RIRA President On RIOC President Shane's Departure, Master Leaseholder, Free Market Economics, Mitchell Lama Privatizations, Reunion & More

RIRA President Frank Farance Speaking At June RIOC Board Public Comment Session

Roosevelt Island Residents Association (RIRA) President Frank Farance sends the following report to Roosevelt Island residents. Mr. Farance addresses:

1. RIRA Blood Drive a huge success. Thank you to all participated. This year was our best effort ever. Thanks to Matt Katz for organizing this, vampires would have been proud.

2. Roosevelt Island Day was wonderful! This is such a great community day. Thank you to Doryne Isley, Charlie DeFino, the managing companies, RIOC, and others who supported, helped, and participated. RIRA was served hundreds of free bagels, coffee, and orange juice to residents — thanks to Trellis for the wide assortment of bagels. My children and I enjoyed the rides, the ponies, the little train ride, and the children's ID event. The Motown review band was excellent including watching PSD Deputy Director René Bryan work up the crowd. Mr. Bryan, you were having so much fun, you should have been in the band.

3. Roosevelt Island Reunion. Last weekend, we had a reunion of original residents circa 1976 to 1986. About 200 returned to picnic, swap stories, show off their children, and play music. I was in the last category, a keyboard player. In our younger days, us musicians would haul equipment on spring Saturday mornings to the water's steps at Motorgate and jam for a couple hours. (Or as one derisively put it: a loud tuning of guitars for four hours.) Over six hours of playing we covered Jeff Beck's Freeway Jam, Tom Petty's American Girl, Credence Clearwater Revival's Born on the Bayou, Wild Cherry's Play That Funky Music, James Brown's Papa's Got a Brand New Bag, Allman Brother's Statesboro Blues, Jimi Hendrix's Fire, and ending with Blind Faith's Can't Find My Way Home. Thanks to residents Dana Doyle, Olya Turcihin, and Brian Dorfmann for organizing the event. Thanks to RIOC staff Donna Masly, Carol Rubino, Mike Smith, and Fernando Martinez for their excellent help. Thanks to Public Safety for providing security who received many compliments from us old-timers.

4. RIRA Town Hall meeting on Main Street storefronts. We had our town hall meeting, unfortunately no one from the RIOC Board's Real Estate Development Advisory Committee attended. The whole idea was to be informed about the process to hear the multiple sides. RIOC President Steve Shane explained that we could have a 90-day process for renting storefronts. Cynthia Ahn, who runs a nail salon, and Julie Palermo, of the RI Chamber of Commerce. expressed concerns and dissatisfaction over the potential master lease process. Merchants are worried that when their leases expire will they be pushed out? Here's some of the main problems with the present master lease process:

- The big developers (Southtown and Octagon) are willing to invest millions in this because it will help with their rentals and sales. This is baloney. If spending a million dollars helped their rentals/sales, they'd spend the money now. But we have already learned that they won't spend money: for all the chatter from developers about getting a ferry while the tram is out, when it came to these developers putting up money, they balked. So we learned that the developer's sob story about rental/ssales is not true. The same applies here: they are piggy backing on residents' frustration with a plausible but phony story about a loss of rentals/sales. Yes, developers might be interested in the storefronts, but not because of loss of rentals/sales.

- Some RIOC Board members claim that only "free market" economics works and government can do no good. Recent US economic history tells us that "free market" doesn't always work. Not only will it not work here, we are NOT getting "free market" economics with the master plan. According to RIOC Board member Mr. Jonathan Kalkin, developers would allow the stores to run at a loss. So if RIOC allows their stores to run at a loss, it's bad government; but if a private enterprise does it, it's "free market". Furthermore, the deals that brought Duane Reade and Starbucks to the Island were not standalone profit operations, they were trades (as described by RIOC's real estate advisor Jones Lange Lasalle) where the developer would allow the merchant some prime location OFF of Roosevelt Island, but in exchange the merchant has to put a store on Roosevelt Island. These kind of arrangements aren't "free market" economics, they are merely choosing between two kinds of artificial/non-market economies: one is chosen by a government entity (RIOC, of which we have some influence) and one is chosen by a private entity (master lessee, of which we have no influence).

