Friday, October 26, 2012

RIOC Board Meets With Secretary To The Governor Larry Schwartz During Special Board Of Directors Meeting Yesterday - State To Take More Active Role In Roosevelt Island Affairs And Be More Collaborative With RIOC Board

The Roosevelt Island Operating Corp (RIOC) Board Of Directors held a Special Meeting yesterday at the offices of the NY State Empire State Development Corp. The first Agenda Item,

Personnel Matters,
was in Executive Session closed to the public. Speculation is that the discussion concerned the selection of a permanent RIOC President.

The Third Agenda Item,
 Discussion Regarding Executive Search 
for a permanent RIOC President was taken off the Agenda during the Board Meeting. To what extent the discussion of Personnel Matters in Executive Session caused the removal of the discussion regarding an Executive Search for a permanent RIOC President is unknown at this time.

The Second Agenda Item,
Discussion Regarding New York State's Role in Economic Development of Roosevelt Island
was discussed in public.

Present at the meeting was Secretary to the Governor Larry Schwartz. Mr. Schwartz indicated that the Cuomo Administration is committed to working with the RIOC Board and he (Mr. Schwartz) promised to come out to Roosevelt Island and meet with the community

After Mr. Schwartz left the public meeting, several NY State officials stayed to discuss economic development issues including those involving the Cornell NYC Tech project and the NY State bond debt incurred in development of Roosevelt Island. The consensus of the meeting participants appeared to be that:
  • NY State will be more involved in addressing issues impacting Roosevelt Island by the Cornell NYC Tech project and 
  • RIOC has no responsibility for the NY State bond debt incurred in the development of Roosevelt Island unless there is a surplus of funds which could be used to return some of the state's money invested in Roosevelt Island.
Here's what happened during the Public Session of the October 25 RIOC Board of Dirctors Special Meeting. (Thanks to Roosevelt Island resident Mark Lyon for providing the video.)

Hope to learn more about what happened during the meeting soon.

UPDATE 6:15 PM - From RIOC's Press Spokesperson:
We are very pleased that Mr. Schwartz had a productive meeting with the RIOC Board and was also able to address the Island residents who attended the meeting. We are also pleased that Mr. Schwartz made clear that he and the Administration intend to work closely and collaboratively with the RIOC Board and Island residents going forward.


YetAnotherRIer said...

"RIOC has no responsibility for the NY State bond debt incurred in the development of Roosevelt Island unless there is a surplus of funds which could be used to return some of the state's money invested in Roosevelt Island."

Now that this was discussed beyond RIOC's boundaries, will Frank be okay with this or are we still looking into a $1B abyss?

JimmyLaRoche said...

Which conflict of interest?

CheshireKitty said...

There's going to be an "appearance of conflict" as long as it's mostly WIRE building residents that are involved - for better or worse. If more Octagon, Manhattan Park, and Southtown residents - those with no "vested interests" - were on the Board, then there would be no question of a conflict. The privatization of the WIRE buildings is inevitable - it's rare but not unheard of that a M-L development is forced to stay within the system, as was Manhattan Plaza (which has an extremely complex, long drawn out story of why it stayed in the system - having to do with it serving the Midtown West theater community, as well as Clinton (Hell's Kitchen), the involvement of many influential politicians, and so forth). At least some sort of deal - albeit not perfect - was worked out for Eastwood, and the IH deal is fair. Frank complains about RC - but what does he expect? Apartment owners are motivated by greed, just like developers. The ML law states that the privatized buildings become market-rate. The problem is that the existing residents upon program exit often are not "market-rate". My position is that the State should get back into the business of constructing truly affordable housing - not under the ML model where rents/prices pop up to market rate after 20 or 30 years. But critics of this position point to the projects as "proof" that housing doesn't work. Yet, in NYC, housing isn't that bad, or at least isn't universally bad. Housing has a bad reputation which isn't entirely deserved - many are put off by the uniform, dull quality of the architecture, which was government mandated in the 50s to be dull and utilitarian deliberately so as not to appeal to middle-class renters, the thought being that if the middle-class rented affordable apartments (in projects), there would be less buyers of suburban homes, or renters of more expensive apartments. Housing should be developed that is high-quality and innovative - but under our system that is anathema, even though there are so many other public amenities that are lauded, accepted, and that everyone has no problem financing via taxes, such as the interstate highway system, the public school system, mass transit and so forth and so on. Housing, however, remains the stepchild, because the removal of the profit motive from real estate development is considered antithetical to our system. You thus have the affordable sector shunted to the side, perpetually a stepchild, in favor of luxury developments. You can almost say any "give-backs" such as the ML program, are only grudgingly allowed - despite the unending need for affordable housing. So no one should be surprised at RC privatizing the way it has - it's what happens with pretty much all ML buildings after 20 or 30 years. Thus, I don't see Margie being on the Board as an extreme "conflict".. RC would have privatized anyway, according to the ML law. WIRE building residents have been on RI the longest, and have consequently gotten involved in the fate of Island buildings, especially if they intend to continue living in their apartments. I guess you could say they care about their community - having invested years of their lives here, etc etc. The Board - whether or not it's composed mostly of WIRE building residents - can't prevent WIRE buildings from privatizing one day - the question is how it's done.

