Frank Farance Takes on NYS HCR Commissioner RuthAnne Visnauskas

As Worries Grow About Losing Westview Affordability, An Urgent Appeal

Frank Farance
As Worries Grow About Losing Westview Affordability, An Urgent Appeal
© David Stone / Roosevelt Island Daily

Troubled by a perilous, inexplicable delay in RIOC's accepting the affordability plan approved overwhelmingly by Westview tenants, last fall, Frank Farance wrote an open letter to RuthAnne Visnauskas, Commissioner of New York State Housing and Community Renewal, RIOC's overseer, raising a flag of alarm. He has agreed to allow us to publish the letter in full.

Ms. Visnauskas:

Nice to meet you at RIOC's offices a couple weeks ago, you were going into executive session on Southtown 8 & 9 (a deal with its own problems, but in a separate letter).

Simply put, us residents have had over a decade of experience with DHCR/HCR commissioners who lack a fundamental understanding of Mitchell-Lama (M-L) housing, affordability, and Roosevelt Island.  You are no exception.

I met with RIOC President Susan Rosenthal on Friday to discuss a couple topics, and one of them was Westview.  I was again unhappy to hear about a lack of progress, this is an urgent deal.

It appears that, regardless of your experience in financing multi-family housing, you (in fact) don't understand multi-family housing finances, so I will explain them to.  

I am a resident of Island House, our building has worked for two decades on preserving affordability, culminating in a comprehensive Affordability Plan, a 75% approval by the tenancy, and then an exit from M-L: the only M-L exit to an affordability plan in NY State, and Manhattan Borough President Gale Brewer announced this accomplishment in her 2016 State of the Borough message.  

Our plan in Island House, which preserved affordable housing for another 35 years, was created such that it would be a template for other M-L conversions.

First, you've lost key institutional knowledge with the retirement of Rich McCurnin, one of the very last people who understood affordable housing, and your agency has failed to preserve such valuable institution knowledge (a failure at the executive levels of HCR/DHCR).

Second, that loss of knowledge has resulted in delays which will further diminish the success of Westview and put 361 families in jeopardy.  

YOU SEEM TO HAVE A LACK OF AWARENESS THAT THE HOUSING OF THESE FAMILIES IS IN QUESTION, meanwhile you're distracted by Bright and Shiny Objects, such as the "bright" Southtown 8 & 9 deal (questionable), and the "shiny" new RIOC offices (potential conflicts of interest, and further damages our Main Street Retail).  

Also, whatever you think you've achieved in Southtown 8 in affordability of 300 units (itself a questionable deal), it will be completely erased by losing Westview ... a deal you could have completed, but I'm publicly calling you out on your (HCR/RIOC) failure on address the needs of our neighbors in Westview.

Here are some of the fundamentals of affordable housing, for which you (HCR/RIOC) appear to lack the basics.

1. Mitchell-Lama is an accounting mechanism apportioning rents, IT IS NOT AFFORDABLE HOUSING.  

Why?  Because M-L projects take the operating costs and apportion the costs among the "rooms", e.g., a 2BR is 3.5 rooms.  

M-L 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 ... which makes it unaffordable for (roughly) the 100-150%-ish AMI kinds of families in this M-L project.  

Also, many of these major maintenance items have been deferred **as requested by the tenancy** in ongoing Budget-Rent Determination hearings (as was the case, also, in Island House), but at some point these costs need to be taken on.

2.  Thus, to preserve affordability, we need to have some "market rate input" into the building, which is the conversion to a co-op.  Some of that "market rate" input will come from selling/renting apartments at market value.  

In Island House tenants were given the choice of staying as renters (under their present M-L rents with the City's Rent Guideline Board increases), purchasing their apartments (at an insider price, discounted to 35%, but with significant resales/profit-taking restrictions), or a buy-out.  In the 400 apartments of Island House, over 60% purchased, about a half-dozen units took the buyout, and the balance (about 38%) remained as affordable renters.

3.  With this "market rate input", there will be funding for the building's reserve: WHICH PAYS FOR THE DEFERRED MAINTENANCE AS A RESULT OF M-L PROGRAM, and funds the long-term maintenance of the building to remain affordable.

My understanding is that HCR is now hung up on the purported "warehoused apartments" and you're all worried that the owner will have 60-ish unoccupied apartments (approx 15%) rather than the 40-ish apartments (approx 10%) that is permitted by M-L.  

