De Blasio’s big tests

The mayor faces serious challenges to his agenda on affordable housing, rezoning and neighborhood development

The Astoria Cove project in Queens and Mayor Bill de Blasio
The Astoria Cove project in Queens and Mayor Bill de Blasio

Nobody ever said the job would be easy. But as Mayor Bill de Blasio moves deeper into his tenure, the challenges he’s facing on the real estate front are coming into greater focus.

Despite any idealistic goals, every mayor has to balance interests from all corners of the city if he wants anything to get done. For example, de Blasio needs to navigate a pro-tenant City Council that is very much behind him, while also ensuring that he doesn’t alienate developers, who he must rely on to reach his ambitious housing goals.

The mayor also needs to spur office development in Midtown, where many industry players argue that the aging supply of buildings can’t compete with the state-of-the-art structures rising in Hudson Yards, Lower Manhattan and other global cities that New York competes with to attract international firms.

This month, The Real Deal looked at four key real estate-related issues that de Blasio is facing, and what he’s doing to deal with them.

Challenge: Affordable housing preservation

The mayor largely staked his election on ensuring that lower- and middle-income residents could afford to live in New York City, and pledged to preserve and build 200,000 units over 10 years.

A key part of making that happen is the maintenance of existing affordable housing. He has declared a goal of preserving 120,000 units, which would put him ahead of his predecessor, Michael Bloomberg, who oversaw preservation of about 106,000 units between 2004 and 2013, according to figures from the city’s Independent Budget Office.

One of the biggest tests in this arena is dealing with the giant 11,200-unit Stuyvesant Town and Peter Cooper Village complex on Manhattan’s East Side, and the 3,962-unit Upper Manhattan and Roosevelt Island package known as the Putnam portfolio.

Over the past decade, the two complexes have lost thousands of affordable units. The challenge for the city is to stem that steep decline.

In 2010, at the height of the recession, the owners of Stuy Town — Tishman Speyer and BlackRock Realty — defaulted on their loan and turned over control of the complex to CWCapital Asset Management, a financial firm that represented the complex’s bondholders.

The de Blasio administration is now negotiating with CWCapital, which is trying to sell the buildings, to preserve the roughly 6,000 affordable units in the project.

The complex seen as the highest profile preservation test for the mayor.

“Because of its size and tumultuous recent history, it requires not only a commitment to long term affordability, but also some creative outside-the-box thinking,” said City Council Member Daniel Garodnick, who represents the area, and is a tenant there. “How it gets resolved will be an important measure of how the city handles its biggest housing challenges. We will forcefully resist any deals that repeat recent history and put a big target on the backs of tenants.”

CWCapital agreed in August to extend negotiations, and no deadline has been made public.

The complex’s tenants are working with Brookfield Property Partners on a tenant-led purchase bid that would include a condominium conversion and affordable housing preservation.

Meanwhile, Brookfield is at the center of another large affordable housing preservation tussle.

The Toronto-based property giant signed a contract during the summer to purchase the nearly 4,000 units in the Putnam portfolio from a group led by the New Jersey-based Urban American Management.

Almost half of those units are occupied by tenants holding a less common version of the federal Section 8 housing voucher, which in this instance remains with the tenants. That means if the tenants move, their former apartment becomes market rate.

Housing advocates want the city to preserve these units as permanently affordable.

“We would like to see some kind of preservation plan for the buildings,” said Katie Goldstein, executive director of the housing advocacy group Tenants & Neighbors.

The city acknowledged that it has been speaking with Brookfield over a deal, but had no comment on specifics.

The mayor’s efforts to maintain affordable housing will have to spread beyond the headline deals, if he is going to have a shot of reaching his goal.

And the administration is already diving into a host of issues, from a repeal of the state’s Urstadt law, which would bring control of rent regulation back to New York City from the state, to anti-harassment legislation aimed at stopping landlords from aggressively pushing tenants out.

The City Council passed legislation last month to double the maximum fines on harassment to $10,000 from $5,000.

On the Urstadt front, the administration announced in de Blasio’s 10-year housing plan that it was pushing for its “effective repeal.”

Some local advocates are aiming for a more aggressive measure: blocking vacancy decontrol entirely, which would keep the current group of approximately 1 million rent-regulated apartments in that status permanently.

“Repeal of vacancy decontrol is key,” said David Hershey-Webb, a housing attorney and partner in the Manhattan-based law firm Himmelstein, McConnell, Gribben, Donoghue & Joseph. “We have to stop losing rent-regulated apartments. I would go farther than that and call for an expansion of rent-stabilization. I think the movement on the whole should not be on the defensive.”

Another preservation tactic de Blasio is pursuing is new lending programs for property owners.

The city has arranged and contributed to a $350 million loan pool that the non-profit Community Preservation Corp. will administer, aimed at maintaining and refurbishing private properties with 20 to 100 units. It is expected to finance the rehabilitation of 7,500 units through low-cost loans to landlords.

Challenge: Affordable housing development

While it’s the pursuit of the same goal, affordable housing development is a different beast than preservation. It generally requires more capital to build a unit than to rehabilitate one, and because of that is riskier. Bloomberg struggled with new affordable development, and fell short of his initial targets.

