Cuomo clears path to Albany

<i>The AG has come down hard on the real estate industry -- so why are developers filling his coffers?</i>

From left: Andrew Cuomo; Cuomo with former governor and attorney general Eliot Spitzer and current Governor David Paterson
Four years ago, Andrew Cuomo was a newly divorced lawyer living in a one-bedroom apartment Downtown. Now, he’s likely preparing to move into the Governor’s Mansion.

The eldest son of former governor Mario Cuomo has effected a miraculous political comeback since his failed 2002 gubernatorial campaign, thanks to what even his detractors call a remarkably successful turn as attorney general. And while anything can happen in politics, right now Cuomo is viewed as a virtual shoo-in as New York’s next governor — despite the fact that he hasn’t yet officially announced his plans to run.

His candidacy, as has been reported, is getting serious support from the real estate industry. Of the $18.28 million in campaign funds Cuomo has raised since 2007, $2.79 million, or 15.2 percent, has come from real estate and construction interests. At the equivalent point during the last gubernatorial campaign, then-Attorney General Eliot Spitzer raised only $2.15 million, or 8.4 percent, from the industry.

At face value, that seems odd, since Spitzer — son of developer Bernard Spitzer — had strong ties to the industry. Moreover, as AG, Spitzer had a reputation for hammering Wall Street while leaving real estate largely to its own devices. Cuomo, by contrast, has come down much harder on the industry. He hired new staff to step up enforcement of developers who don’t live up to their promises, and set up a system that makes it easier for condo buyers to get out of their contracts without going to court.

So why are developers coughing up so much money to support Cuomo? For one, since the bursting of the real estate bubble, the AG’s office — and the governor’s office, for that matter — has become crucial to the industry. As they stare down financial ruin, some developers no doubt hope their donations will make Cuomo overlook delays and problems at their sites, or at least be lenient with the penalties. Others have important projects coming up in the next few years, and anticipate needing the governor’s support.

Still others seem to believe Cuomo, who has a reputation for getting things done as AG, will provide solid leadership in Albany after the scandal-plagued, back-to-back tenures of Spitzer and Governor David Paterson.

Indeed, despite his vigorous enforcement of laws against real-estate-related crime, Cuomo has developed a reputation for being both fair and pro-business. And some believe that with his extensive knowledge of the industry, he’ll promote real estate interests as governor.

“There’s a tacit understanding that he knows what needs to be done to ensure that real estate developments happen smoothly,” said one developer who asked not to be named. “The guy gets it.”

In the short-term, however, those in the industry worry that Cuomo’s run for governor could cause even more delays in the real estate finance bureau, the division of the AG’s office responsible for co-ops and condos.

Already, “they’re just performing triage,” said attorney Aaron Shmulewitz, a partner at Belkin Burden Wenig & Goldman.

Making enemies

For Andrew Cuomo, it’s been a long road to reach this political point.

Born in Queens in 1957, he’s the second child of Mario and Matilda Cuomo. Andrew’s paternal grandparents emigrated from Italy and opened a small grocery store in South Jamaica, Queens.

After receiving his law degree from Albany Law School in 1982, the ambitious 25-year-old ran his father’s successful gubernatorial campaign, then worked as a top policy aide in the first Cuomo administration, gaining a reputation for being brash and aggressive.

“He was the arm-twister for his father,” said longtime Republican operative Rob Ryan. “When his father wanted a message sent, he was the one who sent it. He was the bad cop.”

In addition, Cuomo was criticized for having “the Cuomo arrogance” and even “a bit of a nasty streak,” Ryan said.

Cuomo and his supporters chalk up his early reputation to inexperience.

“I’m sure we ruffled feathers, and I’m sure that, at 25, I had more than an element of youthful impatience,” Cuomo recently told the Daily News. “That was many years, and many gray hairs, ago.”

Whatever the reason, Cuomo “made a lot of enemies,” Ryan said.

Still, his career progressed, and Cuomo took his first foray into real estate in 1986, when he founded Housing Enterprise for the Less Privileged. The organization builds transitional housing for the homeless and provides services like job training and drug and alcohol treatment programs. It’s since become the industry’s largest private provider of transitional homeless housing, according to the Cuomo campaign. (Cuomo declined to comment for this story.)

Cuomo’s work with HELP attracted the notice of Mayor David Dinkins, who appointed him to lead the city’s Commission on the Homeless, and eventually President Bill Clinton, who appointed him as Secretary of the U.S. Department of Housing and Urban Development in 1996.

