Roosevelt Island Rivercross Coop Shareholders Voting Today and Tomorrow On Market Rate Privatization Plan To Exit Mitchell-Lama Affordable Housing Program

The Roosevelt Island Rivercross Coop

is conducting a vote today and tomorrow on whether to privatize and exit the Mitchell-Lama program under a market rate plan.

 Image From Fair Privatization

According to this memo sent from the Rivercross Board of Directors to its shareholders:

MEMORANDUM

Date: December 2, 2013

To: All Shareholders

From: Board of Directors

Subject: Voting on Rivercross Reconstitution

Your last chance to vote in person is on Tuesday, December 3, 2013 (between the hours of 6 a.m. and 3 p.m.) and Wednesday, December 4, 2013 (between the hours of 3 p.m. and 9 p.m.) in the Rivercross Upper Community Room. This opportunity is ONLY for the purpose of voting on Rivercross Reconstitution (Privatization). There will be no additional agenda items considered or presentations made by the Board. Accordingly, if you have previously voted by Proxy, it is not necessary for you to attend this Special Meeting. However, if you do plan to cast your vote at this Special Meeting, please remember to bring a Photo ID with you. Voting will be conducted by Honest Ballot Association, the company supervising the voting.

We encourage you to vote on this historic matter of importance to all Rivercross shareholders. Please understand that if you fail to cast a vote, it is equivalent to your apartment voting against Privatization.

Some Rivercross residents are concerned that an approval of the market rate exit plan to leave the Mitchell-Lama program will mean the end of affordable housing now and in the future for Rivercross residents. They are concerned about maintenance increases, paying off a $50 million interest only mortgage and unequal voting power between small and large shareholders.

This anonymous flyer was recently distributed to Rivercross residents by an opponent of the market rate privatization plan.

A Rivercross resident supporter of the market rate plan had this to say about the anonymous letter:

The leftists are alive and well in Rivercross

As the privatization process at Rivercross draws to its all important resident vote, an internecine rivalry has erupted into a full scale leaflet battle with arguments that range from the economic to a rallying cry for social justice. Indeed, it is the latter that is war cry of the Rivercross leftists, or as one astute observer who was raised in a former iron curtain regime commented:

I have found communism back at work in Rivercross

A recent anonymous letter from the far left of Rivercross, having run out of data and fact based argument, plays to fear and uncertainty by conveniently leaving out essential facts. etc etc

Following the October 23 Rivercross Board of Directors privatization meeting with shareholders, the Rivercross Board distributed this Question and Answer memo to its shareholders explaining what privatization and exiting from the Mitchell-Lama program will mean.

From: Board of Directors October 25, 2013

For those of you who may have been unable to attend the DHCR-mandated meeting this past Wednesday night, we are reproducing the commonly-asked questions and answers presented at that meeting . Please note that the Offering Plan is the definitive document and nothing herein is intended to modify the Offering Plan in any respect.

What vote is needed to approve the Plan? Two thirds of all apartments must vote in favor to approve the Plan. Each apartment has one vote, no matter what size, This includes combined apartments; they also only have one vote.

If the Plan is approved, why is Withdrawal not projected to be effective until April 1, 2014?  Under the terms of the Plan, shareholders have 90 days after the vote is certified to "opt out" or become Non-Participating Shareholders. 90 days after certification takes us to the middle of March, so the effective date for Withdrawal is projected to be April 1st.

What does it mean to "opt out" or become a Non-Participating Shareholder?   As a Non-Participating Shareholder, you will be paid the Mitchell-Lama value of your apartment and you will become a renter not an owner. You will get a lease from Rivercross under which your rent will be equal to the maintenance you are currently paying. After the first year, your rent will increase by an amount equal to the increase allowed to rent-stabilized apartments in NYC but in no event more than 7% in any year. See pgs. 83 and 84 of the Plan. You will have access to all amenities you had as a shareholder.

