Slate: Victim or villain?
Young development firm grapples with Rivington House fallout
UPDATED, Nov. 28, 1:58 p.m.: Mayor Bill de Blasio didn’t hold back when reporters asked him about Slate Property Group at an Aug. 10 press conference. “I think what they did was inappropriate,” he said. “Anyone who seeks to do business with the city of New York who seeks to mislead us needs to know there will be consequences.” Two weeks later, the developer was off the city-backed Bedford Armory redevelopment in Crown Heights.
De Blasio’s comments, and the “consequences” that followed, shone a spotlight on Slate’s [TRDataCustom] role in the Rivington House saga, a $116 million development deal that thrust an up-and-coming player into a full-blown political controversy.
“From day to day and week to week, things change,” Slate’s co-founder David Schwartz said during a recent interview with The Real Deal at the firm’s NoMad headquarters. “At one moment, you’re on top of the world, but at the next moment, you can be on the bottom.”
The three-year-old firm had a bumper 2015. It catapulted into the big leagues with the $390 million purchase of the RiverTower apartment building in Midtown East, forged a relationship with Chinese giant China Vanke, and quickly became one of the most active builders in the city, particularly in Brooklyn. It solidified a reputation as a savvy investor and developer, capable of both ground-up projects and lucrative buy-and-flips.
[vision_pullquote style=”3″ align=”right”] “At one moment, you’re on top of the world, but at the next moment, you can be on the bottom.” — David Schwartz [/vision_pullquote] But in the wake of Rivingtongate, the controversial conversion of a former nursing home on the Lower East Side into luxury condos, Slate finds itself bogged down in PR trench warfare. Critics see its young founders as having gamed the system for their own benefit, hurting taxpayers and exacerbating the city’s housing shortage. Every battle needs a villain, and for many politicians and affordable housing advocates, Slate is a perfect one.
The tide turns
When the Rivington House scandal first blew up this spring, press coverage and official investigations, including those by New York City Comptroller Scott Stringer and U.S. Attorney Preet Bharara, focused on City Hall. According to news reports, a gullible de Blasio administration had allowed the Department of Citywide Administrative Services (DCAS) to lift the restriction without seeking any contractual guarantees that the building at 45 Rivington Street would be kept a nursing home. Slate, the buyer, barely found mention.
All of that changed in July, when the city’s Department of Investigation published a damning email sent by Slate co-founder Martin Nussbaum to his employees in May 2015. Eight days before Nussbaum’s email, Slate and its partners, China Vanke and Adam America Real Estate, had signed an agreement to buy the building, which still had a deed restriction in place.
“Do not discuss this deal,” the email read. “The seller (Allure) is very concerned that the city and union will find out that he is in contract to sell at the price we are buying it which will directly impact his ability to have the deed restriction removed.”
“Once he has it removed,” Nussbaum added, “we can do whatever we want.”
To critics, the email made it seem like Slate had conspired with Allure to keep City Hall in the dark over what was planned for the building.
On Aug. 10, 2016, the Crown Heights Tenant Union and New York Communities for Change, local groups that campaign against what they see as rapid gentrification, staged a protest against Slate outside the Bedford Armory. Slate was partnering with Donald Capoccia’s BFC Partners to turn the building into a 300-unit residential project with an affordable component, but the protesters wanted Slate out because of its role in the Rivington House deal.
“Our taxes pay for this land, and it’s been taken away from us to be given to Slate, which is a shady, shady, shady developer,” one organizer said. Later that day, de Blasio made his stinging remarks.
When Slate left the project two weeks later, the Daily News reported that City Hall had “pushed” the developer out. “We’ve never been written about in a negative way really, so it was a weird experience,” Schwartz said.
Tale of the tape, as told by Slate
For Slate, the coverage led to the belated realization that it had to do damage control.
Shortly after de Blasio’s comments, the firm and its Rivington house partners hired Rubenstein’s Bud Perrone, a publicist who represents heavyweights such as Vornado Realty Trust and Silverstein Properties. They also hired George Arzt, a Democratic political consultant who advises Gary Barnett’s Extell Development. Together, they pushed a counternarrative: They weren’t cynical investors looking to profit off the public, but rather, developers with local roots who “really care” about the neighborhoods they work in and weren’t privy to Allure’s dealings with City Hall.
