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Tuesday, March 28, 2017

Roosevelt Island Westview Ground Lease Negotiations Stalled Delaying Building's Exit From Mitchell Lama Program - Residents Worry About Fate Of Affordability Plan, What's Going On?

Six months after approving an affordability plan to exit the NY State Mitchell Lama housing program, residents of Roosevelt Island's Westview building are worried that no final agreement has been reached between the Westview building owner/sponsor (North Town Phase 111 Associates LP) and various NY State government agencies, including the Roosevelt Island Operating Corp (RIOC), NY State Homes & Community Renewal (HCR) and the Empire State Development Corp.

As reported October 3, 2016:

The last remaining Roosevelt Island Mitchell Lama building, Westview,



took another step closer to privatization and exiting the NY State affordable housing program this weekend with the residents approving an affordability plan negotiated between their representatives, the Westview Task Force  (WTF) and building ownership....
and:
... The Westview Task Force added that the Affordability Plan has the support of local elected officials, NY State Homes & Community Renewal and the Roosevelt Island Operating Corp (RIOC). RIOC is expected to approve an extension of the Westview Ground Lease through 2068 during its January 2016 Board meeting....
 Image of September 22 WTF Affordability Plan Informational Meeting


Roosevelt Island's NY State Assembly Member Rebecca Seawright supported the Westview affordability plan and had this statement:
... Westview is the last building remaining in the Mitchell-Lama program on Roosevelt Island and will exit with an affordability plan supported by Assembly Member Seawright. Seawright acted on the numerous concerns raised by her constituents and worked with public officials Congresswoman Carolyn B. Maloney, Senator Jose M. Serrano, Manhattan Borough President Gale A. Brewer, NYC Council Member Ben Kallos and New York State Homes & Community Renewal’s Commissioner James S. Rubin to ensure the affordability plan was fair for all. The proposed plan, which was overwhelmingly approved, protects Westview residents who chose to continue to rent rather than purchase. The affordability plan specifically protects residents on fixed incomes who simply cannot afford to purchase their apartments or pay market rent. At the same time, this is an opportunity for many middle income Westview residents to become first time home buyers at affordable purchase prices...
But, to date, the Westview building owner/sponsor and the NY State agencies have not reached a final agreement leaving the residents worried and the fate of their homes unknown.

I spoke with Westvew owner/sponsor David Hirschhorn about the current status of the Westview affordability plan and exit from the Mitchell Lama program. According to Mr. Hirschhorn:
The Affordability Plan is essentially a very detailed term sheet that sets forth all of the details for how Westview will withdraw from the Mitchell Lama Program and how it will operate following Mitchell Lama withdrawal. It is modeled on the Island House Affordability Plan and includes: (i) the purchase price to be paid by tenants who elect to purchase their apartments, (ii) the rent to be paid by tenants who elect not to purchase their apartments, (iii) the ground rent and transfer fees to be paid to RIOC, and (iv) the payments in lieu of real estate taxes to be paid to ESD.

Following the Island House template, the Westview Affordability Plan was the product of many years of negotiation and compromise between the Sponsor and the Westview Taskforce. DHCR was involved in every step of these negotiations and used its good offices to ultimately bring the parties together resulting in the Westview Affordability Plan Dated September 1, 2016 - FINAL. The agreed upon Final Affordability Plan was then overwhelmingly approved in a tenant referendum on October 3, 2016. The economic terms were carefully balanced and reflect substantial concessions; therefore, any change will have a ripple effect resulting in multiple changes. Its very complicated.

The sponsor and RIOC were to finalize the Ground Lease extension using the Island House Ground lease as the Westview template. The final approved Westview Affordability Plan provided for the same ground rent and the same transfer fees agreed to by RIOC in Island House to be incorporated in Westview. The Westview Affordability Plan actually states:
This Affordability Plan contemplates the execution of a formal Ground Lease Modification Agreement incorporating the terms of this Affordability Plan. The Sponsor and the New York State agencies agree to cooperate with one another in a good faith effort to prepare and execute such Ground Lease Modification Agreement (and the Sponsor-RIOC Sublease herein described) as expeditiously as reasonably possible.
All of this was supposed to have been completed by January 31, 2017 because effective February 1, 2017, the Affordability Plan provides that the purchase price paid by Westview tenants increases (with additional increases each month thereafter). The Sponsor deferred the February increase, but the March 1st increase is effective. The next increase will take effect April 1st.

