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The BroadsheetDAILY – 1/12/22 – At 41 River Terrace, Affordability Provisions Extended for Low-Income Residents But Not for Middle-Income Renters
At 41 River Terrace, Affordability Provisions Extended for Low-Income Residents But Not for Middle-Income Renters
Tribeca Pointe, at 41 River Terrace, in northern Battery Park City
The Battery Park City Authority (BPCA) announced Tuesday that it had reached an agreement to preserve 70 affordable rental apartments in the Tribeca Pointe building through the year 2069. The deal will require that the building owner, Rockrose, continue to offer deeply discounted rents to residents of 70 apartments within the 340-unit structure. These households are set aside for residents earning below either 40 or 50 percent of the “area median income” (AMI). This income bracket currently ranges from $33,440 to $41,800 (for a household consisting of one person), and goes as high as $47,720 to $59,650 (for a household of four).
These terms were set to expire in 2029, under the provisions of the deal governing the building’s original development, in the late 1990s. In exchange for generous tax subsidies and low-interest financing (available because government agencies provided a guarantee on the debt taken out by the developer to fund the project), Rockrose committed to building Tribeca Pointe as an “80/20” building. This meant that one-fifth of the units were offered at very low rents for tenants earning much less than needed to afford market-rate apartments.
When Tribeca Pointe opened in 1999, these requirements translated into $343 or $429 per month in a studio (for those earning up to 40 or 50 percent of AMI, respectively), $368 or $459 for a one-bedroom apartment, and $441 or $451 for a two-bedroom unit. Today, the same formulas (which cap rent at 30 percent of the two income thresholds) restrict rent on a studio apartment, inhabited by one person, to $836 (for a tenant earning below 40 percent of AMI) or $1045 (for a renter earning below 50 percent of AMI).
“This agreement reflects our commitment to preserving affordable housing in Battery Park City while advancing our sustainability goals,” said BPCA president B.J. Jones. “It is an important step in our continued efforts to sustain a vibrant and inclusive community.”
Tuesday’s announcement makes no mention of a second (and much larger) tranche of affordability at Tribeca Pointe, which appears poised to disappear. The same terms that set aside 20 percent of the building’s apartments for low-income tenants also stipulated that residents of the remaining 80 percent of the tower’s units would be protected by rent stabilization. This means that although these tenants would pay market-based rents when they first moved into the building, increases above that baseline would be limited to those allowed by the City’s Rent Guidelines Board for the apartments it regulates, usually limited to less than two percent. This can provide a crucial protection for middle-class tenants, who can generally afford the rents prevailing at the outset of a lease, but are often later forced from their homes by the gyrations of the New York real estate market. For context, the net effective median rent for New York City as a whole rose 22.8 percent in November (compared to the same period a year earlier), and many landlords have responded to the real estate market’s recent bounce back by demanding increases of between 50 and 70 percent.
An annual inventory of rent-stabilized apartments in Lower Manhattan was compiled, as a public service, by Community Board 1 member Tom Goodkind, who was (until his death in 2019) a zealous advocate for housing affordability in Lower Manhattan. This compendium notes that all 340 units in Tribeca Pointe are rent stabilized, and also documents that Rockrose was receiving an annual tax credit of $4.8 million in exchange for this public benefit, which is also scheduled to disappear in 2029. (The same report notes that Rockrose received additional taxpayer support by being allowed to participate in the Liberty Bond program after the terrorist attacks of September 11, 2001.) Multiple other sources, including the annual database of rent-stabilized buildings published by the State’s Division of Housing and Community Renewal, attest to Tribeca Pointe being subject to rent stabilization.
The Authority’s announcement of the extension for low-income affordability in 20 percent of the apartments within Tribeca Pointe is silent about renewing rent-stabilization provisions for the remaining 80 percent of households within the building. As such, it appears that these protections will be discontinued as of 2029. In this context, it is possible to view the new terms negotiated between the BPCA and Rockrose as incorporating two, related components: the preservation (beyond 2029) of 70 homes affordable for low-income residents, and the loss (starting in 2029) of 270 homes for middle-class residents.