[vision_pullquote style=”3″ align=”right”] “Once he has it removed, we can do whatever we want.” —
Martin Nussbaum [/vision_pullquote]The son of well-known transportation planner Sam “Gridlock” Schwartz and a social worker, David Schwartz grew up a public school kid in Flatbush. After an unhappy stint in investment banking, Schwartz began working in real estate development. After forming Slate with Johannesburg native Nussbaum in late 2013, the partners got to work buying up midsized rental properties in Brooklyn and developing several mixed-use projects in Brooklyn and Queens.
“They are straight shooters,” said TerraCRG CEO Ofer Cohen, who has brokered deals for Slate. “They always figured out a way to pay more for a development site or project, and it’s not because of some voodoo. They understand the business so well.”
Nussbaum was the co-founder of Silverstone Property Group, along with Madison Realty Capital’s Josh Zegen and Brian Shatz. Silverstone started off buying distressed properties, and later became a prominent investor in multifamily and mixed-use properties. At Slate, Nussbaum and Schwartz began buying up rent-regulated buildings with an eye to turning over tenants and increasing the rent roll, a strategy that brought it into conflict with tenant advocates. In September 2014, City Councilman Corey Johnson and State Senator Brad Hoylman joined a rally at the Slate-owned 222-224 West 21st Street, where tenants alleged Slate was trying to force them out of their homes.
“Slate has a really bad reputation for displacing tenants by not making repairs,” said NYCC’s Celia Weaver, who also accused the firm of “using private-equity money to gentrify low-income neighborhoods.” NYCC is an ally of construction unions, and frequently targets developers such as Slate that use nonunion labor.
In 2015, Slate turned to major institutional partners, going in with fund manager GreenOak on its biggest deal to-date: the $390 million acquisition of the RiverTower apartment building at 420 East 54th Street. It also teamed up with Adam America and Vanke on three development deals. One of them was the acquisition of Rivington House.
Allure Group, which specializes in nursing homes, had bought Rivington House from its operator Village Care in February 2015 for $28 million and was looking to flip it. It was marketed to a number of potential buyers under the premise that Allure would be able to get the city to lift a deed restriction confining it to use as a nursing home. Slate heard of the opportunity through a broker, Schwartz claims.
“We never knew Allure. We never had any dealings with them,” he said.
Around that time, Slate hired James Capalino, a lobbyist with close ties to de Blasio, for a separate development project in Brooklyn. As it happened, Capalino had represented Village Care in its attempts to have the Rivington House deed restriction lifted. A spokesperson for Slate claimed the company never talked to Capalino about Rivington House.
On May 1, Allure agreed to pay the city $16.15 million to have the restriction lifted, according to a report from the DOI. On May 6, Slate went into contract to buy the building.
Shortly after, Allure’s attorney sent Slate and its partners a note urging them to keep “their mouths shut” about the deal. Nussbaum then conveyed the request to his employees in the now-infamous email. While the email makes it clear that Slate knew Allure wanted to keep the sales price under wraps, Schwartz claimed the firm “had no reason to believe that the city was not aware and supportive” of the actual condo conversion, considering it had agreed to lift the deed restriction.
“At the time, everything just seemed so normal,” Schwartz said, arguing that it is common for parties to want to keep real estate deals confidential until closing. “Nothing seemed weird other than, yeah, Allure probably didn’t want the whole world to know about it.”
The deed restriction was lifted later that year and on Feb. 11, Slate and its partners closed on the purchase for $116 million. In the following weeks, the scandal picked up steam.
“We were totally surprised,” Schwartz said of the media frenzy. “We are still surprised.”
There is no question Slate helped keep the sales price secret. But does that mean, to use de Blasio’s term, that the company’s behavior was “inappropriate?”
Slate claims it signed a confidentiality agreement upon going into contract for the building – a common occurrence according to industry insiders – and that it had no choice but to stay mum.
“Unfortunately, real estate is a litigious business,” Schwartz said. “If, for whatever reason, the deal didn’t happen, they could then blame us even though we had no dealings with the city. They were basically putting us on notice.”
And Slate didn’t reap the kind of windfall, at least not immediately, that Allure did. The purchase price of $116 million for the 150,000-square-foot building works out to about $773 per square foot, par for the course on the Lower East Side. Allure’s profit on the deal was north of $70 million.