You should let people know that the Westview managing agent sends monthly reports to DHCR, so DHCR has been aware of the vacancies for years (you can't pretend that DHCR was unaware of this), and I've heard that DHCR has agreed to the vacancies because they are part of the buildings Red Herring and fundamental to the buildings finances, including making the building affordable.

How?  

Because when the building goes through this kind of conversion, the tenants have a stake in the owner-sponsor's success in that his success means funding for maintenance reserve.  Remember those deferred maintenance items so the M-L rents remained affordable?  Well they add up to $15-25 million in costs that are budgeted in maintenance reserve.

How much?  

Let's use some round numbers: 60 unoccupied apartments sold at $800,000 by the owner is $48 million. 

Now take 20 apartments out (as HCR/RIOC has proposed), which is $16 million ... and $16 million no longer available for maintenance reserve.  OOOPS!  That $15-25 million maintenance reserve just evaporated to almost zero, which means tenants (BOTH RENTERS AND BUYERS) will have to pay for it.  

For renters, that will be a 20% increase in rents for 10 years, which makes it unaffordable.  For buyers, it adds about $45/sq-ft to the purchase price (or about $45,000 per apartment), which can make it unaffordable for many tenants, thus reducing the number of purchases and it can make the conversion itself financially unviable.  

These are all back-of-envelope numbers, but they are fairly close to the consequences of removing 20 apartments from the pool of unoccupied apartments ... and have a PROFOUNDLY NEGATIVE EFFECT UPON AFFORDABILITY.

Besides, HCR/RIOC have the complete wrong perspective on this focusing upon unoccupied apartments.  

What happens if the apartment is occupied and then the tenant leaves ... it is sold at market rate ... so why are you caring about unoccupied apartments?  

In Island House, we had a 65-35 split where the owner-sponsor could make market rate up to 35% of the apartments.  I'm not sure what the right numbers are for Westview, but I am certain that they have been worked out ... and all these numbers are closely linked to maintain affordability ... changing one number has an effect upon others.

A BETTER (OBVIOUS) EXPLANATION IS: HCR/RIOC DOESN'T UNDERSTAND THIS, THEY'VE FOUND A "KNOB" THEY CAN ADJUST, THEY DON'T KNOW WHAT THAT "KNOB" DOES, BUT THEY WANT TO USE IT TO CONTROL THE NEGOTIATIONS.  

(Elected representatives take note: you now can point to what HCR and RIOC are doing wrong, and you can point them in the Right Direction.)

Unfortunately, HCR/RIOC's actions and negotiating stance just hurt Westview tenants, and discourage affordability.  And with this public letter, hopefully the community knows how dysfunctional/naive HCR/RIOC are.  

And when the interest rates creep up (which has a profound and steep negative impact upon affordability) and the deal falls through because there aren't enough apartments sold to make the deal financially viable (which means the building goes market rate rental, current tenancy leaves, and possibly sold to Cornell/etc.), the community can properly lay blame on HCR/RIOC on its executives who purport to have experience as "HCR's Executive Deputy Commissioner for Housing Development, where she was responsible for strategic leadership and oversight of multi-family housing finance programs" (excerpted from RIOC Board Bios), when the actually reality is a very limited understanding of affordable housing and multi-family financing ... to the detriment of Roosevelt Island and the preservation of affordable housing.

The next time anyone hears HCR/RIOC staff say: The Owner Is Greedy (a Pig, or any other variants), they should tell the HCR/RIOC person: HCR/RIOC is clueless about the process and you're actually taking money away from the deal that makes it more affordable for tenants.

In the meantime, I encourage you to read my long-term perspective on Roosevelt Island housing and finances, which was published in the Roosevelt Island Daily:

http://rooseveltislanddaily.prosepoint.net/roosevelt-island-affordable-housing-disputed

Lastly, I remind you that, since privatization, Rivercross (376 units) has about $17 million in flip taxes, while Island House (400 units) has about $95,000 ... a factor of 20 difference.  It should tell you that the Rivercross deal was all about cashing out with windfall profits, while Island House tenants actually decided to live in their building in its affordability plan.

Perhaps you should contact Mr. McCurnin in retirement, or Stuart Saft at Holland and Knight (the attorney of the Island House deal), or Graham Cannon, Geof Kerr, Renato Folla, or myself of Island House, who have worked on this for two decades ... maybe they would be able to inform you and your agency.  

Meanwhile, it's obvious you and your agency don't understand this, and you're harming affordable housing, and you're harming our neighbors and our community.

Frank Farance
Island House

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