Unspoken truth behind "100% affordable" Pacific Park towers: buildings can go (partly) condo/co-op in 30+ years
It's not just that more than half the apartments at 535 Carlton and 38 Sixth could go to six-figure households, with, for example, the majority of two-bedroom units (at 535) renting for $3,223 per month.
It's also that, after some 30 years, the towers could become hybrid buildings, part below-market housing, part market-rate co-op or condo. By then, most current elected and public officials will be gone.
Over 30 years, yes, the units will be protected by a strong version of rent-stabilization, in which rent increases will be governed by annual decisions by the city's Rent Guidelines Board (RGB), and certain exemptions and mechanisms typically used to raise rents won't apply.
After that, more than a third of the units should leave rent-stabilization if they get new tenants. (As of now, 127 of 297 units at 535 Carlton will rent at or near the current $2,700/month threshold for "high rent vacancy deregulation.") Other units will face rent increases reflecting improvements in the apartment or building, potentially pushing them over the then-Deregulation Rent Threshold.
Those tenants, however, will see the costs of building expenditures newly reflected in their leases. New tenants in those units also will face vacancy increases, which will not be applied during those first 30-plus years, during which the developer gets the benefit of tax-exempt financing and faces reciprocal obligations.
The restrictions are similar for 38 Sixth, for which the housing lottery has not yet begun, and which should open next year.
Read the fine print
The housing scenario is revealed in the regulatory agreements (bottom) among the developers of 535 Carlton/38 Sixth and city and state agencies, and confirmed to me by the New York City Housing Development Corporation (HDC).
It has not, of course, been mentioned in any of the press releases (535 Carlton, 38 Sixth) for the buildings, which included rhetoric--such as from Council Member Laurie Cumbo--regarding how housing would preserve the "cultural and economic diversity of its surrounding community."
It's not in the announcement for the 535 Carlton lottery (excerpted at top right). And it's not on the building's web site--see excerpt below--which calls 535 Carlton critical to developer "Greenland Forest City's plan to make Pacific Park Brooklyn an inclusive neighborhood designed for all New Yorkers."
|From 535 Carlton web site|
Such policies of limited affordability are not uncommon in New York City, though other cities do better. DNAinfo reported last October that only 3,031 new units built in the previous year would be permanently affordable, while 5,453 units would last a minimum of 30 years.
Advocates here, such as the Association for Housing and Neighborhood Development, have called for permanently affordable housing, which requires "mission-driven, non-profit stewardship" and "changes in the way the city finances and underwrites its developments."
For 30 years, stability at 535 Carlton#535Carlton progress + @barclayscenter. The façade is looking *so* distinct #affordablehousing! pic.twitter.com/Lql1KmqNCn— Pacific Park BK (@pacificparkbk) October 25, 2016
|The Occupancy Restriction Period|
Not only will there be no vacancy increases, tenants whose incomes increase--after qualifying for a unit--be penalized for exceeding the maximum for their unit.
As stated in the Regulatory Agreement excerpted at right, the Occupancy Restriction Period is at least 30 years after the city loan is issued.
That period should begin shortly after the building fills up. This period "will likely be 30 years from the date the HDC Mortgage 'converts' to a Permanent Mortgage," HDC spokeswoman Libby Rohlfing told me.
"This usually occurs between 3 to 6 months after the property is 'stabilized,'" she said, which means "the property is occupied and meets certain other conversion requirements, such as income-to-expense and debt service coverage ratios, etc."
After 30 years, potential changes
After the Occupancy Restriction Period ends, all units will remain under rent stabilization. Tenants of low-income units (aka Tax Code Units) will be required to verify their incomes and, if they still qualify as eligible, will get rent-stabilized lease renewals, and will not have to further certify their income.
For those whose incomes make them ineligible for a low-income unit, their lease renewal could be adjusted upward to 30% of their current income.
|After the Occupancy Restriction Period|
"However, the owner will be able to utilize any exemptions/mechanisms that may be available in the Rent Stabilization Laws (or any successor laws) at the time to de-regulate units (but only those occupied by new tenants)," Rohlfing said, "or to raise rents" on existing tenants.
Such mechanisms for the latter include MCIs (major capital improvement) or IAIs (individual apartment improvement). Both MCIs and IAIs can be applied to existing tenants, though the latter requires approval by those existing tenants. Also, rents typically jump for new tenants: today, there's an 18% vacancy lease increase.
Given that 535 Carlton will need capital improvements after 30 years, and apartments likely will need upgrading, a combination of increases seems predictable.
Even without such increases, as noted above, it's likely that many vacated units would automatically exit rent-stabilization, because of "high rent vacancy deregulation."
Rohlfing stressed that the Regulatory Agreement prohibits owners from utilizing tactics such as MCIs and IAIs during the Occupancy Restriction Period, though they are permitted under rent stabilization.
The means "a heightened form of rent stabilization," she noted, adding that the owner cannot gain from a vacancy if it results from “breach of the warranty of habitability, harassment, constructive eviction or any similar action,"
The conversion to co-op or condo
That sets up the potential, not uncommon in the city, for a hybrid building, in which holdover tenants remain in a rent-stabilized unit, while other go condo or co-op. That suggests a new potential profit stream for the owner, or sponsor. And it suggests that, starting in, say, 2047, the building will be marketed and positioned differently.
Documents show that 535 Carlton is formally owned by two entities, one for moderate- and middle-income tenants, and the other for low-income tenants. Each of the portions can be converted to co-op or condo, though the low-income portion seems a less likely candidate.
535 Carlton Regulatory Agreement Pacific Park Affordable Housing by AYReport on Scribd