[vision_pullquote style=”3″ align=”right”] “Our taxes pay for this land, and it’s been taken away from us to be given to Slate, which is a shady, shady, shady developer.” [/vision_pullquote] “I don’t think anyone is saying we didn’t pay market price,” Schwartz said.
One residential developer, speaking on condition of anonymity, said it would be a stretch to blame Slate for the city’s inability to figure out how much the building was worth.
“[De Blasio] should have just thrown the appraiser under the bus,” the developer said, adding that Slate isn’t responsible for conveying the building’s market value to the city.
The DOI and the Comptroller’s office declined to comment, citing ongoing investigations. A City Hall spokesperson also declined to comment.
Unlike Allure principal Joel Landau, Slate’ principals haven’t been major campaign donors. Schwartz donated a modest $400 to de Blasio’s 2013 mayoral campaign, campaign finance records show, and also gave the same amount to de Blasio’s opponent Christine Quinn. In the 2017 cycle, Schwartz donated $320 each to Queens Borough President Melinda Katz and Brooklyn Borough President Eric Adams, but records show no donations to de Blasio. No donations are listed for Nussbaum.
Whether Slate acted improperly or not, it now has to deal with the fallout. The kind of news coverage Slate has seen “has an impact on one’s brand,” the developer said. “Slate was at the wrong place at the wrong time. We live in a world where there’s cartoon villains and Slate is sort of caught up in that. That’s the risk you take when you’re in the public-private world.”
The backlash has had a tangible impact on Slate’s business already, as the Bedford Armory project shows. After Slate sold its stake to BFC, a spokesperson for the mayor said: “We believe this is the right decision. It protects the vital affordable housing coming to this site.” Representatives for BFC declined to comment.
According to Arzt, the problem isn’t so much Slate’s relationship with City Hall. Rather, the spotlight on the firm would have made it harder for any project it was on to win City Council approval, he said.
None of the company’s other current projects are on public land or require a rezoning, meaning they are unlikely to be impacted by the Rivington House fallout. But what if Slate wants to build public-private projects in the future?
“There’s no question that whenever there is a project they propose, it does invite additional scrutiny,” said one elected official, speaking on condition of anonymity.
One lobbyist, speaking on condition of anonymity, said there’s a variety of ways in which a bad reputation can hurt a developer. A firm could “get screwed by the buildings department,” an RFP could get killed, or the department of City Planning could refuse to process a ULURP, the lobbyist said.
Compared to 2014 and 2015, Slate has had a far quieter 2016 since closing on Rivington House in February, amid a broader market slowdown and a tighter construction lending environment. In May, it bought three apartment buildings at 1286-1290 First Avenue for an undisclosed amount, according to Real Capital Analytics, and in June it paid $26.5 million for a retail property at 541-555 4th Avenue. According to RCA, the firm owns 27 properties in Manhattan and Brooklyn. Earlier this month, it sold 222-224 West 21st Street for $29.5 million, more than $12 million more than what it paid in 2014. But it also filed suit against its former attorneys over the building, alleging that their bad advice on how to evict Section 8 tenants caused Slate to overpay for the buildings and hurt its reputation.
[vision_pullquote style=”3″ align=”right”] “We live in a world where there’s cartoon villains and Slate is sort of caught up in that.” [/vision_pullquote]“Plaintiff not only overpaid for the Buildings at the time they were purchased, but incurred additional and unnecessary legal fees, lobbying and public relations expenses in an effort to undo the damage caused by Defendants’ faulty advice,” the complaint stated.
For Slate, the good news may be that bad publicity usually fades away. Steve Solomon, a veteran PR executive who’s represented the likes of Richard LeFrak and Miki Naftali, said Slate’s deeds hardly fall into the category of actions that can cause long-term damage, such as criminal acts or fatalities. “Negative news coverage, in the short term, can cause some damage to a developer,” he said. “But in general it usually doesn’t carry over long term.”
The elected official predicted Slate would be cleared of any charges of wrongdoing once the DOI and the Comptroller’s office complete their investigations, and that this would end the backlash against the firm. But in the meantime, it will likely continue to take stick.
“The system,” he said, “isn’t always fair.”
Correction: An earlier version of this post claimed that Bud Perrone represents SL Green Realty. While his firm, Rubenstein, represents SL Green, Perrone is not involved in that account.