Mayor Michael Bloomberg’s plan to build moderate-income housing in Hunter’s Point South on the East River in western Queens sailed through the City Council last week without opposition.
The multi-billion-dollar project is expected to be financed through a nonprofit system untested at such a scale in New York City, advocates said. The plan calls for building as many as 5,000 units of housing, including 3,000 units that would be affordable to middle-income residents.
The city plans to subsidize the development with about $130 million in capital funds in addition to approximately $220 million that will be used on infrastructure, according to Seth Donlin, the spokesperson for the city’s Housing Preservation and Development.
Housing experts, including a former commissioner of HPD, are questioning whether the project can obtain sufficient funding and whether the structure will receive the necessary federal approval.
The New York Times reported last year that the Real Estate Board of New York would spearhead the creation of a nonprofit 501(c) 3 development entity for the 24-acre site. Such a nonprofit would issue tax-exempt bonds using the city’s Housing Development Corporation as a conduit, Donlin said.
“The project is expected to build out over 10 years and bonds will be floated on a building-by-building basis, so each issuance will be relatively small,” avoiding a one-time oversupply of the bonds, he said.
Jerilyn Perine, who served as HPD commissioner from 2000 to 2004, questioned whether there would be sufficient dollars to fill the inevitable gaps that would exist in funding such a moderate-income project. Perine, who now serves as executive director at the Citizens Housing and Planning Council, said there were good and bad aspects to creating the nonprofit entity.
A benefit of the structure is that it does not count against the limited supply of private-activity, tax-exempt bonds that are available for affordable housing development in the city, she said. Also the city does not shoulder the cost of the bonds.
She saw a possible downside if there was a financial gap that needed to be filled for the development. The proposed nonprofit structure does not include the ability to raise equity from tax credits, and it is unlikely private equity could invest in a nonprofit deal. Other public funds may be needed to fill the gap, she said.
The 501(c) 3 bonds “are not really designed to attract private equity in the deal,” she said, but added, “I assume this is being worked out.”
The plan would develop the largest subsidized project in the city since Starrett City opened in Brooklyn in 1974.
501(c) 3 financing is not new in New York State. The state’s Housing Finance Agency arranges such bonds for projects, but nothing of this magnitude has been tried, housing experts said.
Another hurdle is that the Internal Revenue Service would need to determine that it was a bona fide nonprofit.
Brad Lander, director of housing advocates at the Pratt Center for Community Development, questioned whether the IRS would approve the plan.
HPD’s Donlin said the agency would file its application with the IRS in “the very near future,” but did not give a specific date. “We expect to make a strong argument to the IRS … and there is a strong chance they will say yes,” he said.
The city wanted to break ground on Hunter’s Point South by the end of 2009, Donlin said.