Last Thursday, the Roosevelt Island Operating Corporation (RIOC) Board of Directors voted in favor of a plan that would amend Southtown’s ground lease for two new residential towers, Buildings 8 and 9, despite expressed misgivings. The amendment will enable one building, Building 8, to contain only affordable units. Building 9 will be all market-rate units.
After the vote, RIOC Board member David Kraut called the amendment “the best shot at any kind of affordability that we can develop under current conditions until laws change, and attitudes change.”
Building 8 would stand were the South Town dog park is currently located.
The vote followed a heated debate, publicly exposing friction between the Board and the corporation it manages.
Board member Faye Christian objected to the item even being on the agenda, saying she had received the reference materials only a day or two prior to the meeting and hadn’t had time to go over them. “I am tired of being pushed,” she told the Board. “Everything is given to us at the last minute.” Christian said she didn’t feel comfortable voting for something so important without time to prepare. “I would like to compare past amendments.”
She also said it was not the first time the RIOC board was given insufficient time to prepare. “I did mention once before that we shouldn’t be given items a day before a meeting, or two days before a meeting. That’s not enough time for us to really look at it.”
RIOC President Susan Rosenthal says the delay was a result of ongoing negotiations with building developer Hudson Related (HR). “RIOC and HR [Hudson/Related] have been negotiating up to a day and a half ago. We did have a committee meeting where we described the terms and they haven’t been substantially changed.”
Board members were told that that they could address their questions to any of the presenters in the room, including David Kramer from Hudson Related; Tim Sheehan from CBRE Group, RIOC’s advisors on real estate transactions; and Chris Rizzo, RIOC’s land use and environmental attorney.
The offer didn’t go over well. “Just because these experts are here, that doesn’t mean Board members have had long enough to study the documents to understand which questions to ask,” said Kraut.
When Christian made a motion to table the vote until the Board had more time to review, Rosenthal urged the Board to vote that day. “The timing is critical,” she said.
Ultimately, the Board was split on whether to table the discussion until a future meeting (Board member Michael Shinozaki was absent and the vote ended in a 3-3 tie), so the presentation continued.
According to Kim Quinones, RIOC CFO, the decision needed to be made immediately in order to meet an end-of-year deadline for closing. RIOC is required to give 90-day notice for any disposition of assets, including changes to the terms of ground leases. “This is the last board meeting scheduled before November,” she explained. “We want to be able to sign a lease in December.”
Because the affordability of Building 8 will be generated by an agreement with the City, the closing would need to fit within the City’s scheduling parameters. Kramer explained to the Board that the City only holds closings at the end of the year, and again at the end of their fiscal year, June 30.
“The end of the year and June 30, is where they have all of their closings,” he said “You have to show your readiness. RIOC needs a 90-day window before signing a ground lease. And we need to close by the end of the year.”
According to Quinones, this amendment is necessary because a prior one gave HR a discount on ground rent, due to the state of the economy at that time. This one will restore the original terms to “provide a far, far deeper level of affordability in terms of making it lower income,” Quinones said.
The first seven buildings, explained Quinones, were workforce housing. She said they were set up for 148% Area Median Income (AMI) in a one time test, and are not guaranteed over time. Building 8, on the other hand, will guarantee affordability for 30 years, and in some instances in perpetuity.
Building 8 is structured as a 20-30-50 transaction, unlike the other Southtown buildings which are 60-40. Therefore, 20 percent of the units will be set aside for individuals making under 50 percent of AMI ($47,700 for a family of four), 30 percent for those at 100 percent of AMI ($95,400 for a family of four), and 50 percent for those making 130 percent AMI ($124,200 for a family of four).
According to Quinones, when considered as a whole, the two new buildings contain 43 percent market-rate housing and 57 percent affordable housing. “This is a better transaction when it comes to the amount of affordability that it will provide,” she told Board members.
CBRE’s Tim Sheehan, who was involved in negotiations on Building 7 (480 Main Street), said that considering Building 8 alone “reduces the land value, pretty substantially,” explaining that the calculus for ground lease depends on what is being built on the land, so combining the two buildings as one deal, “provides a fair return to RIOC, and at the same time, gives you more extensive, deeper affordability.”
Quinones said, “the only concession we are making is a reduction in this ground rent. In return they are giving us two buildings, greater affordability, and office space in the second building.”
One problem raised by Board members was that RIOC declined to consider this deal in the context of affordability on the Island as a whole.
“You didn’t even consult the people who were here in the past,” charged Christian. “Was anyone consulted here?”
Board member Margie Smith also expressed concern that the Board had been left out of the process. “When we did the other buildings, we were in the middle of it. We had iteration after iteration after iteration. We had our own consultants and we had comparisons to other buildings. And that didn’t happen here. Quite frankly, I am uncomfortable with it too.”
Smith argued, “We need time to look at the numbers. This is not a legal issue. It’s an issue with us understanding what’s going on with the people of this Island. We want to understand affordability, we want to understand how much we are changing it.”
Rosenthal refused to respond to the Board’s desire to understand the deal in the larger context of affordability on Roosevelt Island and tried to limit the conversation to the deal at hand. “What we have is a contract with Southtown,” she told the Board. “The only issue is the changes in the contract with Southtown which are set forth in this amendment. The fact that it is different from Roosevelt Landings is totally irrelevant.”
Ultimately, the Board voted to approve the amendment authorizing RIOC and HR to take next steps in furtherance of the deal. It was a 4-2 vote with Christian and Smith dissenting.
In December, board action will be required once again to approve the lease.