The City of New York has been steadily selling off its property since the end of the 1990s, and those sales of land and subsidized development opportunities have been rich fodder for the developers who have snatched up some of the 8,000 municipal properties sold.
Those same buyers will likely head up the queue when the Metropolitan Transportation Authority begins its much anticipated divestment program for its estimated $1 billion worth of property (see related story).
Overall, more than five agencies handle sales or leases of city-owned property to private entities, and all of them use separate advertising, bidding and sales practices.
The Department of Administrative Services, or DCAS, is the city’s clearing house for property leases and sales, which means it matches 44 city agencies, and 20 mayoral departments with their needs for property. It also disposes of property, and since 1996 has reduced the city portfolio of 11,000 properties to about 3,000, according to Warner Johnston, a spokesperson for the agency.
“Many of these were sliver lots, and mapping errors,” said Johnston, “and others were tax foreclosures,” or in-rems, from the 1970s and 1980s. All of the property held by DCAS is sold at auction, with 20 percent cash required at the time of sale. The city offers buyers the mortgages.
“There’s always good deals to be had,” said Johnston, especially if you hold property next to a sliver that has little value to other bidders.
In the fiscal year ending July 30, DCAS sold more than $20 million in property, offered $12 million in mortgages, and generated $51 million in leasing revenue.
At an auction held Aug. 4, the city sold 70 parcels for a total of $30 million. A former police precinct house at 72 Poplar Street in Brooklyn fetched $9.6 million, paid by local investor Maurice Laboz, well above the minimum bidding price of $225,000.
Four large lots with frontage on Lenox Avenue and 125th Street in Harlem were sold for $2.6 million well above the minimum bid of $844,000. At 9,000 square feet, the property is now worth $288 per square foot.
In 2003, DCAS sold over more than 60 community gardens to the Trust for Public Land in a bid to assuage local communities that had converted them to local public spaces.
No further auctions are planned for the year, although investors can sign up to be notified by electronic or regular mail. More information is available at www.ci.nyc.ny.us html/dcas.
Auction Alternative
While buying at public auction sounds like a great deal, developers agree it’s possible to pay too much for property at a DCAS auction, and say buyers should realize that financing is not automatically provided.
The city’s department of Housing Preservation and Development (HPD) programs can be a less risky route to developing property because of the number of tax incentives and government supports provided, developers say.
“DCAS has a mission to auction land for a revenue stream,” said Carol Abrams, a spokesperson for HPD. “Our mission is to develop housing as a resource for the city’s residents.”
In fiscal year 2004, HPD was responsible for 8,600 new apartments in the city, a total derived from rehabilitation and new construction.
“The Mayor wants the revenue to fill this gap in the city budget, but he also has a mandate to provide affordable housing,” said Peter Murray of Loewen Development, whose projects have included building 74 townhouses in the Ocean Hill section of Brooklyn.
Developments under HPD auspices can lower your risk, according to Murray, because of the federal low-income housing credits you receive. These credits typically last 10 years, and can practically guarantee a return on a property. They can also serve the useful purpose of being a financing tool, since banks generally will pay 90 cents on the dollar in exchange for the credits.
Working primarily in the city’s distressed and formerly distressed neighborhoods, HPD focuses on obtaining private development for residential housing at an affordable price. A slate of new housing developments have sprung up in areas such as Harlem over the past four years, including 1400 Fifth Avenue, Strivers Gardens, and the newest, Malcolm Shabazz Court on 116 Street between Lenox and Fifth Avenues.
In exchange for the incentives, developers agree to rent their units at no more than 60 percent of the area median income, a number derived from the U.S. Census results. They also must meet a rigorous process known as a Request for Proposal and Request for Qualification. About 35 developers now constitute a stable pool of companies currently creating affordable housing in the city. A rolling database of bidders is kept by HPD, which facilitates the process, said Abrams.
“In New York there is an insatiable demand for affordable housing,” said Murray. Although the cost of construction is usually very high, at about $150 per square foot, Murray contends that “it is profitable, otherwise we wouldn’t keep doing it.”
Other financial incentives provided by the city and state reduce project risk, such as state funding through the Affordable Housing Corporation, City Council funds through Article 16, and some donations through the Borough President.
The development process is also very rewarding, said Murray, who feels he has gone full circle to return to his early love of urban studies. “We see this raw property, and typically it has junk and abandoned cars on it, and several years later it is transformed. It’s a great feeling.”