letters to the Editor (November 2, 2006; robin’s-egg blue font (Michael Altman), gray-blue font (Jared Brown), teal font (Rosemarie Ferrara), and navy blue font (Michael Wishner))

Downtown Express, Letters to the Editor (February 1, 2007; lime font (Wallace Dimson), olive font (Stephen Seifer), and forest-green font (Seymour Schleimer))

Downtown Express (May 24, 2007; pink font)

Law360 (October 4, 2012; plum font)

Travel Studies blog (April 23, 2013; brick-red font)

Wikipedia on co-op flip tax; tangerine font

Should we privatize: No and Yes (Downtown Express, June 19, 2014; No from Victor Papa in red font, Yes from Jesse Mandel in green font)

DNA Info the vote (October 1, 2014; charcoal-gray font)

The Broadsheet Daily (October 7, 2014; pecan font)

Downtown Express (October 15, 2009; caramel font)

Broadsheet Daily (November 6, 2014)

The New York Times (November 14, 2014)

Because Mitchell-Lamas are highly regulated, any two minutes’ Googling will produce many more factual links, such as this, this, this [Its 2013 audited financial statement], this (search for ‘Macrucilli’), and this; eventually, in mental-health self-defense, I had to stop.

Beyond suddenness is a related but distinct idea: Did those who are now reaping rewards expect to get them?

2.B.. Is it unexpected?

lucy_surprises

Some of them are good ones, Lucy

Obviously the equity hasn’t been unexpected these last seven-plus years – it’s been ‘expected’ in 900-page descriptions –

In response to letters to the editor on the issue of privatization at Southbridge Towers (Letters, Oct. 20 – 26, “Betting the house” and “Wait for Southbridge’s report”), I suggest to the readers who object even to being open-minded about the issue of privatization, to at least wait for the facts and figures the unbiased study will present us with, rather than spread the usual scare tactics and misinformation that has been circulating around Southbridge for the last 35 years.

What about way back in the 1970s – what did the first residents think or expect when they were moving in?

If urban renewal projects were meant to reverse the flow of fleeing middle-income families from Manhattan, Southbridge residents are the evidence of its overwhelming success.

Certainly urban renewal was meant to stabilize cities – to cut out ‘the rot’ and hold the community, economy, and people in place by showing reinvestment. 

For over 40 years, the people here have built and maintained a vibrant integrated community, characterized by a lively neighborhood spirit –

But they couldn’t have expected the verticality (and hence value) that has overtaken lower Manhattan, especially in the last twenty years:

– long before Manhattan’s highest residential tower, the 76-story Gehry Beekman Tower, was built directly across the street.  

gehry_beekman_tower

Gehry Beekman Tower in modern Manhattan: shiny, vertical, expensive

Dominating the skyscape as it overshadows S.B.T., and existing in an exclusive world of its own, this luxury steel and glass tower, and others sprouting all over Downtown Manhattan, seem to provoke the inevitable significant question Southbridge Towers’ shareholders are now facing: maintain housing that is affordable, or convert it to market rate housing, subjecting it as if a commodity, to the vagaries of the market.

The residents did expect, however, that after twenty years they could go market if the conditions favored it:

I would also mention that Mitchell-Lama was not designed to run in perpetuity – Southbridge has been in the program for over 36 years – well beyond the intended 20 years it was slated for.

Rosemarie Ferrara

In fact, the residual expectation after twenty years was a key plank in the program.  The very first Mitchell-Lama’s (1955-1959), restricted conversion for 35 years, and the state of New York found it wasn’t attracting enough developers willing to build properties and wait that long for residual value.  (A similar demotivational feature characterized the FHA Section 608 program.)  So the opt-out date was shortened from +35 years after completion to +20 years after completion, where it has remained ever since.

2.C. Is it large?

The numbers are juicy:

juicy_burger

Wanna a bite of that equity?

Southbridge commissioned a study last year [2006] that concluded that apartments ranged in value from $300,000 to $1 million.  [Undoubtedly the market values will be higher now – Ed.]

Assuming $650,000 average value today, the 1,651 apartments have an aggregate value of $1.073 billion – yes, b for billion.

carl_sagan_young

Billions … of dollars?

