Southbridge Towers: Should we privatize?

Reviewing the arguments for and against privitization of Southbridge Towers.

NO —   By VICTOR J. PAPA :  Shareholders of Southbridge Towers (S.B.T) are now poised to vote in a referendum that will ultimately determine the fate of their 1651 units of over 40 consistent years of state-regulated Mitchell-Lama affordable housing. It remains one of the last vestiges of affordable housing in Lower Manhattan.

The gradual demise of certain Mitchell-Lama projects from the roster of such housing developments, built throughout the city and state since 1955, has marked the permanent end of thousands of regulated rental and cooperative affordable housing units. The program, in its genius, thrived and provided countless middle-income families with the means to live comfortable lives while raising children. 

Straddled alongside the Brooklyn Bridge in an area which was once blighted and forbidden, and since revitalized in the early ’70s, Southbridge was built through an urban renewal plan. At the time of its opening in 1970, prospective residents had to be practically enticed to consider living there, which is why the first residents of Southbridge are known to be the true pioneers of frontier residential living in Downtown Manhattan. 

If urban renewal projects were meant to reverse the flow of fleeing middle-income families from Manhattan, Southbridge residents are the evidence of its overwhelming success. 

For over 40 years, the people here have built and maintained a vibrant integrated community, characterized by a lively neighborhood spirit long before Manhattan’s highest residential tower, the 76-story Gehry Beekman Tower, was built directly across the street. Dominating the skyscape as it overshadows S.B.T., and existing in an exclusive world of its own, this luxury steel and glass tower, and others sprouting all over Downtown Manhattan, seem to provoke the inevitable significant question Southbridge Towers’ shareholders are now facing: maintain housing that is affordable, or convert it to market rate housing, subjecting it as if a commodity, to the vagaries of the market.

Ideology and philosophy aside, a vote for the dissolution is fraught with risks, as itemized prominently in the Special Risks Section found in the front pages of the prospectus we received a month ago. The risks not only affirm the worst fears of the opponents, they have converted once ardent supporters of privatization into vocal advocates against. Among one of the major risks is the uncertainty about whether the proposed reconstitution triggers both the city and state real property transfer tax, which at the point of dissolution, could cost the shareholders up to $27.7 million. The uncertainty lies in the pending Court of Appeals case between Trump Village and the city, which will likely be decided after our vote on reconstitution.

There are also other uncertainties, which diminish overall shareholder confidence and cast doubt about whether a required affirmative vote from at least two-thirds of shareholders can be realized. 

One is the 7-year period it took the sponsors to complete the prospectus, mainly caused by long delays the sponsors took to repeatedly respond to the state attorney general’s office to more than 500 deficiencies which that office cited over 5 years. Some of these deficiencies were comprised of: facts not adequately disclosed, risks explained in vague language seeming to veil the degree of risk, and deficiencies expressed either as overly speculative or absolutely deceptive.

This is not meant to diminish the difficulty of formulating a 903-page prospectus and calculating, to exactitude, the hundreds of projections under at least two scenarios. But how much confidence can be generated in the veracity of a “Black Book” when, after publishing it, some schedules within it contained serious errors, later revised and contained in an amended booklet shareholders received. Subsequently, errors were found in those same schedules regarding the equity calculations. The shareholders now await yet another revision, delaying even further the referendum (probably in the fall) which they voted to allow back in 2007. 

Ultimately chipping away significant confidence is that the sponsors, for whatever reason, recently attempted to ban the use of the Southbridge community room to certain groups, including the SBT Cooperators for Mitchell-Lama, for free, open, independent shareholder forums on the subject, necessitating the state Division of Housing and Community Renewal to contravene the ban almost immediately. 

Ultimately the Black Book speaks for itself thanks to some tenacious shareholders, Southbridge’s Mitchell-Lama group, who sought and obtained multiple revisions from the attorney general’s office and from D.H.C.R. It’s now free from unwarranted speculation and it discloses all of the risks of leaving Mitchell-Lama.

Victor J. Papa was president of Southbridge Towers’ board of directors 1992-99, and is a founding member of SBT Cooperators for Mitchell-Lama.

Photo courtesy of Google Maps

Photo courtesy of Google Maps

YES —  By JESSE MANDEL:  One wonders if there is anybody anywhere, outside of Southbridge Towers possibly, who would prefer to say they live in a “public housing development” or in “subsidized housing,” rather than that they own their own home in a very desirable location.