De Blasio’s goal of 80,000 new affordable units is far more than the approximately 50,200 units that were built between 2004 and 2013 under his predecessor.

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Marquee projects like Two Trees Management’s Domino Sugar site in Williamsburg, and Alma Realty’s Astoria Cove in Queens have attracted the most attention. But insiders predict the vast majority of the 8,000 units per year needed to reach de Blasio’s target will be in projects that are not in the spotlight.

Carl Weisbrod, who de Blasio appointed chairman of the City Planning Commission, put the real estate world on notice with the declaration that all rezoning projects would require some element of affordability, under a policy known as mandatory inclusionary zoning.

“You can’t build one unit unless you build your share of affordable housing,” Weisbrod said in August.

The idea is applauded by housing advocates, but some land use insiders said such a proposal could make the permitting process less predictable and therefore make real estate sales more complicated, because buyers won’t know exactly what the city wants out of each parcel of land.

At Domino, the administration negotiated the addition of 40 units of affordable housing, bringing the total to 700 out of the more than 2,200-units planned for the $1.5 billion project. And late last month, the City Planning Commission approved the 1,700-unit Astoria Cove project, which includes 345 affordable units. Critics said that number isn’t high enough, and also questioned the pricing plan.

The project now moves to the City Council for a final vote.

Subjecting projects like these to multiple levels of review adds another level of unpredictability to the development process, further driving up costs and making developers nervous about complex, large projects.

While these large projects are grabbing attention, insiders reiterated it’s smaller projects that will make up the lion’s share of new affordable construction.

Yet today, developers are cooling their heels, waiting for City Hall to release details on programs that will be used to underwrite and finance such projects.

Specifically, they are waiting for new term sheets, which define the conditions under which loans are made and how much the city will provide to developers per unit. They are expected to be released in the coming months.

“We have not seen the particulars, but we are very enthusiastic,” said Jolie Milstein, CEO of the trade group New York State Association for Affordable Housing. “We would rather they take the time and get it right than rush to get it out. That can cause a lot of uncertainty or confusion.”

But for some, the movement is not fast enough.

“The mayor has only discussed his affordable housing agenda in macro terms and has discussed very little with regard to specifics,” said Robert Knakal, chairman of the commercial firm Massey Knakal Realty Services. “This has developers concerned that the percentage of affordable units [required] will go up, which dramatically impacts the economics of these sites.”

Challenge: Office development

Just before leaving City Hall, Bloomberg abandoned his efforts to rezone a major swath of Midtown East that would have allowed some developers to build taller and revitalize the aging office stock there.

The issue has been very high on the industry’s agenda ever since.

The administration’s first major move was a bold one: Rather than tackling the entire area head on, it approved a rezoning for one carved out portion.

The move was a boon to SL Green Realty, the only developer with advanced plans for new construction in the five-block carve out known as the Vanderbilt Corridor.

To some, that raised questions of whether the deal would help only one company. Sources close to the city and developer vehemently rejected that characterization, and maintained the project has a clear public benefit, pointing to the $210 million SL Green pledged to spend to rehabilitate the area through subway and street improvements.

Kathryn Wylde, CEO for the business group the Partnership for New York City, dismissed the idea that the targeted rezoning was done just for SL Green.

“I think that it’s a demonstration that [the administration is] pro-development and wants to move these big projects forward,” Wylde said.

But the industry is still waiting to see what de Blasio will do in terms of rezoning the rest of Midtown East, a change that they argue is desperately needed in order to upgrade the office supply and compete with other global cities.

Of course, doing so would also bring major financial benefits to them, because it would allow them to charge higher rents and sell their buildings at higher prices.

The Vanderbilt rezoning is expected to be certified this month by City Planning.

Without rezoning, “landlords will not have an incentive to invest in new construction, and will see a continued migration away to the West Side,” said John Ryan, a leasing broker at the commercial services firm Avison Young.

Challenge: Neighborhood development

The de Blasio administration is looking to increase development in a number of neighborhoods citywide. The challenge is to bring significant and sustained development, while at the same time involving the community in the process. That has been a difficult task since figures such as legendary Greenwich Village activist Jane Jacobs figured out how to oppose powerful development forces like Robert Moses.

City Planning has already started a comprehensive analysis of two neighborhoods that flew under the radar during the last boom, as part of an ambitious plan to review 15 local areas for new development. The first two on tap are East New York in Brooklyn and an area dubbed Cromwell-Jerome in the western portion of the Bronx.

“East New York is a good example of an area [that’s] underdeveloped despite having significant transportation access,” Wylde said.

City Planning’s plans for East New York have not yet been released, but another analysis the agency made public in June centered on major development proposals around the Broadway Junction subway and Long Island Rail Road stations in the neighborhood. It called for industrial development south of the station, and significant commercial development around the transit hub.

The report used the Forest City Ratner retail and office building on top of the Atlantic Terminal in Downtown Brooklyn to illustrate the kind of large development needed to anchor the area, which is now under-utilized.

The other 13 neighborhoods have not yet been identified.