How is the Transfer Fee on first -times sale calculated?  The Transfer Fee on the first time sales is equal to 45% of the difference between the gross selling price of the apartment and the Mitchell-Lama price of the apartment. For example, if the gross selling price of your apartment is $800,000 and the Mitchell-Lama price of the apartment was $50,000, the first-time Transfer Fee would be equal to 45% of $750,000 or $337,500. The $750,000 number is the difference between the $800,000 gross selling price and the $50,000 Mitchell-Lama price.

How was the $7,000,000 in Transfer Fee Revenue in the first year determined?  Transfer Fee revenue is based on two assumptions. First, that there will be first time sales of apartments at the rate of approximately 4.66% or 17 apartments during the first year as a private cooperative; and second, that the apartments will be sold at the prices consistent with range in market values determined by Michael Weinberg & Associates in his report that is set forth as Exhibit O in Part 11 of the Plan. If there are 17 sales in the first year at prices consistent with the Weinberg report, Rivercross will meet its projection of $7,000,000 in Transfer Fee Revenue. this is more fully discussed in Schedule B at note (9) on page 63 of the Plan.

The Plan's projections are based on 17 sales per year; however, the historic rate of turnover during the last five years is 10 sales per year. Can you account for the difference?    It is the Board's business judgement that a 4.66% turnover rate (or 17 apartments) is a reasonable assumption for a private coop coming out of Mitchell-Lama. It is also the Board's business judgement that the historic turnover rate under Mitchell-Lama is artificially low and not indicative of what the turnover rate will be for a private coop coming out of Mitchell-Lama. Each shareholder will have to make their own assessment of whether or not they are comfortable with the business judgement of the Board based on the information that is presented in the Plan and their evaluation of the track record of the Board.

The Plan's projections are based on 17 sales per year; however, the historic rate of turnover during the last five years is 10 sales per year. Can you account for the difference?
It is the Board's business judgement that a 4.66% turnover rate (or 17 apartments) is a reasonable assumption for a private coop coming out of Mitchell-Lama. It is also the Board's business judgment that the historic turnover rate under Mitchell-Lama is artificially low and not indicative of what the turnover rate will be for a private coop coming out of Mitchell-Lama.  Each shareholder will have to make their own assessment of whether or not they are comfortable with the business judgment of the Board based on the information that is presented in the Plan and their evaluation of the track record of the Board.

What are the extra costs associated with being a private coop?   The significant extra costs associated with being a private coop are first, increased real estate taxes or PILOTS (payment in lieu of taxes) and second, increased ground rent. As spelled out in Schedule B at notes (26) and (30) on pages 66 and 67 of the Plan, it is anticipated that PILOTS and ground rent payments will increase by approximately $5.5 million. In addition, there will be a loss of surcharge income of approximately $300,000 plus NY State and City Franchise Taxes of approximately $100,000, making the total additional costs associated with privatization approximately $6.0 million.

Will maintenance increase as a result of privatization?   While the Board cannot guarantee the future, the Board's projections indicate that maintenance will not increase as a result of privatization. The Board's projections for the first year after privatization show that Transfer Fees will generate approximately $7.0 million in additional revenue and the additional costs attributable to privatization will be approximately $6.0 million for a surplus of approximately $1.0 million. The Board has presented a five-year projection at page R-3 of the Plan and that projection shows a surplus in each of the next five years.

Will maintenance increase other than as a result of privatization?  Operational costs, such as the cost of building staff and the cost of utilities, continue to increase each year. A maintenance increase will be required to pay for the additional operational costs of Rivercross. The Board's projections for 2014 include a 3% annual increase in maintenance to offset the additional operational costs of Rivercross. As described in Note (2) at Schedule B-1 at page 69 of the plan, we would have this increase whether or not Rivercross was becoming a private coop.

How does the Corporations's "right of first refusal work"?  
Once a selling shareholder signs a contract to sell his or her apartment to a potential purchaser, the selling shareholder must offer Rivercross the right to purchase his or her apartment on the same terms and conditions as offered by the potential purchaser. This offer to Rivercross is irrevocable and cannot be withdrawn if Rivercross accepts the offer. The right of first refusal is more fully discussed at pages 91 and 92 of the Plan.