The disclosure of the BCPA’s deal with Rockrose did not specify what benefits the developer will receive in exchange for extending the affordability protections by an additional 40 years, other than to say, “the agreement will also require annual reporting and commitments to support BPCA’s sustainability and resiliency efforts and goals, set an increasing schedule for ground rent over time, and ensure ongoing capital investment in the building.”
The passage about, “an increasing schedule for ground rent,” is a reference to the exotic nature of property ownership in Battery Park City, where homeowners, landlords, and developers do not own outright the land they occupy, but instead lease the space (through June, 2069), in exchange for yearly payments of ground rent, as well as so-called “payments in lieu of taxes.” Concerns about this arrangement have grown acute in recent years, as more residents have come to realize that, under the current terms of the ground lease, their homes may disappear in 48 years, as ownership of all the real estate in Battery Park City reverts to the Authority. Unless the terms of this lease are modified or extended, for condominium owners, it may mean that their property is effectively confiscated, while renters might face the prospect of eviction. Both owners and tenants could be rendered homeless under this scenario. Neither of these outcomes is a foregone conclusion, but would be subject to the BPCA’s decision about how to move forward.
In recent years, this uncertainty has caused the landlords of many rental buildings in the community either to sell their buildings, or else convert them to condominiums. Rockrose attempted, without success, to do both. In 2014, the developer shopped 41 River Terrace for sale, reportedly asking for $300 million, but found no takers. (This move came on the heels of Rockrose selling a separate Battery Park City rental building, 22 River Terrace for $225 million, to another developer, who evicted all the residents and converted the building to a condominium.) In 2015, Rockrose took preliminary steps toward converting Tribeca Pointe to a condominium, but these plans were complicated by insistence from government regulators that affordability provisions for the low-income apartments be extended through 2069 (the same terms the BPCA has now achieved), and that no residents (either low-income or market rate) could be evicted as a result of the conversion process (apparently in response to the displacement of all residents at 22 River Terrace).
Outlining the terms of the BPCA’s agreement with Rockrose at the November 17 meeting of the BPCA board, Mr. Jones described it as, “a framework that sets ground rent based on building performance, a percentage of adjusted gross income, starting at five percent and increasing to 12 percent over time.”
He added, “we also have protections in place with a schedule of minimum ground rent over the course of the lease. These terms also introduce fees that allow us to take part in the value created through major capital events, such as refinancing, property transfers, and sales. They also include a transaction fee associated with this deal, to be paid to the BPCA in the amount of $3 million, upon execution of the amendment.”
Pamela Frederick, the Authority’s chief financial officer, noted that, “the structure really does shore up the creditworthiness of the BPCA, especially as we go into our next bond issue. One of the questions in the last one is that we would have a series of resets in several of our buildings.” This was a reference to a codicil in the BPCA’s ground leases with various buildings that would “reset” the ground rent at specific dates in the future to a fixed percentage of the fair market value of the underlying land, when appraised as if, “unencumbered.” This is a legal fiction that would direct an appraiser to imagine the land’s value with no ground lease and no building. Such an approach is contrived to maximize (artificially) the land’s value, because the free hand offered by empty acreage is almost always preferred by Manhattan developers.
These resets have come to be viewed as a looming catastrophe by building owners, whether they are rental landlords or the residents of condominiums. In many cases, they would (if implemented) result in ground rent for a given building increasing by millions of dollars (and jumping by several hundred percent) in single stroke. Even the BPCA has acknowledged in recent years that these provisions are unrealistic and uncollectible, because they would inevitably have the effect of forcing buildings into foreclosure and repossession. But the observation by Ms. Fredericks may point to another problem: Bond underwriters have apparently realized that the revenue promised by the reset provisions of the ground leases is unlikely ever to appear on the BPCA’s balance sheet. For this reason, renegotiating leases to incorporate more pragmatic terms (even if they promise less revenue) may have then effect of enhancing the credibility of the BPCA’s promise to reply borrowers in future bond issues.