Homeownership has traditionally been considered a virtue, a source of pride. A home is usually the largest asset or source of financial security most homeowners ever possess. The equity in one’s home is often a key or essential element in the ability to relocate, should a homeowner want or need to. What if a move to an assisted-living facility becomes necessary? What about getting a home-equity loan to help your children with education expenses? How about if you need a home-equity loan for any reason? What if you want to leave an inheritance to a loved one, to your child? How does Mitchell-Lama’s “limited equity” help with any of that? It doesn’t, not at all.

So why should Southbridge shareholders have any qualms about really owning our very valuable property? Obviously Mitchell-Lama home “ownership” is not true homeownership. If you can’t sell or bequeath your property, even to your own family, what strange kind of “ownership” can that be? 

Contrary to the long-term fear-mongering by opponents, the Black Book’s most reliable budget forecast, and the history of similar “limited equity” co-ops which have reconstituted, indicates that maintenance will not increase after reconstitution. Incidentally, have reconstitution opponents failed to notice the 46 percent rise in maintenance at Southbridge since 2001 under Mitchell-Lama? 

And as to the infamous $26 million real property transfer tax, it currently does not exist. It’s been struck down in two different court rulings, one by the New York State Supreme Court Appellate Division, the other by the New York City Tax Tribunal — both rulings indicating the tax is inapplicable to Southbridge’s circumstances — and the tribunal further finding that the use of fair-market value to determine the tax is without basis. 

It’s extremely unlikely either ruling will be overturned on appeal. But it’s budgeted for, under any circumstances with a contingent, 33 percent, rather than 28 percent, transfer fee (flip tax) on first-time free-market sales post-reconstitution. Transfer fee revenue is a key factor in maintaining small maintenance for the majority of shareholders who wish to remain at Southbridge. A very modest increase from the historical, and unprofitable, apartment turnover rate assures a budget surplus with no maintenance increase. 

Southbridge Towers is extremely valuable real estate in a superb neighborhood. Manhattan, like London, England, is an internationally-prized location for real estate investors. It’s an island, so capacity for further expansion is limited. Long- or short-term, the tremendous value of Manhattan real estate is unquestionable. 

   Fortunately, Southbridge shareholders have the ability to determine for ourselves what’s in our own best interest. We need not be misled or misinformed by local propagandists with their own agendas. Understand reconstitution, and how successfully it’s worked elsewhere, and you’ll vote yes when the time comes.

Jesse Mandel has been a resident of Southbridge Towers for 37 years.

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26 Responses to Southbridge Towers: Should we privatize?

  1. Answer the questions

    At last nights June 18 anti privatization meeting a question was asked of the English teacher/ lawyer who was running the meeting. The question was asked because the teacher brought up a unreal amount of people that would opt out.
    The question was basically if people opted out of privatization and they couldn't live here in Southbridge for whatever reason then Southbridge could sell the Apt and reap the full profits.
    The teacher replied something to the effect there was this person in another part of the world that lived to 120.
    No direct answers given by teacher/lawyer when challenged by legit questions.

  2. If J. Mandel is so opposed to living in Mitchell-Lama Housing, why did he choose to become a resident in the first place. And why has he stayed.

  3. Betting on the possibility that enough shareholders will sell and provide enough funds via flip-tax is foolish. There are no guarantees this will happen, and then what?…maintenance will certainly increase and drive out those of us who need this type of housing the most.

  4. Mitchell-Lama was instituted in order to keep Middle Income people in New York City. If Southbridge goes private that will exclude the many people who would like the same opportunity that was afforded the current residents of Southbridge. Because of the affortabiity of Mitchell Lama housing, many of the current residents are able to live a very comfortable lifestyle. I would have thought that because of this, they would be more willing to share their good futune with others. Unfortunately, everything comes down to the bottom line. It's all about money.

    Currently there is a serious shortage of affordable housing in New York City. Many middle class families who would like to live here and become part of our communities will be shut out completely. We should not be getting rid of Mitchell Lama, we should be expanding the program.

  5. At last nights June 18 anti privatization meeting a question was asked of the English teacher/ lawyer who was running the meeting. The question was asked because the teacher brought up a unreal amount of people that would opt out.

  6. Mitchell Lama was intended to last 20 years. We paid our dues for 40 years. Time for you bleeding hearts to get real.

  7. Voice of Experience

    Privatization will be profitable for those who want to sell. Those who stay will eventually have to pay escalated maintenance fees. I live in a nearby cooperative that years ago went private. At first the flip taxes were enough to cover the constantly increasing real estate taxes. Eventually the rate of sales decreased and so did the flip taxes. I voted with the minority against going private because I didn't want to sell, however with the maintenance constantly increasing it's likely that soon I'll be economically forced to sell and move elsewhere.