With his 1990 marriage to Kerry Kennedy, a human rights activist and daughter of the late Senator Robert F. Kennedy, Cuomo seemed to be cementing his political destiny. The two had three daughters together and, in a play on the Kennedy-associated “Camelot,” the family was soon nicknamed “Cuomo-lot” by the media.

When Cuomo took over at HUD, the department was deeply troubled and listed as a “high-risk” agency by the General Accounting Office. The designation had been mostly removed by the time Cuomo left, said Howard Glaser, a former aide to Cuomo at HUD.

“He turned around a troubled agency that had been wracked by many years of scandal and abuse,” Glaser said.

But Cuomo’s much-touted effort to streamline the department came under criticism as he was preparing to leave the office. In late 2000, it was revealed that a HUD program intended to encourage homeownership in low-income areas had fallen victim to an embarrassing scam in which speculators set up fake nonprofit organizations and made off with HUD funds.

That scandal will likely provide fodder for his Republican opponents in the upcoming gubernatorial campaign, Ryan said. He said the same may be true of Cuomo’s policy of increasing the number of low- to moderate-income loans Fannie Mae and Freddie Mac were required to back — a move that critics say may have contributed to the subprime mortgage crisis. (Cuomo has a substantial lead in polls against Republican opponents Rick Lazio, a former Congressman, and Suffolk County executive Steve Levy.)

“If I was running the campaign against him, I would be having them go over HUD with a fine-toothed comb,” Ryan said.

Still, the HUD cabinet post served as a kind of political “finishing school” for Cuomo, said New York University urban policy professor Mitchell Moss.

Cuomo likely viewed it that way too, and in 2002, he began a catastrophic run for governor, infuriating party bigwigs by challenging state Comptroller H. Carl McCall, who was aiming to become New York’s first black governor.

Cuomo withdrew from the race only a week before the Democratic primary. The campaign was viewed as a colossal miscalculation that observers chalked up to “ambition, arrogance and hubris,” said Doug Muzzio, a professor of public affairs at Baruch College.

With his political career in tatters, Cuomo’s personal life crumbled as well. In 2003, he caught his wife cheating with restaurateur Bruce Colley, a close (and married) family friend. The ensuing bitter divorce became a media circus, providing sensational fodder for tabloid headline writers.

Rising from the ashes

Living in a one-bedroom apartment and working as a private-sector attorney, Cuomo had a choice: give up on politics or overhaul his image.

“That kind of disaster can either break your career, or you learn from it, and clearly he learned from it,” said Muzzio.

For one, Cuomo kept up his ties to the real estate industry, working for developer Andrew Farkas’ Island Capital, where he made at least $1.2 million over a period of two years in 2004 and 2005, The Real Deal has reported. (The move raised some eyebrows, since Cuomo, as HUD secretary, authorized a civil suit accusing another Farkas company, Insignia, of giving kickbacks to the owners of federally subsidized projects the company managed. Cuomo later said he believed Farkas wasn’t aware of the situation.)

He also became involved in a group seeking to repeal the Rockefeller drug laws, and began repairing his relationship with the Democratic Party.

“He mended his political fences,” said Muzzio.

Cuomo’s personal life was on the mend, too. In the summer of 2006, he met and started dating Food Network star Sandra Lee. The two reportedly now share an apartment, but have remained largely silent about their relationship.

The AG has also toned down his persona as a political operator.

These days, “he’s seen as less involved in politics, and more involved in governing,” said Hank Sheinkopf, a veteran Democratic campaign consultant who has known Cuomo since the ’70s.

Cuomo’s divorce and failed bid for governor were “life-changing incidents,” Sheinkopf added. “Some would argue that those things helped him to grow, and they probably did.”

It’s anyone’s guess whether he’s really grown, or just gotten better at public relations. But what truly resuscitated Cuomo’s political career was his election to AG in 2006.

“To his credit, everybody would say he has done a pretty good job as attorney general,” Ryan said.

The AG, who is sometimes criticized for being subpoena-happy, has nonetheless displayed a preternatural knack for picking salient cases and, more important, winning. He’s targeted Wall Street bonuses, state pension fund corruption and deceptive practices in the student loan industry. Even fellow politicians have felt his wrath: He worked with the Securities and Exchange Commission on an investigation of the state comptroller’s office run by Alan Hevesi, resulting in the indictment of two former Hevesi advisers.

