After 2 1/2 Years Of Review, NY State Attorney General Approves Roosevelt Island Westview Building Affordability Plan - Former Mitchell Lama Building Will Begin Coop Conversion, Current Residents Can Buy Apartments On Average of $246 PSF, Or Remain As Renters
On a regular basis over the last 2 1/2 years, Roosevelt Island Westview
at not getting any information from the building ownership or the Westview Task Force, purportedly representing the residents:
I am a tenant at the Westview. Although the deal on the building's privatization has been reached 2 years ago, nothing happened since then. And we get no info on the process from anyone..Early Saturday morning April 3, the Westview Task Force answered with an email announcing
Friends, Neighbors, Westview Residents,
Great News!
We are very pleased to inform you that the NYS Attorney General has accepted the Westview Affordability Plan allowing Westview to proceed with conversion of the building.
In the coming weeks, the Sponsor plans to distribute the approved Offering Plan (aka Black Book) to all tenants.
Once the Black Book is available our attorneys will provide a summary of the approved Plan.We also plan to schedule Q/A sessions (virtual and/or voice) regarding the Plan and next steps.
It has been a long wait for everyone and we are thrilled to share this news with you today.
Thank you to all for your patience and support.
On Monday, April 5, David Hirschhorn, the managing member of Westview's
ownership, confirmed acceptance of the offering plan by the NY State Attorney
General.
Mr Hirschhorn issued this statement on behalf of the Westview
ownership:
Perched atop the East River on Manhattan’s Roosevelt Island, coop apartments in the 19-Story, 360 unit Westview Apartments will soon be offered for sale. The New York State Attorney General has just accepted the offering plan for filing allowing sales of these much anticipated coop apartments to proceed. “We are extremely pleased to now be able to move forward with the sale of these apartments to both our existing tenants, who have so patiently awaited this day, as well as to new individuals and families looking for reasonably priced highly customized renovated apartments on Roosevelt Island,” says David Hirschhorn, managing member of the developer, WV Preservation Partners, LLC,
Westview was one of four original Roosevelt Island buildings that were developed in the 1970s as part of the New York State Mitchell-Lama program providing affordable housing for middle income residents. In 2018, Westview withdrew from the program – the last of the island buildings to do so. “We are very appreciative of the tremendous effort and support that we received from our State partners, including the Governor’s Office, the Division of Housing and Community Renewal, the Roosevelt Island Operating Corporation and Empire State Development, without whose participation in this public – private partnership the conversion of Westview and the preservation of affordable housing would not have been possible,” said David Hirschhorn.
In 2015, the same developer successfully converted Island House, Westview’s sister property next door; it was extremely well-received by both existing residents and outside purchasers.
As in Island House, Westview will offer existing tenants the unprecedented opportunity to purchase their apartments for well below market prices or, for those tenants who elect not to purchase, they will be able to continue to rent their apartments with rent increases based on the RGB increases (although the apartments are not rent stabilized).“Buyers looking to experience Manhattan's best kept secret will soon have the opportunity to purchase fully renovated units with high end finishes and unparalleled Manhattan views on Roosevelt Island – only 90 seconds to the East Side. Its like living in your own private park,” says Alyssa Brody of the Development Marketing Team (alyssa@devmarketingteam.com). A limited number of similar residences are immediately available at Island House.
I asked Mr Hirschhorn:
Have there been any changes to the Affordability Plan since agreed to by owner and residents?
He replied:
No material changes, other than that I have more grey hair now.
Roosevelt Island resident and real estate agent Kaja Meade adds:
This has been a long anticipated outcome.
Co-op living is real investment in community. Roosevelt Island has peaked a lot of interest from off-island buyers lately, and if that can benefit Westview sellers that have been waiting through this process, than that's great.
It's also exciting that new co-op owners, that are able to buy their own units, will enjoy the benefits of ownership. Roosevelt Island has a deep community history, and folks continuing to rent in Westview will hopefully enjoy building improvements and shareholder vested interest in a great new co-op.