Further, at that price and assuming a 1970 original price of $17,500 apiece, the yield works out to 8.8% annually, which is certainly scrumptious.

“Do the math: You hit the lottery when you came in here,” said Paul Hovitz, a long-time resident of Southbridge.

helaina_denise_paul_hovitz

Mr. Hovitz, his wife and daughter, 2003

(On the evidence, Mr. Hovitz is a dedicated community advocate in the best sense; a retired teacher, he has long lived in the area, perhaps his entire life, and serves on several boards.)

Over the same time period (1970-2013), large-cap stocks returned 10.4% annually (and bonds 7.9%) annually – about the same as an investment in Southbridge Towers.  (Occupancy costs are a wash because the residents paid those monthly for the 43+ years.)

Even so, when multiplied against 1,600 apartments, the whole property may well be worth $1 billion when privatized – and that is a large number.

As you read further, recognize the unique feature of limited-equity co-operatives: people with no mandatory qualifications (other than residency) are tussling over a billion-dollar-asset, so we must allow them their passion, their emotions, and their occasional infelicity with financial concepts. 

In my experience, when those not used to handling large sums are suddenly granted control over them, they take their responsibilities very seriously but are at the same time understandably terrified that anyone who shows up in a suit and with a facility for fast-talking words and numbers is out to cheat them.  Unfortunately, often they are right.

2.D. Is it unearned?

For most of us, our perception of ‘windfall’ (like our perception of ‘greed’) is tinged with envy.  We’re as deserving as that lout, we think, why did he get lucky and not I? 

It seems wrong, they say, for a handful of people who were lucky enough to win a housing lottery to pocket profits from a public investment.

“To say that you have sacrificed for downtown is ridiculous,” said Paul Hovitz.

Sacrificed, or risked?  What is the value of taking a risk, as the man asked the surviving veterans?

Charles W. Smith

What is the value of your having taken risks?

In 1970, S.B.T. residents pioneered residency south of the Brooklyn Bridge – an area that was blighted and desolate, and where no one wanted to live.

les_early_1970s

Lower East Side, early 1970s

As I posted some months ago, this section of the Lower East Side has had a tumultuous history, with some parcels cleared of blight for urban renewal.

Warriors_on_subway

Xenophon and the Ten Thousand, Seventies style

Mr. Hovitz’s perspective has been disputed by two other long-time Southbridge residents:

We all deserve to be rewarded for our efforts and if the report shows that it would be a good thing to reconstitute Southbridge into a normal co-op and own an asset that we can pass on to our heirs, then I think it’s time to put selfishness aside and let open minds prevail. It boggles the mind that the same people demonize the idea of privatization when they have not even seen the results of the report.
Rosemarie Ferrara

Those sentiments were echoed by another resident:

I have lived in Southbridge Towers for approximately 35 years. In the beginning the sidewalks would roll up at around 7 p.m. The streets in and around Southbridge would be deserted. Today the area is bustling, in part due to us, the pioneers of Southbridge Towers.

Michael Wishner

I’ve periodically posted about urban pioneers (here in 2005, profiling New Yorkers who moved from TriBeCa to Pawtucket) and (here in 2006) about the retrospective devaluing of risk-taking when the pioneering investment works and those who didn’t risk snipe at those who did. 

2.E. Is it out of proportion?

Related to our judgment that someone else’s good fortune is a windfall is that it’s just ‘too much’ – which is as hard to define as Justice Stewart’s pornography (“I know it when I see it”) or Justice Holmes’ regulatory taking (“when government goes ‘too far’”).  Find ten bucks on the sidewalk and you get a Cool! from your friends; find a hundred thousand and people think you’re dishonest for keeping it.

“I do think that there should be outrage,” said Christine Fowley, the president of the board of Cooperators United for Mitchell-Lama, an organization with members from Mitchell-Lama co-ops throughout the city. “People who’ve been long subsidized are able to walk away with a profit while pulling up the ladder. It’s just so wrong. It’s just not O.K.”

2.F. Were its beneficiaries passive or active?