  8. Once the plan came out, the only thing people concentrated on was schedule B1 with it's Doomsday scenario. I could have given you those numbers in 2005. All you needed to do was take the property tax and divide it by 1651 and add the payment on the loan for the transfer tax and you would have had those numbers.There are risk with everything in life. If you wake up tomorrow and the sun does not come out, we would all die. It's possible but very unlikely. If you get on a plane and it crashes or ia meteor hits the earth, again we are dead.

    Most things in life are possible but very unlikely. You people are paying an average of 600 dollars for an apartment in Manhattan and you are crying about a rise in Maintenance. I believe you do not deserve running water for that in this city. I would also like to point out about where will the senior citizens go when they need assisted living with the equity they have in their apartments right. You are not going to SUNNY BROOK FARMS. You will be going to some dump in New York State where you cannot live out the rest of your life with dignity.

    What will happen if someone in your family needs an operation that cost 50 thousand. DHCR is not going to give you that money, Privatization will. Change is inevitable and usually you need money to meet that change. People at southbridge just have a fear of poverty. This area is going to boom because the US government is going to make sure it happens. They want to show the world of how the downtown area has come back from 911. We need to go forward into the future, the past is gone.

  9. I can go on and on about this. What will happen if the State told us we have to downsize. You would hear cries throughout Southbridge if that happened. Why don't the people who do not want to go private downsize on a voluntary basis so more people can have affordable housing. You talk about affordable housing. One person does not need a one bedroom. They should go to a studio and let 2 people go into a one bedroom. WHY DO THEY NOT DO THIS?

  10. Patricia Ryan

    Re Jessie Mandel article:
    It's a nice idea, owning your own home. Except we wouldn't.
    Shareholders would remain as they are: people who have a share with other people in the overall financial and structural health of the complex. This in no way resembles owning one's "own" home.
    Unlike a "home," you can't sell to whomever you please. The board gets first refusal and the ability to turn down a potential buyer. Unlike your own home, you also can't do anything you want to the apartments if what you do affects other people and the overall complex. Mr. Mandel should look at the very restrictive by- laws and proprietary lease..
    Whether in Mitchell-Lama or privatized, Southbridge residents will remain shareholders.
    That is why they call the apartments part of a co-op and not a "house.".

  11. Re: Patricia Ryan:

    I am sorry to say, but you have no idea of what you are talking about. You do not own your apartment right now. All you are is a glorified renter. If you go private, you can sell your shares in the open market and I doubt it very much if the board is going to be rejecting that many people. The shareholders of Southbridge seem to think that these rules will only apply to us as a coop. Every coop in New York has a board that can reject a buyer.

    The fact that you have an apartment in Manhattan with a 100 percent equity outweighs anything and everything the opponents of privatization have said thus far. You need to do some research about market values of apartments in Manhattan. I want the whole truth and nothing but the truth. You guys have never given one positive about having 100 percent equity. If you do not understand that, how can I possibly listen to anything you have to say. I am going to book one night in the community room and I am going to expose this mockery of justice that has descended upon this PARADISE LOST.

    You can cut the animosity with a knife in Southbridge and it will only get worse if we do not go private. This has become an awful place to live. If I was able to afford another place to live, I would run away from here. It is just horrible.

  12. Since I made the statement that I want nothing but the truth, I will back it up by saying the opponents of Privatization make a good point about the asbestos. I want to know where I can get a equity line of credit based on this problem.

    If you cannot sell your apartment or borrow against it, it would make no sense to have started this in the first place. I expect the board to address this problem before the vote. I think this is the only important issue concerning privatization.

    Why would anyone want to go private under these conditions? The rest of the plan is solid. The Substitute SCRIE is enormous positive. I suggest anyone who is 62 and older and makes less than 29 thousand a year income for the total of all the people in the apartment to apply for it as soon as possible.

    I also read (so do not quote me on this) that starting July 1st of this year, the income level will rise to 50 thousand. How come the opponents do not talk about this or any other pro about Privatization? I ask you again why?

  13. When is the final vote?

    • Right now, the vote is supposed to take place at the end of September. If you are in doubt vote yes because you have another choice whether to participate or not. Be smart and vote yes.

