The record-setting sale of Stuyvesant Town and Peter Cooper Village — along with Clipper Equities’ controversial bid to purchase Starrett City — have focused government and media attention on the New York City real estate industry in recent months. The attention may presage a changing climate with greater scrutiny and the prospect of a regulatory backlash, some brokers, activists and local officials say.
The $1.3 billion Starrett deal was nullified by the federal government last month, when Alphonso Jackson, the secretary of Housing and Urban Development, rejected the sale of the nation’s largest government-subsidized housing complex on the grounds that the buyer did not adequately address how it would retain affordability at the complex.
“Until Jackson’s ruling, the battle over affordable housing in New York has largely been won by the real estate industry. The boom cycle has resulted in relatively little government scrutiny as deals set records.
But as markets overflow with capital in search of deals, the search is spilling over into large-scale affordable housing complexes and middle-class dwellings, a big change from earlier major transactions.
“The large numbers being talked about drew people’s attention,” said Neill Coleman, spokesman for the city’s Department of Housing Preservation and Development. “There’s a renewed interest in what the city is doing from the press, from advocates and from elected officials.”
Perhaps in response to the shifting climate, officials at the Real Estate Board of New York, the powerful trade group, are speaking more about the need for affordable housing, and mention of the subject at recent industry events seems to draw prolonged applause. The board last month unveiled a proposal for affordable housing in Long Island City in Queens, although some housing groups said they were not sure REBNY was the right organization to undertake such a project.
Stephen Ross, the group’s chairman, said he was in favor of nixing the Starrett sale because of concerns that the complex wouldn’t remain affordable.
“I think it was really important and crucial to the city that the federal government stepped in and denied that sale,” Ross, who is also chairman of the Related Companies, said at a forum held last month at Lincoln Center by The Real Deal. “I think the one thing New York really needs is more workforce housing and affordable housing. Because at the price it was being sold at, there would have been no choice but to convert a lot of those units to market rate.”
Industry senses a shift
Some developers and brokers say they haven’t heard an outcry and public controversy over real estate to the same degree since 2005, when unions and preservationists cried foul over the announcement of plans to convert the Plaza Hotel into residential housing. But that was an isolated incident, and the din subsided within a few months, after developers cut a deal with the unions.
The latest hue and cry over affordable housing stock in New York comes at a time when a number of regulatory issues could have far-reaching implications for some developers. That includes efforts to revise the Mitchell-Lama program that’s guided affordable housing development for decades, as well city legislation to limit 421-a tax abatements for new development.
“As soon as budgets get done in early April, we’re expecting activity on a whole host of issues in the legislature,” said Jonathan Rosen, a spokesman for Acorn, a nonprofit community housing advocacy group.
Mayor Bloomberg, Governor Spitzer and federal lawmakers representing New York all weighed in on the side of tenants during the outcry over the Starrett sale, the massive 5,881-unit Brooklyn complex.
The record $5.4 billion price paid for Stuyvesant Town by Tishman Speyer earlier was an indication of things to come, as investors prepared to pay nearly any price for large properties that can deliver steady cash flows with long-term prospect of converting affordable units into market rate. Politicians and housing officials largely piled on against Starrett after staying silent on the Stuy Town sale, which may have in part been due to be the political connections of Tishman’s Jerry Speyer — chairman of the Federal Reserve Bank of New York and an owner of the Yankees, some observers noted. His profile is far higher than the relative anonymity of Clipper head David Bistricer, who lives in Borough Park in Brooklyn.
The public outcry over Starrett is only the most obvious sign of a changing climate.
Since taking office in January, Governor Eliot Spitzer, the son of a real estate tycoon, has applied the same consumers’ rights sympathies he demonstrated during his tenure as New York Attorney General toward the real estate industry. Already he has repealed a set of proposed changes that would have weakened rent regulations and has appointed pro-tenant officials to state housing posts.
“It’s been like night and day,” said Rosen. “The new governor has been much more aggressively pro-tenant.”
Meanwhile, in New York City, changes in the way the city collects taxes from assessed property owners went into effect at the beginning of the year. The changes signal a citywide emphasis on collecting on the recent real estate windfall.
“They’re reassessing everything, taxes are going through the roof, and it’s killing everyone,” complained Brian Reilly of Reilly Mann Newell Realty Group, who said taxes on one of his company’s six-story, 35-unit buildings went from $48,000 a year to $98,000 this year. The hike is due to a change in the way the city assesses property values, taking into account the reassessment of neighboring properties that change ownership, rather than waiting until each individual building is sold to change the tax assessments.