Similar to disproportion is the idea of activity – did you go get the resource, seize the opportunity, or otherwise act, or were you a couch potato on whom the money just happened to land?

david_feiner_shop

Mr. Feiner in his Goliath Woodworking shop

David Feiner, 55, a cabinetmaker who moved to Southbridge Towers in 1981 with his wife, Susan, 53, renovated the couple’s three-bedroom apartment, installing Brazilian hardwood floors throughout, custom cabinets in the kitchen and whirlpool bathtubs in the two bathrooms.  

Mr, Feiner and his wife acted in the manner of classic home-improvers everywhere; with security of tenure and controllable occupancy cost, they upgraded their home. 

If the apartment stays in Mitchell-Lama, Mr. Feiner says he will never recoup his $60,000 investment.

A cynic would say that the Feiners invested to improve the quality of their living accommodations and without expectation of recoupment upon privatization.  A technician would reply that in 1981 Mr. Feiner could reasonably expect Southbridge Towers to privatize in 1990 or shortly thereafter, as it was legally entitled to do (this was before Congress breached the owners’ contractual rights to prepay, and before the whole ex-post-facto forced extension of affordability movement arose).

If it leaves the program, he could sublet his apartment and travel once he retires. Eventually, he could sell or leave it to his children, who are grown.

As we’ve seen, in New York City inheritance of property rights extends to rent-controlled tenants (even if they are recently and questionably adopted children), and it probably applies to Mr. Feiner’s potential ability to leave his shares to his children … but what if his children don’t want to live in New York?

[Continued tomorrow in Part 6.]


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One man’s windfall is another man’s score: Part 4, “Ten more ballots than required”

December 5, 2014 | Affordability, Affordable Housing, Co-ops, Democracy, Housing, Markets, Mitchell-Lama, New York City, Ownership, Privatization, Urban renewal, Urbanization, Zoning | No comments 288 views

[Continued from yesterday’s Part 3 and the preceding Part 1 and Part 2.]

By: David A. Smith

In yesterday’s Part 3, I completed our framing exercise by listing the regulatory obstacles to Southbridge Towers’s becoming a market-rate co-operative and the political headwinds that it will face in addition to those procedural challenges.

RAIN STORM

Do they always have fans blowing you away from your goal?

Sources used in this post

New York Daily News (October 23, 2005; deep purple font)

Downtown Express, Letters to the Editor (November 2, 2006; robin’s-egg blue font (Michael Altman), gray-blue font (Jared Brown), teal font (Rosemarie Ferrara), and navy blue font (Michael Wishner))

Downtown Express, Letters to the Editor (February 1, 2007; lime font (Wallace Dimson), olive font (Stephen Seifer), and forest-green font (Seymour Schleimer))

Downtown Express (May 24, 2007; pink font)

Law360 (October 4, 2012; plum font)

Travel Studies blog (April 23, 2013; brick-red font)

Wikipedia on co-op flip tax; tangerine font

Should we privatize: No and Yes (Downtown Express, June 19, 2014; No from Victor Papa in red font, Yes from Jesse Mandel in green font)

DNA Info the vote (October 1, 2014; charcoal-gray font)

The Broadsheet Daily (October 7, 2014; pecan font)

Downtown Express (October 15, 2009; caramel font)

Broadsheet Daily (November 6, 2014)

The New York Times (November 14, 2014)

Because Mitchell-Lamas are highly regulated, any two minutes’ Googling will produce many more factual links, such as this, this, this [Its 2013 audited financial statement], this (search for ‘Macrucilli’), and this; eventually, in mental-health self-defense, I had to stop.

As the regulators and the politicians have their say, their views may be colored by moral judgments on the question we asked in Part 1: Is this a windfall?

kobe_puzzled

Are you kidding me?

2. Is it a windfall?

financial_windfall

It just falls from the sky, and all you have to do it pick it up

Before we can decide if Southbridge Towers’ happy economic prospect is a windfall, we should ask ourselves, what is a windfall, anyhow?

The 1,082 “yes” votes — 10 more ballots than the required two-thirds margin for privatization — came after a lengthy, heated and complicated debate at the complex.