Frank Farance said...

CheshireKitty, the issue isn't RC's desires, the issue RIOC looking for the best interests of the Island. Octagon, which pays equivalently $4000/month for its ground lease, was a terrible deal for Roosevelt Island. I've pointed out a decade or so of bad real estate deals which are now hitting us (negative cashflow at RIOC starts soon). See my prior post on this at "".

I'm happy you think the IH deal was fair. I'm pleased that (wearing one hat) we were able to save 400 families in affordable housing, meanwhile (wearing another hat) RIOC got a good deal where Island House contributes its fair share to Roosevelt Island, just as Manhattan Park contributes its fair share to Roosevelt Island.

I also point out that we were able to nudge all parties, even though we had the least power among them. In other words, we spent much time listening to the needs of the Owner, RIOC, ESDC, the Governor. As DHCR Assistant Commissioner Rich McCurnin observed that each of the parties could find something they didn't like in the plan, but overall it was a grand compromise that was good enough for everyone to agree to.

As for RIOC using its weight to get (from a society's perspective) to the best social outcome, this was purpose of the original ground leases only going 40-ish years to 2028 and then extending them to 2068. By putting RIOC (originally UDC) into the decision-making loop, the M-L buildings would exit M-L but it a way that could address the Island's affordable housing needs (that couldn't be anticipated in the 1970's). Island House has the "1972 Letter" which gives the tenants the first right to buy the apartments. Westview, I've heard, has constructed a similar letter. Rivercross went co-op in the 1970's (I recall). Clearly, home ownership was intended for IH, WV, and RC in the 1970's, not just M-L exit to market rate. (Eastwood was never intended for home ownership.)

If the State had simply wanted M-L buildings to expire (as they had done elsewhere in the City and State), then they would have just given the WIRE buildings a ground lease to 2068, but they wanted a checkpoint where RIOC (originally UDC) could influence the buildings post M-L. By Rivercross privatization dominating these kinds of RIOC decisions, the rest of us are being affected negatively, as we will likely have to pay for this via tax/assessment 10-25 years later when RIOC really runs out of money (even if Southtown 7-9 are built).

Thus, we should want: No More Bad Real Estate Deals ... and the Rivercross one is shaping up to be a bad one for the Island.

CheshireKitty said...

It turns out the City is going to be the developer in the Lower East Side - with 500 of the 1,000 apts being affordable. Here's a link to the story

JimmyLaRoche said...

The city or state learned their lesson of extreme losses with "housing projects".

They won't make the same mistake!

Profit or bust.


Frank Farance said...

CheshireKitty, the point is: these deals looked good with a 1-5 year horizon, e.g., $11 million lump sump payment, but were terrible for the Island's finances. The Octagon deal might be renegotiated out of necessity because, even if Southtown 7-9 are built, RIOC still has funding problems 20-25 years from now.

The Island House ground lease extension has this new RIOC revenue stream called obliquely "New Assessment", which will be RIOC's way of getting extra revenue from all the buildings (regardless of existing ground lease payments).

Did you know that Assemblymember Kellner's proposed legislation (a version of the 2010 legislation Margie Smith lobbied for while also as a RIOC Board member), includes adding RIOC's ability issue bonds up to $25 million. Especially considering Southtown 7-9 will leave a cash balance of $33-69 million over the next 15 years, you might ask: Why the bond authority for such a small amount? These are revenue bonds and the legislation authorizes RIOC to collect revenue (that would be from us) to satisfy the payment of the bonds. (read: the key point of this part of the legislation is not just to authorize bonds, but to authorize new taxes/assessments)

Here's an excerpt from the bill (

[begin excerpt ...]

19. Bonds of the Corporation. 1. The corporation shall have the power and is hereby authorized from time to time to issue bonds up to the aggregate principal amount of twenty-five million dollars outstanding at any one time. The corporation shall further have power from time to time and whenever it deems refunding expedient, to refund any bonds by the issuance of new bonds, whether the bonds to be refunded have or have not matured, and may issue bonds partly to refund bonds then outstanding and partly for any other purpose described in this act. Bonds of the corporation shall be revenue obligations payable from and secured solely by such revenues as the corporation determines are available therefore and upon such terms and conditions as specified by the corporation in the resolution under which the bonds are issued.