How is voting changing after Privatization?
Rivercross, as a Mitchell-Lama coop, was organized under the Private Housing Finance Law, which provides for voting on the basis of one vote per apartment, irrespective of the number of shares of the coop held by each shareholder. Rivercross, as a private coop, will be organized under the Business Corporation Law, and each shareholder will be entitled to one vote for every share held by such shareholder. While one apartment-one vote is the norm for Mitchell-Lama housing, one share-one vote is the norm for private coops organized under the Business Corporation Law. This is more fully discussed at page 34 of the Plan.

What is the deferment for certain family transfers?
After Reconstitution, if a current shareholder transfers his or her apartment, that shareholder must pay a 45% Transfer Fee. However, the Plan provides for a one-time deferment of that transfer fee for a limited number of family members. As more fully discussed at page 91 of the Plan, a deferment of the transfer fee will be allowed for a transfer to a spouse, domestic partner or an adult child if BOTH of the following conditions are met: (1) the transfer is by gift, will or intestacy and for no consideration, and (2) the transferee, after the transfer, occupies the apartment unit as his/her Primary Residence. Here are two examples: A shareholder dies and leaves his apartment to his adult child - the child occupies the apartment as his/her Primary Residence. The 45% Transfer Fee is deferred and when the adult child sells the apartment at a future date, the adult child will have to pay a 45% Transfer Fee on the value of the apartment at that future date. In the second example, a shareholder dies and leaves the apartment to his adult child but the child does not occupy the apartment after the transfer as his/her Primary Residence. The child can acquire the apartment but there is no deferment of the first-time Transfer Fee and the first-time Transfer Fee is due at the time of the transfer to the child based on the value of the apartment at this time.
The Board does not anticipate the deferment of the 45% Transfer Fee on these transfers to family members will have a material impact on the Transfer Fee revenue projected in the Plan and the Board took this deferment into consideration in determining the projected Transfer Fee revenue.

After Reconstitution, can a current shareholder obtain a mortgage or home equity loan?
Home equity loans and Mortgages will be acceptable under the Plan, subject to terms and conditions to be set by the Board. Reverse Mortgages are not available at this time for any apartments in a cooperative that is on a land lease.

Section 623 of the Business Corporation Law provides that a dissenting shareholder shall receive the fair market value of his/her shares determined the day before the votes approving the Plan of Reconstitution. What amount will that be?
The Mitchell-Lama value of the shares. Please be aware that the provisions of Section 623  are separate from the  provision in the Plan for Non-Participating Shareholders. Section 623 does not provide for a dissenting shareholder to receive a Special Lease and remain a resident of Rivercross. For a more detailed discussion of Section 623, see page 84 of the Plan.

Are there any provisions in the Plan to defer the first-time Transfer Fee for a shareholder selling his/her apartment and buying another apartment in Rivercross?
There are none. The first-time Transfer Fee would have to be paid on the sale of the apartment.

What will be the market value of Rivercross apartments if the privatization plan is approved? According to this chart included in March 2013 letter from Michael J Weinberg & Associates to the Rivercross Board of Directors

estimates of the market value for studio apartments are between $430,000 and $530,000;1-bedroom apartments are between $600,000 and $730,000; 2-Bedroom Apartments are between $820,000 and $1,025,000; 3-bedroom apartments are between $1,025,000 and $1,250,000; and 4-bedroom apartments are between $1,250,000 and $1,350,000.

The NY Times reported in 2005 that:

... Discussions have also begun about privatizing Rivercross, a Mitchell-Lama co-op where an average one-bedroom apartment now goes for $33,000 and an average three-bedroom for $54,000... 

More info available at the Rivercross Information Privatization Gateway.

Here is prior post on the Rivercross Building's privatization efforts to leave the Mitchell Lama program as well as video of meeting on the Island House privatization efforts  Also, previous post on the Rivercross $50 million interest only 10 year mortgage refinancing and December 2010 ground lease extension from the Roosevelt Island Operating Corp (RIOC).

UPDATE 12/4 11:50 PM - The Rivercross privatization plan was overwhelmingly approved. Unofficial results are that the vote was 315 to 35 in favor of privatization.