Mayor’s Mitchell-Lama Aid Leans Toward Co-ops

In late October, Mayor Bill de Blasio announced that he planned to spend $250 million to help 15,000 apartments in the Mitchell-Lama program remain affordable for working-class and middle- class New Yorkers. The Mitchell-Lama Reinvestment Program will offer owners property-tax exemptions and low-interest loans in exchange for renewing their agreements to stay under Mitchell-Lama regulations for another 20 to 45 years.

The plan has won high praise from residents of co-op buildings in the program, who say it will help them make major repairs without getting into financial trouble, and discourage them from yielding to the temptation to cash in on the apartments they bought at subsidized prices.

Mitchell-Lama renters, on the other hand, worry that the mayor’s plan doesn’t have a clear mechanism to stop their landlords from opting out of the program and raising rents to market rate. The city has already lost more than half of its Mitchell-Lama rental units, and tenants worry that the rest are endangered without city action. “I’d like to know just how [de Blasio] intends to do that,” says Edmund Rosner of the Mitchell-Lama Residents Coalition.

The Mitchell-Lama program, established by a state law in 1955, is arguably the most successful housing program for working- to middle-class people in the history of New York City. Almost 140,000 apartments, about half rentals and half limited-equity cooperatives, were built before its end in 1978. These included the 5,900-apartment Starrett City complex in southeast Brooklyn, Confucius Plaza in Chinatown, Rochdale Village in southeastern Queens, and General Sedgwick House in the Bronx—the 1969 building dubbed the birthplace of hip-hop because it was the home of pioneering DJ Kool Herc.

In exchange for low rents and co-op sale prices, the program gave developers property-tax abatements and loans with as low as 1 percent annual interest; they often also obtained the land cheaply through federally supported urban-renewal programs. Owners of rental buildings were guaranteed a 6 percent annual profit as long as they kept the apartments affordable.

The program was a lifeline for New Yorkers who made too much money to qualify for low-income housing, but not enough to afford family-size apartments on the open market. By the 21st century, as long-term residents aged, it had become an important source of housing for the elderly. The median income for Mitchell-Lama residents in 2005 was only $22,500 a year, Thomas Waters of the Community Service Society said at a state housing agency hearing in 2007. Currently, the income limits for applicants for Mitchell-Lama apartments range from about $53,450 for a single person to $119,200 for a family of four, with residents who make more paying a surcharge on their rent or maintenance

More than 40,000 Mitchell-Lama apartments, however, have been taken out of the program. The bulk of those were withdrawn in the last two decades as the real-estate market heated up enough to make the ability to charge market rents more profitable for landlords than continuing to get tax breaks in exchange for charging less.

Building owners have been able to do this under an amendment added to the law in the late 1950s to encourage developers to participate. It lets owners— both rental-building landlords and co-op shareholders—buy out of the program at the end of the regulated period by paying off any outstanding loans and forgoing future tax breaks. The regulatory agreements for about 15,000 Mitchell-Lama apartments in the city will run out during the next eight years, putting them at risk.

The city’s reinvestment program is likely to focus on co-ops, which the mayor’s office estimates are two-thirds of the 45,000 Mitchell-Lama apartments overseen by the city Department of Housing Preservation and Development. It is much harder for co-ops to leave Mitchell-Lama, as they can’t unless two-thirds of the total residents vote in favor of withdrawing twice. The city believes that the program will help preserve Mitchell-Lama apartments as affordable housing, by keeping the buildings financially solvent enough to prevent them from deteriorating.

Mitchell-Lama co-ops are limited equity, which means residents own their apartments but can’t sell them for a profit. In exchange, regulations and tax breaks keep monthly maintenance charges relatively low so long as the building stays in the program. If residents vote to leave, they can sell their apartment for a dramatic profit—but maintenance charges will go up substantially for those who stay.