- Roosevelt Island is intended to be an economically diverse community. This is very different from most other communities. As Mr. Shane pointed out, we have a nail salon whose rent is $45/sq-ft in Southtown and a nail salon whose rent is $15/sq-ft in Roosevelt Landings with clienteles for both. In the master lease process, it might easily be economically viable to replace the $15/sq-ft nail salon with another service at $22/sq-ft (which is unaffordable by the nail salon). The outcome is: businesses and services lost for a lower economic segment are replaced by businesses and services for a higher economic segment. This is what normal "free market" economics do and, normally, some kind of out-of-market entity (e.g., government) is necessary to reduce this imbalance. Essentially, this is the argument that our current merchants are making.

- The storefronts could be rented right now with leases subject to the master lease, which is how it is done in shopping malls, but the RIOC Board does not want to do that. They say that will reduce the value of any master lease RFP process. This makes no sense: either your investment horizon is short-term, in which case you only care about the 10,000 sq-ft available, which is so small it is of little interest; or you care about the long-term, i.e., when big spaces like Gristede's become available in 2032, in which case the tenants rentable within 90 days are not your investment concern.

- What happens when the master lease doesn't work? For example, what if residents are really really unhappy with the outcome. The only way to unwind the deal is litigation or concessions, which will cost the Island (and a future RIOC Board). This is an all-lose situation and the RIOC Board has not said how they will handle this.

The RIOC Board is unwilling to permit a hybrid: lease storefronts now (could be done in 90 days) with leases subject to the master lease, meanwhile work through community concerns. As RIRA's Vice President Ellen Polivy said regarding the 2008 Island referendum question on a master lease, "I don't think we literally meant that [it had to be a master lease], what we wanted was the storefronts rented right away". About two months ago, RIOC Board Member Jonathan Kalkin said that merchants would be able to rent as soon as June. June has come and gone. It appears that Mr. Shane's predictions seem to be more accurate. After all, he is a real estate attorney that has worked with many commercial properties over the years.

I think experience is important. For example, When RIOC Board member Mr. Mike Shinozaki talks about operations, it is clear that his background brings vital experience to RIOC's efforts. For the Real Estate committee, there is nothing inherently wrong with a insurance agent, a grade school teacher, and a pediatrician being involved, but if this were any other organization that weren't so close to home, one would say "Gee, given the experience of your committee and the fact that you have a real estate attorney whose done commercial properties, I think I'd like to hear his point, too". And I've heard that two independent studies, including one by DHCR, recommended against the master lease process. So that's the point here: the board seemed to be upset that it was important to hear Mr. Shane's point of view, and it was important for these and other differing points to be discussed within the community (which the RIOC President chose to do, but the Real Estate committee declined).

Minimally, the RIOC Board needs to interact with the community and they should start by showing us what the RFP drafts look like. Had present resident board members not been on the RIOC Board, as outsiders they would have demanded: you should share this with the community. Although there were some initial bumps in the road, RIOC's Rosina Abramson's approach to have RIRA provide a Blackwell Park Committee produced the best outcome: (1) it satisfied RIOC's needs, (2) it satisfied the developer's needs, (3) it satisfied the residents' needs. The RIOC Board should choose the same approach, which will benefit everyone.

5. RIOC Board fires President Steve Shane. [Preface: These are my personal comments, RIRA has not yet met to discuss this, so I don't know their opinions.] At the Roosevelt Island Reunion on Saturday, the reporter who did the Newsweek article 30 years ago was doing a follow-up on Roosevelt Island and she was looking for juicy dirt to report. In that discussion, I was quoted as saying "I think Steve Shane has been the best RIOC President we've had in the past 15 years". On Monday, I found out his board was going to fire him. Considering the number of disagreements I've had with Mr. Shave over the years, you'll probably find it odd that I was strongly supportive of Mr. Shane continuing in his role.

Let me be clear, I think the RIOC Board made a serious mistake. Mr. Shane had approximately six months left in his term with the present governor. There are many major projects that need to be completed in the next 4-6 months, including the tram project that is a month behind schedule, the park work and memorial work at Southpoint, the privatization efforts for the three remaining Mitchell-Lama buildings (disclosure: I am the corporate secretary for the tenant association in the one of those buildings.) While there might have been other times for the board to assert itself (such as the wasteful dual-tram approach that could have saved us $10 million), this was the wrong time and for the wrong reason.