“He has become almost a paradigm of a successful attorney general,” Muzzio said. “He picks cases because they are important to win, but these are not just low-lying fruit. When he picks a fight, you better watch out, because you’re going to lose.”

The real estate industry is no exception.

“The good news for the real estate industry is that [Cuomo] knows it from the inside,” Glaser said. “The bad news for the real estate industry is that he knows it from the inside. You can’t walk into the room and fool him.”

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Beefing up enforcement

When Spitzer was AG, he relentlessly battled Wall Street, but “the real estate enforcement arm withered away and stopped functioning,” said Shmulewitz.

Cuomo, too, initially appeared hesitant to get involved in real estate, but eventually had no choice amid the escalation of problems associated with the construction boom.

According to NYU’s Furman Center for Real Estate, there were 170,000 new residential units built in New York between 2000 and 2008. As the real estate bubble intensified toward the middle of the decade, the AG’s office was overwhelmed with new condo offering plans, as well as complaints about shoddy construction and crooked developers.

“During the construction boom, everyone and their grandmother went into real estate … and there are only so many good construction crews around,” Shmulewitz said. “Mistakes were made and defects arose.”

Attorney Jeffrey Reich, a partner at Wolf Haldenstein Adler Freeman & Herz, said at first Cuomo’s office was tentative about getting involved. Reich recalled representing buyers at a Brooklyn condo project where the developer in 2002 had built larger than the allowable zoning. The city refused to issue a certificate of occupancy, and “we had buyers who couldn’t sell their apartments and couldn’t refinance,” Reich recalled.

“I went to the attorney general and said, ‘You need to help these people.’ I found that there was a reluctance on the part of the AG’s office to do that,” Reich noted. “I had to bring in the attorney general’s office kicking and screaming.”

Eventually, however, Cuomo’s office did get involved, and in a 2009 settlement required the developer to pay restitution to building residents and barred him from selling apartments in New York State.

In 2007, Cuomo put forth new legislation to enhance oversight and enforcement at the real estate finance bureau and to speed up the offering plan process. In April 2008, the law went into effect, with new funds earmarked for that purpose. The legislation also set in motion a process for arbitrating escrow disputes, which have escalated recently as legions of buyers have tried to back out of their contracts.

“Things improved tremendously in the summer of 2008,” Shmulewitz said. He noted that the real estate finance bureau “reconstituted [itself] as a very potent enforcement mechanism against sponsors. So potent and so effective that all the condo complaints flocked to them instead of going to the courts.”

It costs a buyer only around $10,000 to $20,000 in legal fees to have a case arbitrated by the AG, he said. Litigation, meanwhile, can cost 10 times that amount.

Picking a winner

As the real estate slump continued, the AG’s office quickly became inundated with requests. According to data obtained by The Real Deal under a Freedom of Information request, the bureau received some 475 requests for deposit returns last year, up from 168 in 2008 and 57 in 2007. The total number of complaints — including allegations of construction defects, improper behavior by sponsors and more — jumped from 891 in 2008 to 1,155 in 2009.

Attorneys say it now takes more than a year for complaints to be heard because of the overwhelming tide of disputes that have accompanied the real estate crash. The chief of the bureau, Kenneth DeMario, retired in June and has not yet been replaced, according to David Berkey, a real estate attorney at Gallet Dreyer & Berkey.

“They’re handcuffed by a lack of staff,” he said.

The delays have led to frustration among developers, lawyers and buyers, and some in the industry feel that Cuomo should be more proactive about hiring staff to alleviate the backups.

A spokesperson for the AG’s office said the bureau has increased its staff by 23 percent since Cuomo took over, but that further additions have been prevented by budget constraints.

Still, most recognize that the AG’s willingness to arbitrate escrow disputes has made it much easier for buyers to seek resolution. “People are frustrated, but it’s still better than going to court,” Shmulewitz said.

In arbitrating these deposit disputes, the AG’s office has also earned a reputation for fairness. “I haven’t found them to be either pro-developer or pro-consumer,” Reich said.

Reich said the AG’s office tends to use a “10 percent rule” in determining whether a developer must return a buyer’s deposit. For example, if an offering plan promised 10-foot ceilings in a unit, but the ceiling turns out to be least 10 percent less than that height — just under 9 feet, for example — the AG would likely require the developer to give back the deposit. But if the ceiling is 9 feet 5 inches, that would probably not merit a refund.