As reported July 23, 2018, the
NY State Department of Homes & Community Renewal
(DHCR) approved the terms of the Westview Affordability Plan as
detailed in this memo of support to the
Roosevelt Island Operating Corp
(RIOC):
Executive Summary
The decision to be made is whether the State (ESD, RIOC, and HCR) should take the necessary steps to approve an affordable home ownership conversion plan for Westview on Roosevelt Island. The Plan provides for current tenants to be able to purchase their apartments at below market value with non purchasers receiving guaranteed rent protections. In approving the Plan, the State will need to extend the Ground Lease as follows: an increase in effective annual ground to $325,000 escalating by 10% every 5 years through 2048 and then 4% annually through 2068.
The reasons to support the Plan are as follows:
Background
- Preservation of Mitchell-Lama(s) (M/L) as a housing resource is a priority policy initiative;
- Non-purchasing tenants will have annual rent increases limited to a formula based on % of AMI tied to NYC Rent Guidelines Board rates
- Non-purchasing tenants will face an initial 6.16% increase (the first at Westview since 2009), down from an initially proposed 14.8% increase
- Residents are being offered to purchase apartments at approx. 30% of market value with limitations being imposed on re- sales; rent protections tied to RGB guidleines are guaranteed for non-purchasers;
- Income restrictions for new purchasers based upon the statutory M/L formula;
- Sponsor contributions and flip tax proceeds fund a substantial capital reserve fund;
- Substantial flip taxes on affordable units help keep project affordable;
- The Plan is overwhelmingly supported by the Westview tenants, with 92% of those voting in favor of the Plan (73% of the apartments voted);
- The Plan is supported by local elected officials, including AMB Seawright and MBP Gale Brewer;
- All of the above vs. the owner exercising the option to buyout of the M/L program and transition Westview to a market rate rental or coop likely forcing a significant number of families to relocate
- Sponsor will deposit into a special fund $3.6 million for Tenant Association expenses and other building related items as may be jointly approved by the Board of Directors of the Corporation and the Sponsor.
Westview is a 361 unit Mitchell-Lama rental housing development on Roosevelt Island. In 1969, the City of New York leased Roosevelt Island to the Urban Development Corporation (UDC) for a period of 99 years. A master development plan, later amended, for the creation of a mixed income community was implemented. UDC (now known as ESD) thereupon entered into subleases with the four housing companies developed under the M/L program, Westview being one of them. The Westview sublease (hereafter referred to as the “Ground Lease”) expires in 2028.
Mitchell-Lama Law/Voluntary Dissolution
Westview is organized pursuant to Article II of the Private Housing Finance Law (PHFL); Section 35 of the PHFL allows a M/L housing company to voluntarily dissolve (buyout), without the consent of the Commissioner, upon prepayment of its mortgage after twenty years from the date of initial occupancy. Westview is currently eligible to voluntarily dissolve. Of the 282 State M/L(s) originally constructed, 133 have bought-ought of the program.
Starting with the Spitzer Administration, a policy initiative was developed to aggressively pursue the preservation of M/L companies as an affordable resource, and these efforts have been greatly expanded upon during the Cuomo Administration. In the case of Westview, we engaged the owner, David Hirschhorn, to discuss the possibility of a conversion to a Business Corporation Law (BCL) cooperative (but with long-term affordability restrictions) modeled on the cooperative regime implemented as part of the 2012 buyout of Westview’s sister property, Island House, from the M/L program. Mr. Hirschhorn has agreed to such an approach, and the current Plan under consideration is the product of our negotions with him and his subsequent agreement to proceed on such basis.
The Affordability Plan
The major provisions of the agreed upon Affordability Plan are as follows:
- The term of the Affordability Plan is 30 years.
- Insider prices on average of $246 per sq. ft. (market price of $816 per sq. ft.)
- Initial resale price by purchaser – $492 per sq. ft. (increasing annually by 7.5%) The first $6 million of flip tax proceeds will be deposited into the Apartment Corporation’s Reserve Fund account. Therafter, the next flip tax proceeds will be distributed a) 50% to the Sponsor, up to the difference between the Reserve Fund contribution, and the Local Law 70 Reserve Fund contribution, and b) the remaining 50% shall be deposited into the Apartment Corporation’s Reserve Fund account. All flip tax proceeds thereafter shall be deposited into the Apartment Corporation’s Reserve Fund account.