The dictionary is minimal help, defining it only as ‘an unexpected, unearned, or sudden gain or advantage’; and Wikipedia cites “gains from demutualization (as in insurance companies or credit unions), unexpected inheritance, and lottery wins.  Nor is the Ambrose Bierce-style definition – a windfall is a lot of money suddenly gained by someone else – much practical use. 

Instead, let’s define a windfall based on some common-sense criteria: sudden, unexpected, large, out-of-proportion, unearned, passive, and riskless.

Windfall, defined

When it comes to public policy and private benefits, we human beings instinctively judge whether something is a windfall is judged based on seven factors:

·         Sudden.  Did the good fortune happen suddenly?  ‘Good fortune’ has to include both the liquidity (receiving the actual cash) and its accumulation or entitlement.  A trust fund inheritance may become ours to spend at age 25 and our birthday is a sudden event, but the trust fund was established years or decades ago.

·         Unexpected.  Was the money unexpected?  Before the happy event, could we reasonably have anticipated this might happen?  It’s one thing to have had no foreknowledge even of the possibility, quite another to have been Francis-Underwood-ing your way into position.

·         Large.  Is it a big prize?  Nobody begrudges the day you found a ten-dollar-bill on the sidewalk with nobody in sight – quite another if it’s three bundles of $10,000 apiece (to say nothing of your fears that somebody will come looking for them).

·         Out-of-proportion.  Are the gaps between winners and non-winners stark?  Akin to the idea of randomness is that of but-for-this comparisons: If Goofus gets a million while his twin brother Gallant gets nothing, our sense of relative equities is aroused.

·         Unearned.  Did you ‘earn’ it?  Our concepts of when gain is earned are themselves a bit muddled, but one is supposed to have demonstrated virtues – work hard, be truly clever, follow the rules, be honest and upright, help your fellow man, and so on.  Didn’t invest, didn’t risk, didn’t invent.  Google’s IPO made a great many people millions or billions of dollars but few Americans would begrudge them the payday they got from ‘building that’.

·         Passive, not active.  Did it fall in your lap, or did you go get it?  If D. B. Cooper’s suitcase fell from the sky and exploded in your back yard, that’s a windfall; if you heard a tale of Blackbeard’s gold on your island and dug for it, that may not be.

·         Risk-free.  Did you show courage when courage was needed?  We give veterans benefits and honor, even if they came through their service or their war without a scratch, because we know they took the risk when it had to be taken.

jed_clampett_oil

A poor mountaineer, barely kept his family fed

Testing that definition, we can safely say that Jed Clampett got a windfall (“And then one day while he was shootin’ at some food/ From up in the ground came a-bubblin’ crude” – note the role of real estate in the perception of windfall), as did those lucky souls on whom John Beresford Tipton bestowed his generosity.

millionaire_cashiers_check

This is a cashier’s check for one … million … dollars

On the other hand, Mark Zuckerberg didn’t get a windfall, nor did Justin Bieber, though in both cases their sudden wealth is out of proportion to their recent past. 

justin_bieber_stache

Hey, I made eighty million last year

The decision to stay or go is fraught, causing deep rifts among shareholders who have often lived together for decades. The debate pits those who would like to see their complexes remain affordable in perpetuity against those who would like to benefit from the rising housing market.

Affordable … for whom?  The question is harder to answer than its askers think.

In a neighborhood like the financial district, where the average sales price is $1.1 million, according to CityRealty, the temptation to cash in is hard to resist.

dog_and_treat

“I can resist everything except temptation.”

With so much money at stake, tensions flare. The Southbridge offering plan anticipates that a shareholder selling a one-bedroom apartment for $550,000 could walk away with $325,000 cash after paying substantial fees and taxes.  The largest unit, a three-bedroom with a terrace, could sell for nearly $1 million.

In a bit we’ll return to the arithmetic of ‘fees and taxes’ arithmetic (the city and state will be big financial winners too, but for now let’s look at it for the shareholders (often charmingly called ‘co-operators’ in the record), applying our seven-attribute discussion.

2.A. Is it sudden?


