Pataki Deals Blow to Developer Donor

Governor George Pataki today issued a blow to Manhattan real-estate developer Peter Fine, one of his campaign donors, when he put on hold the developer’s application for $41 million in tax-exempt bonds and $13.3 million in tax credits.

The application, from Mr. Fine’s Atlantic Development Group, was going to allow him to break ground on two apartment towers on Manhattan’s East Side that qualified for the bonds because the apartments fit affordable-housing development program requirements.

But critics, as well as a group of Democratic elected officials, have claimed Mr. Fine’s cost-estimate for building 91 apartments on the Upper East Side and in Murray Hill was inflated, and that Mr. Fine stood to benefit by acting as the builder and absorbing the excess fees.

Last month, it was East Side democrat and State Senator Liz Krueger who crossed chambers–but not party lines–and persuaded Assembly Speaker Sheldon Silver to put a courtesy hold on the applications to a state authority that approves bond-issues–an authority on which both Mr. Silver and the Governor have representatives.

This month it was Assembly Member Sylvia Friedman, a Democrat who represents the Murray Hill neighborhood, who asked Mr. Silver after a Democratic caucus meeting Tuesday afternoon to put another hold on it.But according to P.A.C.B. protocol, a board member may only table an item once. So this time, Mr. Silver persuaded the Governor’s representative, Jay Kiyonaga, who asked that it be held Wednesday, according to a legislative aide.

That the governor should stall the plans of a major donor to his own campaign coffers–contributing $42,400 to his campaign fund since 2002, according to campaign finance records–shows how controversial Mr. Fine and his business partner Marc Altheim’s plans have become.

One of the projects would have been a 10-story building at 250 E. 60th St.; the other an 18-story one at 385 Third Ave., between 27th and 28th Streets.

Their attempts to build low-income housing in the most expensive areas of the city–at a cost of about $800,000 a unit, according to their own estimates, originally drew criticism in November when Brad Lander, the director of the Pratt Center for Community Development, argued at a public hearing that Atlantic had inflated the construction costs well above average and, by using its own construction firm, would pocket the excess.

“This construction cost exaggeration alone could amount to approximately $8 million in exaggerated expenses and thus excess profits, paid for by taxpayers, potentially going straight into the developers’ pockets,” he said, according to a written version of the testimony.

Mr. Lander, who used to run a community organization in Brooklyn that developed its own affordable housing, said that Atlantic had also relied on a nonprofit, Senior Living Options, to shelter its acquisitions from taxes. The nonprofit was set up by Messers. Fine and Altheim and is run by people linked to them. Mr. Lander said that the connections raised questions whether the nonprofit had obeyed Internal Revenue Service rules to ensure “arm’s length transactions.”

“If they used an independent nonprofit, then the nonprofit would presumably ask for more control over the project, a stake in the project, and you don’t see that here,” Mr. Lander told The Observer in an interview this month.
Messers. Fine and Altheim said that they were not making any money off of the construction company and that the high costs were due to building in Manhattan, with union labor, on small, inefficient lots and that the prices of construction materials are soaring.

They also said that they had severed all ties with Senior Living Options and had found other nonprofit partners with which to collaborate on the two buildings since the controversy erupted.

“I want to compare what I do and where I came from with where a state Senator from the Upper East Side came from,” Mr. Fine told the Observer. “I do not know anyone else out there who is trying to put up affordable housing in Manhattan.”

Sen. Krueger said in response, “For the record I did not grow up on the Upper East Side. I grew up in New Jersey and I spent 20 years in New York running anti-eviction programs, advocating for the poor and running the city’s first food bank. I am not aware of any legitimate challenges to my recognition as an advocate for affordable housing and my being knowledgeable about the technicalities about the housing crisis in New York City.”

The apartments will be regulated and rented for about $600 a month entirely to households earning 60 percent of the area median income, or about $30,000 a year. In return for keeping the apartments for low-income people, Atlantic gets to sell development rights that market-rate developers could use to add on top of zoning limits already permitted on their sites. That transaction was expected to net $58.1 million.

But the affordable housing must be situated in the same community board district or within a half-mile of it.

After Mr. Lander raised objections, the state Housing Finance Agency hired a consultant to review Atlantic’s costs–which are higher per square foot than any other H.F.A. project, even one by The Related Companies for 321 E. 21st St. proposed at the same time. But the consultant found them acceptable and the board unanimously approved the Atlantic’s application–with the exception of the representative from the Department of Finance and Taxation, who abstained on the more expensive application, for Third Avenue.

Both local community boards voted unanimously in favor of the proposals insofar as they would create affordable housing and diversify the neighborhoods economically. However, the chairman of the Upper East Side board, David Liston, told The Observer that evaluating the costs of the projects was outside the board’s purview.

William Rapfogel, chief executive of the Metropolitan Council on Jewish Poverty, says that the economic integration argument may make more sense to the people already in a neighborhood than the poor people looking for a home.

“I don’t think that for the poor and near poor for New York City the issue of having housing is far more important than having it in a particular neighborhood,” he said. “If given the choice between building 200 units in the boroughs or 50 units in Manhattan, it would be much preferable to build the 200.”

And yet Mr. Rapfogel agreed to co-develop the Third Avenue site with Atlantic after the controversy erupted.
That is because, Mr. Rapfogel said, there was no such choice: there was no competing project seeking the same pot of money.

“It is worth it from our perspective as an end user to take advantage of the dollars that are out there,” he said. “The government has to decide whether the price they are paying for it is worthwhile.”

Mr. Fine defended the projects tabled today in part because the state does not regularly use up its allotment of bonds and tax credits. While he admits it will cost the federal government lost tax revenue, it is not preventing another project from happening. The company would pay off the bonds after construction.

“There is no scarce resource,” Mr. Fine told The Observer. “The myth that three or four other affordable homes could be built with the same resources is absolutely wrong.”

“If you are trying to maximize the affordable housing that you get for the limited amount of money you have available for it, I think you have to evaluate how you are spending it,” said state Sen. Liz Krueger, who represents both neighborhoods. “Maybe not on the most expensive real estate in the world.”

- Matthew Schuerman

CORRECTION: An earlier version mischaracterized community board support of the projects.