- A flip tax equal to 60% of the gross profit for the first two years, declining by 5% per year to 30%, then declining by 2% per year to 22% through year 30 will be assessed on insider first time sales
- Future purchasers must meet income qualifications for admission based upon the M/L statutory formula of: “[Max. Income for Admission = 7X or 8X (depending on family size) the annual carrying charge + 6% of equity]”
- Non-purchasing tenants will receive annual rent increases equal to the then 1 year RGB increase plus a % based upon income as it relates to AMI; for households with an income at less than 200% of AMI, the annual increase cannot exceed 7.5%.
- Sponsor will fund a $6 million reserve fund for specified capital improvements.
- Spsonsor is permitted to sell up to 45% of units at market.
RIOC
Regarding RIOC’s ground rent payments, an agreement has been reached on an annual ground rent payment beginning at $325,000. In total, there are three (3) revenue sources being used to generate payment under the ground lease: a) a direct ground rent payment of $325,000 escalating at 10% every 5 years through 2048 and then 4% annually through 2068; b) a 5% capital event fee on all sponsor sales (capped at $1,500,000); and c) a 1% transfer fee on all re-sales.
While the negotiated ground lease terms are less favorable than what RIOC had sought based on its appraisal of the land (and admittedly represent a lower percentage of notional value than was achieved as part of the conversion and exit from the M/L program of Westview’s sister property, Island House, in 2012), the negotiated Westview lease terms nonetheless represent in whole dollar amounts a reasonable improvement over what was achieved at Island House ($236,000 per year) in 2012, and constitute a critical and necessary component of the grand bargain being struck with the owner that is enablingWestview to remain affordable for renters for 30 years and to offer affordable first-time homeownership.
Discussion
Other than the 2012 conversion of Island House, there has never been a successful conversion of a State Mitchell-Lama rental to affordable home ownership (a NYC supervised M/L, West Village, has been successfully converted). The difficulty encountered is the need to satisfy the goals of both the owner and residents, while maintaining affordability. On the one hand, the owner is being asked to leave some money on the table (it has been pointed out that, in this case, the owner’s profit potential is somewhat limited by only 10 years remaining on the existing ground lease) by offering the sale of units at 30% of market. From the perspective of those tenants considering purchasing, they are being asked to make a fairly significant investment and not only must determine whether the additional monthly cost is affordable but whether the potential return justifies making the investment. Also a factor for the tenants to consider is the owner’s right to exit the Mitchell-Lama program and operate the property as a market rate rental which likely will cause a significant number of families to have to relocate.
In sum, we are attempting to achieve a balance as to the owner’s and tenants’ interests and, once having done so, incorporate additional restrictions so that affordability for future residents and non-purchasers is being achieved.
Summary and Recommendation
To summarize, an agreement has been reached among the involved parties to offer an affordable home ownership opportunity to Westview tenants while preserving long-term affordability for those who choose not to buy and instead continue to rent. Further, an agreement has been reached to extend the Ground Lease between RIOC and the property owner, a necessary action to implementing the conversion. The agreement was successfully negotiated with the knowledge that a failure to do so would result in Westview’s withdrawal from the M/L program and it becoming a market rate rental.
The structure of the conversion plan – insider pricing, flip taxes, resale prices, capitalized reserves, and regulated rents, etc. – negotiated between the owner and the Tenant Association representatives – was presented to the tenant body and received overwhelming support. Also, future ground rent payments through the end of the extended lease term have been settled upon between the owner and RIOC, which effectively reach market levels during the post-affordability term. We view the agreement in its entirety as successfully achieving the State’s goal of preserving Mitchell Lama housing as an affordable housing resource and recommend you support the Plan.
Here's video of the July 23. 2018 RIOC Board Meeting
approving the Westview affordability plan.
