Westview Negotiations Threaten Affordability

September 20, 2017

[Editor’s note: The following is an edited version of a letter sent to RuthAnne Visnauskas, Commissioner of the New York State Division of Housing and Community Renewal (DHRC).] 

 

To Ms. Visnauskas:

 

I met with RIOC President Susan Rosenthal on Friday to discuss a couple of topics, including Westview. I’m unhappy to hear about lack of progress; this is urgent. I’m a resident of Island House. Our building has worked two decades on preserving affordability, culminating in a comprehensive Affordability Plan, 75-percent approval by tenancy, and exit from Mitchell Lama (ML) – the only ML exit to an affordability plan in the State. Manhattan Borough President Gale Brewer announced this accomplishment in her 2016 State of Borough message. The Island House plan preserved affordable housing for another 35 years, and was created as a template for other ML conversions.

 

You’ve lost key institutional knowledge with the retirement of Rich McCurnin, one of the very last people who understood affordable housing, resulting in delays and risking completion of Westview – putting 361 families in jeopardy. Whatever you think you’ve achieved in Southtown 8, in securing 300 affordable units, it’s completely erased by losing Westview – a deal you could have completed. I’m publicly calling out DHCR/RIOC on your failure to address [the] needs of our neighbors.

 

Some fundamentals of affordable housing:

 

1. Mitchell-Lama is an accounting mechanism apportioning rents; it is not affordable housing. Why? Because ML projects take operating costs and apportion costs among “rooms”, e.g., a two-bedroom is considered three and a half rooms. ML housing happens to be affordable housing when a building is new – when operating costs are low – but in middle age, when major subsystems are being replaced, those operational costs go up significantly. At some point, those Major Capital Improvements (MCI) will need to be taken on, and they will create significant rent increases, making it unaffordable for (roughly) the 100-150 percent AMI [Area Median Income] kinds of families in this ML project. Many of these major maintenance items have been deferred as requested by the tenancy in ongoing Budget-Rent Determination hearings (as in Island House), but at some point these costs need to be taken on.

 

2. To preserve affordability, we need some “market rate input” into the building, i.e., conversion to a co-op, including selling/renting some apartments at market value. Island House tenants had choices: staying as renters (present ML rents with City’s Rent Guidelines Board increases); purchasing their apartments (insider price discount to 35 percent, but significant resales restrictions); or buy-out. Of Island House’s 400 apartments, over 60 percent purchased, 5 units took the buyout, and [the] balance (about 38 percent) remained as affordable renters.

 

3. With this “market rate input,” there will be funding for the building’s reserve: paying for deferred maintenance (as a result of ML program’s underfunding) and funding long-term maintenance of [the] building to remain affordable.

 

DHCR is now hung up on “warehoused apartments,” worried the owner will have 60 unoccupied apartments (roughly 15 percent) rather than 40 apartments (roughly 10 percent) that is permitted by ML. I’ve heard DHCR has agreed to vacancies, which is part of [the] building’s Red Herring [the draft offering plan] and fundamental to [the] building’s finances, including making the building affordable.

 

How? Because when a building goes through this kind of conversion, tenants have a stake in [the] owner-sponsor’s success, i.e., his success means funding for a maintenance reserve. How much? Using round numbers: [the] owner’s selling 60 unoccupied apartments at $800,000 is $48 million. DHCR/RIOC proposes taking 20 apartments out, a loss of $16 million that’s no longer available for [the] maintenance reserve. Oops, [the] $15-25 million maintenance reserve just evaporated to zero, and tenants (renters/buyers) will have to pay for it. Renters: [a] 20-percent rent increase for 10 years, i.e., unaffordable. Buyers: adds $45 per square foot to [the] purchase [price] (about $45,000 per apartment), and [it makes it] unaffordable for many tenants, which reduces purchases and, possibly, the conversion becomes financially unviable. Removing 20 apartments from the pool of unoccupied apartments has a profoundly negative effect upon affordability. All these numbers are closely linked to maintain affordability; changing one number has an effect upon others.

 

You should contact Mr. McCurnin in retirement. It’s obvious you and your agency don’t understand this, you’re harming affordable housing, and you’re harming our neighbors and our community.

 

Frank Farance, Island House

 

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