20. Agreements of the State. The State of New York does hereby pledge to and agree with the holders of the bonds that the State will not limit or impair the rights hereby vested in the corporation to acquire, construct, maintain, reconstruct and operate its properties, to establish and collect rentals, fees and other charges and to fulfill the terms of any agreements made with the holders of the bonds, or in any way impair the rights and remedies of the bondholders, until the bonds, together with interest thereon, including interest on any unpaid installments of interest and all costs and expenses in connection with any action or proceeding by or on behalf of the bondholders, are fully met and discharged.

21. State and City not liable on bonds. The bonds and other obligations of the corporation shall not be a debt of the State of New York or the City of New York, and neither the State nor the City shall be liable thereon, nor shall they be payable out of any funds other than those of the authority. All such bonds and notes of the corporation shall contain on the face thereof a statement to that effect.

[.. end excerpt]

So why don't we hear about this from the Ms. Smith (one of the bill's architects), the WIRE, Matt Katz, Ashton Barfield, or other Maple Tree Group members? Or why haven't we heard from Mr. Kellner that our rents/etc. might rise from his bill?

Yes, we hear lots about new "democracy" and "elected representatives to the RIOC Board", but there are new "taxes", too.

And what about hearing from other RIOC Board members: Howard Polivy, Mike Shinozaki, David Kraut, et al? The residents aren't getting the full story from any of their leaders, right?

CheshireKitty said...

Maybe - but what about the millions living in the PJs? They aren't going to "magically disappear" - so my point is, if they do need housing (which of course they do) then the City might as well spend the money to build better projects. Look at what is happening in Red Hook, or the Rockaways, with the projects affected by Sandy. These people aren't going anywhere - they have no other place to go to. It is up to the City to rebuild - and rebuild better and stronger, so the buildings can withstand flooding next time we have a superstorm in NYC.

CheshireKitty said...

If RIOC has a billion dollar debt/liability to ESDC, is there any way a New Assessment could ever come close to paying it back? I just don't see rent/maintenance increases adding up to that much - but I'm just a simple cat... Do the financials/records of ESDC say anything about the billion dollars RIOC owes them?

Frank Farance said...

CheshireKitty, good questions. There are two kinds of assessments: (1) assessments that come via Bond Authority, (2) assessments that come via the ground lease (Community Facilities Payments via a "New Assessment").

The Bond Authority would get up to $25 million each gulp, as spread among the buildings. The Community Facilities Payments are unlimited in amount and duration.

Right now, RIOC runs out of money circa 20-25 years from now. Another $80-100 million from Rivercross privatization profits might kick that can down the road for another 15-20 years. These are very fuzzy numbers because RIOC does not have a good sense of its infrastructure lifecycle, lifetime, and costs, e.g., when/how-much do we add major infrastructure costs (AVAC, new tram in 25-30 years, etc.).

About 30-35 years from now, affordability provisions start to diminish so there will be some additional revenue to RIOC, but before then (assuming no money from Rivercross privatization profits) there will need to be these Community Facilities Payments and/or Bond Authority "gulps", which will be in the form of assessments to owners who can pass them onto renters.

As for paying back ESDC, I think the deal needs to be restructured:

(1) to take into account past-present-future monies paid to ESDC directly via the buildings, which have not been credited (e.g., payments from Island House), and which might include Rivercross privatization profits -- this would permit a common tally of all payments directly/indirectly to ESDC, i.e., let's find out what the actual grand total is

(2) to re-frame the revenue allocation agreement to take into account monies RIOC needs to collect to maintain its infrastructure (not properly addressed in the RAA, presently some RIOC monies are supposed to go back to ESDC)

(3) to recognize that RIOC's and the Island's growth was stunted by a variety of bad real estate deals circa 1990's (Octagon, Southtown 1-3, Eastwood), and to recalibrate expectations of the financial success of Roosevelt Island

(4) to anticipate the "termination" of the lease in a *meaningful* way so that residents and/or owners can anticipate the transfer 40 years in advance (2028), e.g., what happens to the land beneath us and (most likely) how do we anticipate ownership/taxation of that land within the context of surrounding NYC neighborhoods when 2068 arrives.

Right now, based upon 5000 units of housing, each unit might owe $200K (today, $4M in 2068) of that liability when the Roosevelt Island Master Lease terminates. It would be helpful to get clarity **in writing** from RIOC and ESDC on those liabilities.

I am researching the accounting of these transactions on the ESDC side, I'll get back to you when I have more information.

Thanks for the questions, they are good ones.

YetAnotherRIer said...

This time I have to agree with the WIRE. Sorry, Frank, but you really suffer from "needing to have the last word" disease. How come that most people who have read everything that needs to be read and everybody who listened to what could ever be said about this are okay with the situation? Doesn't it make you wonder sometimes that you are the only one left standing who doesn't want to agree? Doesn't it make you wonder that the people who actually are in charge of the issue are not seeing it the way you see it? Do you really think you are the one and only person in the world who knows the real deal? Isn't this getting lonely after a while?