Noting that, under the terms of this agreement, Tribeca Pointe’s ground rent will increase in the future may obscure the fact that the deal struck by the BPCA almost certainly means that Rockrose’s payments to the Authority will increase by significantly less than they would have under the original terms of the ground lease. In this context, the benefit obtained by Rockrose may amount to many tens of millions of dollars between now and 2069.
An illustrative comparison is by offered a separate affordability deal mentioned in the BPCA’s Tuesday announcement about Tribeca Pointe. In July, 2020, the Authority agreed to revise the ground lease for Gateway Plaza, Battery Park City’s oldest and largest residential complex, to extend a rent protection agreement for approximately 600 households. In exchange for terms that require these tenants to pay more during the coming ten years (but save them from unrestricted market rents), the LeFrak Organization (the owner of Gateway Plaza) received reductions in future ground rent increases worth more than $220 million dollars. This translates into a subsidy of more than $380,000 for each of the 600 households that benefited from this deal. Such a windfall, if given directly to tenants, rather than to their landlord, would have enabled every household in Gateway Plaza to live rent-free for almost five years, or could have paid the entire rent of those 600 households for decades into the future.
BPCA spokesman Nick Sbordone said of the Tribeca Pointe agreement, “we are proud to have delivered for Battery Park City residents by preserving deep affordability in one of New York City’s most expensive neighborhoods for the next nearly half-century. This is the latest step in our continuing work with residential buildings across the neighborhood to directly address concerns about housing costs in Battery Park City.”
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TODAY IN HISTORY
January 12
Upon the death of her husband Thaddeus Caraway, Hattie Caraway filled the vacancy and thereby became the second woman to serve in the Senate. Although considered a long shot, she was the first woman to be elected when she ran in the 1932 general election. Senator Hattie Caraway of Arkansas credit: Library of Congress
1866 – The Royal Aeronautical Society is formed in London.
1908 – A long-distance radio message is sent from the Eiffel Tower for the first time.
1932 – Hattie Caraway becomes the first woman elected to the United States Senate.
1967 – Dr. James Bedford becomes the first person to be cryonically preservedwith intent of future resuscitation.
1971 – The Harrisburg Seven: Rev. Philip Berrigan and five other activists are indicted on charges of conspiring to kidnap Henry Kissinger and of plotting to blow up the heating tunnels of federal buildings in Washington, D.C.
1998 – Nineteen European nations agree to forbid human cloning.
2004 – The world’s largest ocean liner, RMS Queen Mary 2, makes its maiden voyage.
2010 – An earthquake in Haiti occurs, killing over 100,000 people and destroying much of the capital Port-au-Prince.
The Queen Mary 2 tied up in Red Hook Brooklyn.
Births
1822 – Étienne Lenoir, Belgian engineer, designed the internal combustion engine (d. 1900)
1856 – John Singer Sargent, American painter and academic (d. 1925)
1944 – Joe Frazier, American boxer (d. 2011)
Deaths
1519 – Maximilian I, Holy Roman Emperor (b. 1459)
1665 – Pierre de Fermat, French mathematician and lawyer (b. 1601)
1976 – Agatha Christie, English crime novelist, short story writer, and playwright (b. 1890)[37]
1988 – Piero Taruffi, Italian racing driver and motorcycle racer (b. 1906)
1997 – Charles Brenton Huggins, Canadian-American physician and physiologist, Nobel Prize laureate (b. 1901)
2002 – Cyrus Vance, American lawyer and politician, 57th U.S. Secretary of State (b. 1917)
Credit: Wikipedia and other internet and non-internet sources
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