However, it is the potential backlash from Starrett that could have the most far-reaching consequences on government policies.
REBNY president Steven Spinola downplayed industry concerns over further-reaching government policy shifts.
“I think if Starrett City or Stuyvesant Town was proposed three years ago, or three years from now, you’d get the same kind of response,” Spinola said. “But I don’t see either one of them being a change in attitude.”
Maybe so. But the increased scrutiny from Albany and in the media is clearly causing some nervousness in the real estate industry.
At a REBNY panel in late February, CB Richard Ellis vice chairman Darcy Stacom, broker of both the Stuyvesant Town and Starrett deals, said she feared the “influence of politics on private transactions.” She declined requests by The Real Deal for an interview.
Mitchell-Lama expansion mooted
Front and center among the causes of potential regulatory shifts is the increasingly vocal worry that New York City is losing affordable housing from Mitchell-Lama laws.
Created in 1955, the Mitchell-Lama laws offered developers low-income loans and tax breaks to encourage them to build affordable housing. Two years later, they were amended to allow developers to buy out of the program after 20 years. The law provided some level of protection for tenants in those buildings: After leaving the Mitchell-Lama program, units remain rent stabilized until the rents exceed $2,000. Rent stabilization doesn’t apply to units built after 1974.
Since 1996, the city has lost about 24,000 units, or 38 percent, of Mitchell-Lama apartments. A number of those have increased dramatically in rent. As a result, tenant groups have been clamoring to pass legislation that would protect post-1974 housing from the immediate rent spikes for years. Vito Lopez of Brooklyn reintroduced the legislation — first introduced in 2003 — earlier this year.
This time, both Bloomberg and the New York Times pointed to Stuyvesant and Starrett deals and called on the legislature to pass the expanded legislation. Housing advocates are hoping the long-blocked initiative might finally gain some traction.
“There’s much, much greater attention to the issue than there has ever been,” Rosen said. “That has changed the political calculus for downstate Republican senators who generally block the legislation.”
“We’re really seeing a hyper-overheated speculative bubble that’s pushing prices per unit developers are willing to pay — and banks are willing to finance — to heights virtually unimaginable a couple years ago. From our side of the table there’s almost like a new math.”
Rosen suggested that with their majority in the Senate whittled down to a mere two seats, a number of Republican lawmakers talking about retirement, and Spitzer making an issue of affordable housing, the legislation looks like it could pass. But he said tenant advocates want the mayor and the state to go even farther.
“We see a role for regulation,” Rosen said. “But we think that will only get you a small part of the majority down the road.”
REBNY’s Spinola dismissed Acorn’s position as wishful thinking. “Acorn,” he said, “is doing what it’s always done, which is calling for things that are not practical.”
“Both sides are already furiously lobbying legislators in Albany on a number of issues. The renewal of the 421-a tax credit law is moving on a parallel legislative track. That law is set to expire at the end of the year, and the mayor signed a revised renewal plan in December to amend the law and expand it to generate more low-income housing.
Enacted during the height of the 1970s fiscal crisis, when residential housing construction plummeted, the 421-a program offers a tax break on any newly built multi-unit housing development. The city amended the law in the 1980s to prompt the building of more affordable housing. Under those changes, Manhattan developments between 14th and 96th streets are only eligible for the tax break if 20 percent of the units are affordable.
The newly revised law — which is now under consideration in Albany — expands that so-called exclusion zone considerably, to everything in Manhattan south of Harlem, as well as to parts of the outer boroughs.
The legislature is currently considering the law, and the real estate industry has been aggressively lobbying to roll back some of the city’s proposed changes. But in the newly politicized post-Stuyvesant, Starrett City environment, nothing is assured.
Spinola said the new laws will result in less affordable housing, not more. Builders will turn to government programs that offer low-interest bonds instead, he said. But only $1.5 billion in bond funding is approved, not nearly enough to finance the amount of new projects in the pipeline.
“I see greater competition for available funding in part because of changes in the 421-a program that take away incentives to build condos,” he said.
There are somewhere between 13 and 15 projects over the next five years looking for substantial bonds, Spinola said. Five projects valued at $1.6 billion that will produce about 10,000 new units — 2,000 for low-income tenants — have been given significant green lights but haven’t been authorized yet. To get more bonds, Spinola said his members have been lobbying Senator Chuck Schumer and Congressman Charles Rangel. “My members would be happy to build more affordable housing, if it’s possible to do it,” he said. “The answer is subsidies.”