Co-ops that privatize can try to offset the increased cost to current residents via “flip taxes,” taxes on the windfall profits made by those who sell apartments at market rate. This doesn’t always work. Trump Village IV in Coney Island, which left Mitchell-Lama in 2007, is now in financial trouble, says Cooperators United for Mitchell- Lama president Adele Niederman, because the flip taxes haven’t been able to cover repairing damage from Hurricane Sandy in 2012.

With Mitchell-Lama buildings now 40 to 60 years old, the city says the reinvestment program will help by restructuring the projects’ existing debt, providing long-term tax benefits, and funding critical capital repairs. At Masaryk Towers, a 1,105-unit Mitchell- Lama co-op on the Lower East Side, HPD is helping finance a new boiler plant and a cogeneration system for electricity, in exchange for it staying in the program. Buildings can also get tax breaks for renovation under the city’s J-51 program.

“This is helpful. This is very helpful,” says Richard Heitler, chair of the board at Village East Towers, a 434-apartment Mitchell-Lama co-op on the Lower East Side. By enabling buildings to refinance loans at substantially lower interest rates, he explains, the program will keep their debt-service payments “absolutely level,” so they can increase their capital reserves without being forced to raise maintenance charges.

Such loans, he explains, will be similar to the one recently given Penn South, a 2,820-unit limited-equity co-op in Chelsea that is not a Mitchell- Lama but has similar characteristics. That $187.5 million federally insured loan, approved in April, will lock in low interest rates for the next 35 years, effectively giving the ten-building complex an extra $4 million a year for repairs, Penn South general manager Brendan Keany told Chelsea Now in April, and thus enable it to remain affordable until 2052.

“We have no interest whatsoever in privatization,” Heitler says. Most residents “care more about being able to stay in New York and live the good life” than in “windfall profits.”

For those in Mitchell-Lama rental buildings, however, whether to stay in the program is strictly their landlord’s decision. “If an owner wants to cash out and is in a rapidly gentrifying neighborhood, the financial incentives to do so are pretty intense,” says Heitler.

In the mid-2000s real estate boom, some landlords made a business of buying up Mitchell-Lama rental complexes to convert them to luxury housing. Most notoriously, Laurence Gluck’s Stellar Management purchased Riverton Houses in Harlem, Independence Plaza North in Tribeca, and several Upper West Side complexes. Sedgwick House was taken out of the program in 2008, after it was sold to a new owner whom a housing organizer later described as a “predatory equity” landlord. According to figures from Cooperators United for Mitchell-Lama, about 51 percent of the rental apartments built under the program have left the program, versus only 9 percent of the co-ops.

Mitchell-Lama rental apartments built before the state’s 1974 rentstabilization law are required to stay rent-stabilized after they’re taken out of the program. Once tenants move out or die, the landlord can use the usual methods to raise rents on vacant apartments and eventually deregulate them.

During the 2000s real estate boom, however, some owners leaving Mitchell- Lama were too impatient to wait for that—so they claimed that simply leaving the program qualified as a “unique or peculiar” circumstance that allowed them to raise rents on occupied apartments as much as sixfold. After six years of litigation, a state appeals court ruled they couldn’t stretch the law that far in 2010.

Tenants in buildings opened after 1974 have no protections when they leave the program. But residents of Independence Plaza North, a 1,340-apartment complex opened in 1976, were able to exert enough political pressure after Stellar took it out of the program in 2004 to negotiate a “model” agreement to limit rent increases, says Edmund Rosner, who was at the time a vice president of the tenants’ association. Then-City Council Speaker Gifford Miller br okered the deal.

“Incentives are fine, but you need more than that” to keep landlords in the program, says Rosner. “The bottom line is that government has a role to play, and that is to force the landlords to do the right thing.”

Many more owners will take rental apartments out, he adds, “unless something drastic occurs, like a freeze on exiting the program”—and doing that would require state legislation.

“It’s poor public policy for the city to allow this resource to go on the open market,” says Niederman. “If they’re honest about preserving affordable housing, this is where to do it.”

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