As the saying goes, it can take decades to become an overnight success.  Here’s a rough timeline of events.

manhattan_1970

Lower Manhattan, 1970
The Two Bridges public housing property has been developed (just north of the Brooklyn Bridge off-ramp at right)

What will be Southbridge Towersis a cluster of non-descript low-rise buildings just to the bridge’s south.

Southbridge Towers: Basic timeline

·         1955: Mitchell-Lama statute enacted.  Eventually 269 properties totaling 105,000 apartments will be built under the program.

·         1970: Property completed, occupied.

·         1990: Twentieth anniversary of completion: becomes legally eligible for Mitchell-Lama dissolution.

·         Sometime before 2005: Southbridge Towers votes against privatization.

·         October, 2005: Board authorizes privatization study (precondition for privatization).  Vote is 740 Yes, 353 No.  (68% approval, 66% of all shareholders voting.)

·         May, 2007: Supporters of privatization win a majority of seats on the co-op’s board; Wallace (Wally) Dimson becomes board president, succeeding John Fratta.

·         April, 2014: Plan of dissolution/ privatization distributed to all residents (900 pages, complete with extensive financial schedules).

·         September, 2014: Residents vote to privatize.  (1,082 out of 1,607 vote Yes.)

·         November, 2014: Voter results submitted to the state for certification.

tompkins_square_manhattan_1990

Plus ca change: Tompkins Square protest, 1990

Relevantly for our purposes, the privatization window was unlocked in 1990, and yet 17 years passed before privatization rose as a residents’ priority:

Residents of Southbridge Towers in favor of privatizing the middle class housing complex won control of the board of directors May 1.

Dedicated AHI blog readers will recall that in Boston’s Harbor Towers (which began life as rental and went condo), internecine battles over control of the board were frequent, protracted, and often bitter.

The new board then elected Wally Dimson, one of the leaders of Southbridge Rights [The pro-poor privatization group within the complex – Ed.], as its new president. In one sense the privatization group had nothing to lose in the election since no one who favors leaving the Mitchell-Lama rent protections was up for reelection on the board, but had Southbridge Rights not picked up seats, it would have been a clear signal that their effort to win full ownership rights of their apartments would have been in trouble.

manhattan_2007

Manhattan 2007: Southbridge Towers is just visible

Thus, in the 2007 board election, five anti-privatization board members were running for re-election, and four of the five lost to pro-privatization challengers.  Instead of repudiating a privatization movement, that election endorsed it:

Residents elected four of the group’s five member-slate to the 15-member board. John Fratta, who was president of the Seaport complex’s board before the election, was the only candidate who opposes privatization to be elected and he got the fewest votes of the winners. Fratta was on vacation and could not be reached for comment.

john_fratta_on_vacation

John Fratta (on vacation in Italy, to judge buy the background)

Dimson said the effort to leave Mitchell-Lama will continue. “We still think it’s in everyone’s best interests to be given the equity they are legally entitled to,” he said. “It won’t adversely affect maintenance.”

Elections have consequences:

At Southbridge Towers there are two committees representing two points of view on the privatization of the co-op. These are Southbridge Rights, which by its very name is supposed to represent all the people of the co-op. The other is the SBT Cooperators for Mitchell-Lama.

Southbridge Rights does not represent all the residents, but is merely a committee of people which has convinced a large amount of co-operators about the advantages of going private.  Their vested interest is obtaining the “market value” of the apartments while spinning the disadvantages.

Stephen Seifer

In this case the consequences took seven years to arrive, which implies the board has had both resolution and consistency of purpose.  According to the co-op’s by-laws (link here), directors serve for three-year terms with one-third of the board elected each year (and no board member may serve longer than six years, see Article 3.11), so seven years covers two more full cycles of board members coming up for re-election; during this entire time the pro-privatization members must have controlled the board continuously. 

In fact, when it came time for the privatization decision, 14 of the 15 board members voted for it.

The dense 900-page privatization offering plan was given to residents in April, nearly eight years after residents had voted to allow a feasibility study on the issue.

The vote, originally scheduled for June, had been pushed back to September, to give residents more time to study the offering plan.

The payment – which, one must recall, still hasn’t happened yet – can’t be said to be sudden.

[Continued Monday in Part 5.]


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