Given the risk of completing these efforts (including the inevitable litigation/mediation that will come from the tram delay), it seems foolish to lose the knowledge base of a key executive who was central to all of this. I checked the minutes of the RIOC Board meetings since January 2009 and I can find no actual impropriety or violation of the board's directives. If the RIOC Board really felt they needed to be clear about their direction, they could have adopted a specific board resolutions, but they chose not to -- until then, Mr. Shane had a fiduciary responsibility to report the truth, which he did. It seems that it was all about a personality issue, which is fine for clubs of teenagers, but not for corporate governance of a state public benefit corporation. The personal (non-business) aspect of this was clear: after the board forced his retirement in executive session, they then asked him to leave the table in the board meeting because board members "felt uncomfortable" with him being there. The RIOC Board looked like a bunch of amateurs, not serious executives. After Mr. Shane left, they then had a public beauty contest where the CFO and VP of Operations were treated as children: a face-off, including each describing the other's strengths and weakness. It was disgusting and non-professional. I, like many others in attendance, thought: Why couldn't you have discussed this in private? Why do you force your CFO to explain in public why he himself might not be good for the job of Acting President/CEO? Amateurs -- not a criticism of their lack of real estate experience, a criticism of their lack of professional courtesy.

Part of why Mr. Shane fired was his willingness to tell the truth to us on the master lease process. This is not a McChrystal moment (who was clearly disrespecting his boss), this was a RIOC Board that didn't want him to interact with the community to hear differing perspectives. At the RIRA Town Hall Meeting, it was clear that there was dissatisfaction with the RIOC Board and they wanted to express it.

Mr. Shane caused some friction elsewhere in privatization: the nature of exiting Mitchell-Lama housing for three of the remaining buildings is determining a variety of things, including how much profit tenants and building owners will make as the buildings become market-rate. (Note: Exiting Mitchell-Lama is essential for the survivability of all three buildings and keeping their present tenants; I have consistently supported privatization.) Considering the significant potential self-dealing conflicts of interest when a majority of the resident members of the RIOC Board are all effected by this pecuniary interest, you can see that Mr. Shane had to walk a fine line while satisfying his corporate obligations. Mr. Shane has said, which is completely proper for his role, he wanted to preserve affordable housing (post conversion), he wanted to make sure the owners and tenants would not walk away with obscene profits (which might put him on the front page of the New York Times), and he wanted to make sure that the Island's finances would improve long term (possibly to the detriment of the owners' and tenants' profits). A very tough job for Mr. Shane, but he seemed to be making steady progress.

I think this is an important moment in the Island's drive for self-governance. Some well-known advocates of self-governance believe that firing Mr. Shane is the pinnacle of our self-governance effort. I have been a strong supporter of self-governance and continue to be. However, if we really want people to respect the Island's ability to govern, then we cannot be of the mind "everything from Albany is Bad, everything by Island residents is Good". We have to demonstrate that we have better thinking, honesty, fairness, and transparency about Roosevelt Island. Which means that we need to feel free about being able to criticize your own neighbors on their mistakes — that is what will make us better, not a blind demonstration of power; and not blind support of board members just because they are our neighbors and we elected them. At the next RIOC Board election, hopefully some of those residents who expressed their unhappiness about the present RIOC Board will become candidates and remind voters that they won't make the same power grab, will have more executive management experience, and will be more cooperative about interacting with their constituents. Let the public decide.

Goodbye Mr. Shane. Thank you for reorganizing RIOC to be a much better organization that responsive to the Island; for reducing the prior "bunker mentality"; for giving us the experiment of elected resident members to the RIOC board (who just thanked you by firing you); for insisting upon a better Public Safety Department (which has improved substantially); for your many conversations (although we weren't always in agreement). I still stand by my statement "You're the best RIOC President we've had in the past 15 years" and it is our loss that you could not finish your term.

7. Upcoming RIRA meetings. The next meeting is on September 15 at 8:00 p.m. in the Good Shepherd Community Center; future meeting is October 6. Have a great summer!

The RIRA President's message is also published as the RIRA column in the 7/3/10 Main Street WIRE.