Also, in a move popular with developers, Cuomo’s office has shown that it won’t allow buyers to get out of contracts simply because of the changing economy. “The AG does not make a developer return your deposit because the market turned against you,” Reich said.

But Cuomo has also shown that he’s not afraid to take a tough stance with some developers. In late March, for example, he forced the Alexander Condominium, located at 250 East 49th Street in Manhattan, to give refunds to all of its buyers, and barred developer Alexander Gurevich from selling real estate for three years after it was discovered that Gurevich failed to disclose key information about the principal investors to buyers. A short time later, Cuomo forced the developers of 50 Bond Street to pay restitution to buyers after failing to pay common charges and disclose construction defects.

Cuomo has also forced a number of other condo projects, including One Madison Park and No. 22 Renwick, to refund buyers’ deposits after missing their deadlines for beginning closings.

At projects where this occurred, “I don’t think those people are going to be big supporters of the AG,” said developer Henry Justin. His interactions with Cuomo have been limited to one dispute with a buyer over a contract deposit, which ended up being resolved independently.

Despite Cuomo’s professional decisions, developers have been among the largest donors to his campaign war chest, as the New York Times recently reported.

For example, the top three executives at Tishman Speyer, the erstwhile owner of Stuyvesant Town, donated a combined $151,000 to Cuomo. Other donors have included embattled developers Kent Swig and Shaya Boymelgreen, World Trade Center site part-owner Lloyd Goldman, and Related Companies head Stephen Ross.

The Cuomo campaign insists these donations are the result of the AG’s longtime ties to the industry.

“Given Andrew’s long history of working in housing and his overall expertise in real estate, it’s hardly a surprise that he enjoys support from people in the industry,” said Phil Singer, an advisor to Cuomo’s campaign committee.

Singer said that before making a contribution to Cuomo’s campaign, donors must sign a form saying that neither they nor any entity they control has any matter before the AG’s office or has had any matter resolved within the last 90 days.

But some developers, especially those whose projects have generated a large number of complaints, hope that contributing money to Cuomo’s campaign will act as a “prophylactic,” preventing him from bringing down the hammer on them, said one source.

Some donors simply want to be on the side of the winner in the race for governor.

“It’s not that they love him so much, but they widely perceive him to be the winner, and you want to be on the side of the winner,” Muzzio said.

That explains why a number of real estate companies, including the Durst Organization and Extell Development Company, have given money through LLCs to both Paterson (who was raising money for a campaign, but announced in February that he will not run) and Cuomo.

Moreover, the end of the boom has shifted the attention of both the AG and the governor to real estate-related issues, prompting developers to get more involved than in the past.

“Real estate industry issues have become top-shelf in the past few years,” Glaser said. “They weren’t front and center when Spitzer was there.”

Others in the industry support Cuomo because they believe he’ll use his knowledge of real estate to promote the industry’s interests.

“If he became governor, hopefully he would use that experience to address some of the issues that the co-op and condo community has seen,” Reich said. “He’ll be sensitive to these issues.”

Developer Josh Guberman said he “really has made an effort to create efficiency and create a climate where things get done.”

“That’s something that’s been in short supply in previous years,” he said.

And yet Cuomo, with his affordable-housing background, also has a reputation for championing the rights of the consumer.

“There’s almost a middle-class agenda,” Muzzio said. “He’s chosen issues that span the concerns of a lot of New Yorkers.”

Somehow, Cuomo has accomplished the feat of finding the middle ground between being perceived as antibusiness (as Spitzer was) and anticonsumer.

“The beauty of what he’s done is, it’s hard to pigeonhole him as a guy who is pro-developer or pro-this or pro-that,” Sheinkopf said. “He’s smartly made himself into almost a nonpartisan guy.”

Glaser explained Cuomo’s mentality, which centers on a belief that weeding out the “bad guys” makes for a healthier marketplace.

“If you’re on the receiving end of enforcement, you probably weren’t a big fan,” said Glaser. “But others in the industry are comfortable with a set of predictable rules that are fairly enforced. When the government is arbitrary in enforcement, when the rules are ambiguous, that drives the industry crazy. I think [Cuomo] understands that difference.”

Still, having Cuomo in the governor’s office may have short-term drawbacks for the industry, specifically by worsening the delays at the real estate finance bureau while he’s running for office.

“Once you’re running for governor, you’re spending 90 percent of your time running for governor,” Muzzio said. “Clearly, the AG is not going to be as on top of it as he once was.”