Sen. Chuck Schumer has joined a suddenly growing chorus of critics who think Starrett City’s days as a bastion of affordable housing are decidedly numbered. The senior New York Senator said on Monday that new owner Clipper Equity, which offered $1.3 billion last week for the Brooklyn complex, will have to evict thousands of tenants and move units to market-rate.
Otherwise, the numbers for the landlord won’t add up to profitability. Mr. Schumer called on the federal Department of Housing and Urban Development to block the deal unless Clipper agreed to keep Starrett affordable:
Full release from the Senator’s office after the jump.
UPDATE: Clipper Equity emailed The Real Estate this statement on Monday afternoon:
– Tom Acitelli
SCHUMER REVEALS: HUD DUBIOUS OF STARRETT CITY SALE–VOWS TO WORK WITH HUD TO BLOCK DEAL
Senator: With a Price Tag at 1.3 Billion, There is No Way the Buyer Can Afford to keep Development Middle Class, Fears Massive Tenant Eviction With This Plan
Schumer, Chairman of the Housing Subcommittee, Vows that the Deal Will Not Go Forward Without an Ironclad Agreement from Any Buyer that Starrett Stays Affordable
Today, U.S. Senator Charles E. Schumer moved to block the sale of Starrett City, one of New York’s largest affordable housing developments located in the East New York and Canarsie sections of Brooklyn. The property is spread across 140 acres and consists of 46 towers, which contain 5,881 apartments and over 14,000 tenants. Schumer revealed today that HUD has the power to forbid the sale of this critically important middle class housing development and urged them to do so immediately. Schumer, who is Chairman of the Senate Housing Subcommittee, vowed today that he would not allow the deal to go through without an ironclad agreement from any buyer that Starrett stays affordable.
“Anyone who pays $221,000 per apartment pays off the balance of a $243 million mortgage and willingly accepts an additional $8 million a year in property taxes is going to need to charge top dollar for these units,” Schumer said. “Experts across the board agree: it will be impossible for someone paying this price not to convert the units into high-price rentals or ritzy condominiums. Without question, a sale at this price will change the character of Starrett forever.”
“New York City is in the midst of an affordable housing crisis. The continual erosion of affordable homes must be stopped — and we are saying it stops right here, right now,” said Christine C. Quinn, Speaker of the City Council. “There are many questions about this sale. The new owner’s track record includes many unsafe buildings, a cause for great alarm. We have not yet heard about how the new owners will protect affordable aparments for the families that have made their lives here. There has been talk of new luxury development — but can the existing infrastructure support thousands of new apartments? One thing we know for sure — every level of government must work together to make sure this sale is done in a way that protects the current tenants and preserves affordable housing. Any significant new development proposals for the vacant land will have to come before the City Council. We will do a thorough public review that will include looking at whether affordable housing will be maintained.”
On Thursday of last week, the prospective buyer of Starrett City, Clipper Equity LLC, offered $1.3 billion to purchase the development. This price puts per unit cost for 5,881 apartments at $221,000. Bids for the property began at $600 million and the second closest bid was $500 million below that offered by Clipper Equity. The buyer also announced his intention at that time to withdraw Starrett City from the State Mitchell Lama program by paying the balance of a $243.6 million mortgage. Withdrawing from the Mitchell Lama program would not only put thousands of tenants at risk, but it would also raise the new owners’ taxes to $12 million a year from $3.7 million. Many real estate experts believe that the high purchase price of Starrett City and the new financial obligations the owner would face would mean they would be forced to convert large swaths of the development into high priced rentals and/or condominiums.
The prospective buyer currently holds a sizable New York City property portfolio consisting of 4,768 apartments in 71 buildings. However, last week, the New York City Department of Housing Preservation and Development last week reported that there were 8,792 outstanding maintenance code violations amongst these properties.
Given the magnitude of Federal investment into the project, HUD says they have the authority to accept or reject the deal. According to HUD, property owners benefiting from federal subsidies must demonstrate that they are responsible individuals acting in the public interest. HUD has the further obligation to investigate the prospective buyers other property holdings to assess their ability to manage a large and complex development. Based on Clipper Equity’s record of thousands of violations and its lack of plan to ensure Starrett City’s affordability, it is well within the jurisdiction of HUD to reject the deal.
Over the years, Starrett City has relied on a large pastiche of Federal, State and City subsidies to ensure the developments affordability and upkeep. With a mortgage underwritten by the New York State, the entirety of Starrett City is considered a Mitchell-Lama development and as such there are restrictions on the rental prices of units and the income levels of tenants. Approximately 626 units are in the Mitchell-Lama program without any additional subsidy.
Other subsidies have been added to further underwrite the affordability of other units in the development. 2442 of the units are subsidized through the Federal Rental Assistance Program (RAP). In this program, the Department of Housing and Urban Development negotiates long term leases for tenants, paying the difference to the owner between what tenants can afford and the market rate rent for that unit. The RAP contract at Starrett City expires in 2016.
An additional 1000+ units are kept affordable through the project-based Section 8 program. In the 1980’s, then Congressman Schumer introduced legislation that attached section 8 vouchers directly to housing units, keeping them affordable after tenants vacated their apartments. Now a standard program, this project-based Section 8 legislation was amongst the first of its kind when it was introduced at Starrett City. Eligible tenants pay 30% of their income towards rent, with HUD making up the difference to what they determine is fair market rent for the unit.
1611 of the units are further underwritten by Section 236 rent concessions. This is funded through Interest Reduction Payments (IRP) administered by HUD that reduces the interest on their mortgage down to 1%. These tenants generally have incomes ranging from $40,000 – $60,000, making them ineligible for RAP or Section 8.
In an effort to ensure that Starrett City remains affordable for the next generation of working families in New York City, Senator Charles E. Schumer today called for the Federal Department of Housing and Urban Development to reject this sale, and any other sale, unless the new owner can sign an iron-clad agreement agreeing to those stipulations.
Today, Schumer also announced that there are measures that he will pursue in the event the tenants are put in imminent risk. The Senator said that if the owner opts-out of the Mitchell-Lama program, or any other subsidy program, he will ask Secretary Jackson to provide project-based section 8 vouchers for 100% of those units. This will keep the apartments affordable for the long term.
Additionally, Senator Schumer floated an idea for a new program that would allow any new owner to convert the 2442 apartments subsidized by the federal Rental Assistance Program (RAP), which expires in 2016, to project-based Section 8. This would provide greater certainty that the units would be affordable well into the future.