NEW YORK CITY—Peter Alizio has a stomachache. “I’m actually not feeling that well,” he said. “It might have something to do with my job.”
Alizio is a principal of PJ Alizio Realty, Inc., a development firm dedicated to buying and preserving the affordability of privately owned, government-subsidized housing projects. He regularly bids against speculators who are hoping to cash in on New York’s real estate boom. “You almost feel like it’s your obligation to outbid them, because if you don’t, some family loses,” he said. “I like that urgency, but it’s probably what makes us anxious and upset.”
Much of the older privately owned affordable housing in New York City was built with help from the state Mitchell-Lama and Limited Dividend programs, often mixing Mitchell-Lama’s property tax breaks with mortgages insured by the Department of Housing and Urban Development (HUD).
In 2006, the New York City Comptroller counted nearly 13,000 units of affordable housing in the city that were shrugging off their income restrictions and leaving the programs. Another 36,000 apartments, one-fifth of the total 149,000 units built in the city under the programs, had already left, many after being purchased by the same kinds of real estate speculators that Alizio bids against.
For example, Starrett City in Brooklyn is now up for sale under the new name of “Spring Creek Towers,” and the fate of its nearly 6,000 Mitchell-Lama rental apartments is unclear after an earlier purchase agreement was rejected by HUD. So far, New York City has preserved nearly 20,000 units of Mitchell-Lama housing through a variety of loan programs and tax incentives, although most of them haven’t been the housing units most at risk of leaving the program.
The Mitchell-Lama portfolio is split between rental and co-op apartments. Nearly three-quarters of the units preserved were co-ops, whereas all the Mitchell-Lama units that left the program in the last two years have been rental apartments, according to the comptroller. “The rentals are not as interested,” said Emily Youssouf, president of New York City Housing Development Corp. “The owners just want to sell their property and walk away from it and get their money.”
Saving Seaview Towers
One of the rental properties that is still affordable thanks to city programs is located in Far Rockaway, a narrow finger of land poking from the borough of Queens into the Atlantic Ocean.
In December, Alizio’s company won the bidding for 462 rental apartments at Seaview Towers, overlooking the beach here. The developer paid $42 million, or $91,000 per unit, to AIMCO, a national real estate investment trust based in Denver.
Seaview’s two 20-story high-rise towers were built in the late 1970s with a Sec. 236 mortgage guaranteed by HUD and a tax abatement from the Mitchell-Lama program.
Qualifying tenants at Seaview will receive rental subsidies in the form of enhanced Sec. 8 vouchers provided by HUD. And PJ Alizio Realty’s plan for Seaview will keep nearly all of the apartments affordable to families earning up to 60 percent of the area median income (AMI) for the next 30 years—providing affordable housing both to tenants with enhanced vouchers and to future tenants.
Recapitalizing Seaview to keep the development affordable will cost a total of $63.7 million, financed by a package of low-interest loans and equity from the sale of low-income housing tax credits.
Alizio is now searching for his next project, but the pickings—at least of reasonably priced properties—are slim. “Every piece of real estate in New York City being so desirable, it’s hard to find an existing building that isn’t going to go for top dollar,” Youssouf said.
Alizio Realty was able to bid more for Seaview because the property still had more than 10 years left on its original Sec. 236 mortgages. Those loans had a stream of interest reduction payments from HUD that were decoupled to help underwrite Seaview’s new financing.
Seaview was also lucky to win a reservation of tax-exempt bond financing. HDC now has more than $1.8 billion in requests for tax-exempt bond financing, but only $300 million available.
Conversion to homeownership
Homeownership may be a last resort to help rental tenants avoid displacement if their Mitchell-Lama property goes up for sale, especially in apartments that are not eligible for HUD’s enhanced vouchers or that, because they were first occupied after 1974, are not subject to New York’s rent stabilization laws.
The tenants at Lafayette Morrison and Lafayette Boynton recently partnered with Housing and Services Inc. and Apollo Real Estate Advisors, L.P., to purchase and convert their 1,865 Mitchell-Lama rental apartments into affordable co-op apartments for a total cost of $110 million, or roughly $60,000 per unit.
These new homeowners will receive up to $20,000 in grants from the state’s Affordable Homeownership Corp., plus closing-cost grants of up to $2,500 from the New York Housing Partnership. Rental properties like these that leave the Mitchell-Lama program to convert to homeownership can apply to the city to keep their old Mitchell-Lama property tax abatement, provided the co-ops stay affordable to buyers earning up to 165 percent of the AMI.
“It’s not a solution for all of the thousands of units, but it’s a solution for some,” said Beth Berns, chief financial officer for the Housing Partnership.
Affordable homeownership can even help Mitchell-Lama rental properties that left the program years ago. The owners of Fairfield Towers in the East New York neighborhood of Brooklyn, practically next door to Starrett City, converted their 1,100 Mitchell-Lama rental apartments into condominiums in 1991. But the developers only sold about a hundred units and struggled to operate the rest as rentals. By 2006, the 19 apartment towers had racked up more than 1,900 building code violations.
Last December, Taconic Investment Partners and Apollo Real Estate Advisors bought the 983 unsold condominiums, fixed them, and are working to sell them at prices that should be affordable to the current tenants.