I presume RIOC is evaluating whether it will proceed with the ground lease extension on which the Affordability Plan was based (the same as RIOC agreed to in Island House) and approved by Westview Tenants, or whether it will instead require a greater ground rent to be paid by the Coop (which would require that the monthly maintenance fees be increased that could result in the coop not being viable and thus the failure of the entire deal), and/or higher transfer fees from the Sponsor and tenants when apartments are sold. As noted above, any change in one provision beyond what was carefully negotiated, such as an increase to the Sponsor, would result in other changes, such as an increase in the purchase price to be paid by tenant purchasers.

Without a ground lease extension there cannot be a cooperative conversion and tenants would not be able to become homeowners. Remaining a Mitchell Lama is not an option and so Westview would become a market rate rental building. This would be a most unfortunate result.

All of the New York State agencies (RIOC, DHCR & ESD) need to finalize the Westview Ground Lease Extension substantially in the form that these same agencies signed for Island House. This could be done very quickly since the form is actually included in the Westview Red Herring which all of the agencies have had since its filing in 2015. ESD has already stated that they are prepared to move forward using the Island House documentation. So its really up to RIOC and DHCR as to whether they will proceed as provided in the Final Affordability Plan.

I am cautiously optimistic. I believe that RIOC and DHCR are carefully considering what is at stake and they are certainly aware of what was agreed to and the economic terms that everyone (tenants and sponsor) relied upon in compromising upon a final consensus back in September. I do believe they are working hard to make the Westview Affordability Plan a reality. It would be most unfortunate to now upset the apple cart. Island House was a smashing success and as the Sponsor, I would hope that we can replicate and bring that success to the Westview Tenants. Both the Sponsor and the Westview Taskforce desire to conclude the Westview Ground Lease Extension as originally contemplated without further price increases to the Westview Tenants. With interest rates rising, it would be good for the Westview Tenants to get this done very soon.
The Westview Task Force representing building residents issued this March 20 statement:
We were unpleasantly surprised and very disappointed that the effective date of the Westview Affordability Plan did not materialize at the end of January, this after the agencies assured us that a January effective date was achievable as long as we came to an agreement with the Sponsor and demonstrated Tenant support for the Plan. An overwhelmingly positive vote by Tenants was delivered at the end of September 2016 moving the Plan forward for final approval by the agencies.

We have not been provided with any specifics related to the new demands put on the Sponsor by the agencies and we are not part of any negotiations. Therefore, we are not in a position to comment on the status of such negotiations. We have, however, clearly expressed to the agencies and Sponsor our concerns with any potential outcome that might adversely affect the affordable preservation of our homes, and our position that any such adverse outcome would be unacceptable.

We remain hopeful that the affordability terms as of the promised January effective date will be retained and quickly approved by the agencies.
RIOC President Susan Rosenthal responded to my inquiry on status of Westview affordability plan and ground lease extension saying:
RIOC is working in concert with HCR and ESD to negotiate with the Owner. We remain hopeful that the parties will reach agreement. 
The last public statements by RIOC on the subject of Westview ground lease extension and affordability plan occurred during the October 13, 2016 Real Estate Advisory Committee meeting. RIOC President Rosenthal reported to the Committee:
We had a meeting with the Task Force at their request and we also had conversations with Hirschhorn before the vote and I indicated to both groups that we are having an appraisal.  It is very possible that the rent proposed by us will be higher than the Island House rent based upon the increase in market value and they should know that before going forward....

... We're not going to agree to an amount that's not based upon the market value....
RIOC Director Margie Smith added:
There's just so many variables. It is similar to Island House but certainly not the same building. There are so many issues that one building has and not the other one. We should have been involved all along in this, certainly before they voted....
Ms. Rosenthal replied:
HCR did not look at the affordability plan before the vote. ESD has not looked at the TEP payment before the vote. I'm not sure why it was done in this chronology.
Here's portion of the Real Estate Advisory Committee discussion



and the full discussion.



Information on the Island House Mitchell Lama exit here and Rivercross exit here.

Island House Mitchell Lama exit was under an affordability plan, Rivercross Mitchell Lama exit was a market rate plan.

There is currently an arbitration under way between RIOC and Rivercross regarding the Rivercross ground lease extension fee. Not currently known if the Rivercross ground lease extension arbitration effects the Westivew ground lease negotiations.

Westview residents are very worried.

UPDATE 4/11 - NY State Assembly Member Rebecca Seawright adds:
It is in everyone's best interest that Westview exit from the Mitchell Lama program ensures affordable housing for Roosevelt Island residents. We have come so far in negotiations, and I will continue to work with DHCR, ESD, RIOC and the Westview Taskforce to maximize the benefit for the residents. At this time, negotiations are still in progress and there is every reason to believe that the final plan will be affordable and fair for all.

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