  14. Robert Gedzelman

    Mr. Papa holds a nice idea about remaining affordable. However, Mr. Saft, a financial and legal expert disagrees. Mr. Saft suggests that remaining Mitchell Lama over the years could incur MORE RISK.

    Mr. Saft put it correctly in the feasibility study: If SBT were to remain Mitchell-Lama and age, SBT will incur enormous debt over the years. SBT runs the risk of borrowing multiple tens of millions of dollars for repairs, etc., thus increasing maintenance well above what would happen if instead SBT were to instead privatize and enlarge its cash reserves. In enlarging the surplus cash reserve, SBT would NEVER have to borrow money for major repairs.

    The risk we incur by remaining Mitchell Lama is that maintenance can become too high for anyone to afford. There is risk either way, however, Saft's expertise suggest privatizing so as to eliminate the risk of borrowing money for each major repair project and ultimately becoming NO LONGER AFFORDABLE.

    Add in to that REDUCED risk is the benefit of EQUITY, a word whose meaning seems to escape a few folks at SBT. Accountants and lawyers have told me that I'd be foolish to turn away the kind of equity I'd have in my little one bedroom. I'm amazed at all the folks who refuse to contact an expert. "I can't afford to" they tell me. The fact is, unfortunately, they can't afford NOT to, and THAT is their question I fear they refuse to address.

  15. What happens if the State decides to opt out of the Mitchell Lama program?? I was under the impression that this program was to be in effect for 20 years? We are long since past that deadline. I also thought that the point of the program was that eventually after the 20 year period we would own our own home, yes home. Every co op in NYC had rules, people here make it sound like the co op board will be tyrants. Not so, the board is elected to represent the best interests of the cooperators. Having said this, look at who the ring leaders of the anti privatization movement are. Look at all their skeletons in the closets when they were serving as members of the SBT board and figure out the real reasons why they are anti!!!

    • I agree 100 percent. 2 former presidents of the board stated in print that Southbridge voted down privatization once before. I would like to know where and when and who voted on this issue? I am here since the early 80's and never heard of such a vote. What most likely happened was that the previous board voted against a feasibility study.

      I cannot understand why people that live at Southbridge are more concerned with people outside of Southbridge than their neighbor of 30 years. Vote yes and opt out. If you have no intention of opting out, you must vote yes. I guarantee you that if we go private, not one of the opponents at the head of the anti-privatization movement will opt out.I guarantee you this will happen.

  16. The entire question comes down to Equity. The shareholders' just do not understand the concept of equity. We need a banker to come down and explain what equity is and how you can use. I want just the truth and you just cannot get that at Southbridge. People outside of this complex are literally laughing at us and that is quite a shame!

  17. Happy Shareholder

    Would "Get Real" please explain just what "Dues" we've paid living in a Mitchell-Lama co-op? I've been blessed to live here, to pay such low maintenance that I could have a good life in which my rent hasn't driven me out of the City and which allowed me to save toward my retirement. I figure living here has saved me tens of thousands of dollars over time. I plan to live here until I'm gone from this earth.

    Anti-Mitchell-Lama privatizers have bought the best case scenario of the three offered in the plan. They also seem to find irrelevant the frequency with which questions and issues are addressed beginning with "In the opinion of the Sponsor" or "Sponsor believes" without looking for the (non-existent) documentation backing up such opinions or beliefs.

    I'd also like someone to explain how having market rate equity in my apartment will do me any good when the maintenance goes up and I can't afford to pay it. It has been suggested that I could get an equity loan. Really? How so? I would then not only have to pay increased maintenance but I'd have to pay back the loan PLUS INTEREST. Maybe the "Capitalist" could help me understand that.

    Finally, those of you who were here when this most recent effort to privatize began in 2005, might remember SBR stating "If privatization is not good for everyone, it's not good for anyone." I and a great many of my fellow shareholders are quite clear that privatization is not good for us.

    • Maybe you have saved enough for retirement but no all of us have. I for have no intention of selling right away and walking away with the money. I have absolutely no money and I am not afraid of any increase in maintenance. I went to HSBC and I can get a equity line of credit up to 80 percent of my equity and also I can get a line of credit for 15 years whereby I only have to pay interest on the credit every month.

      You say you have to pay both, the line of credit and any maintenance increase. This is not true. You need only to pay the bank because they are the ones who will be lending you the money to pay the increase. So, you are dead wrong on that point.

      Southbridge towers is not a pleasant place to live right now because of this issue and it will only get worse if we do not privatize. Where are all the seniors going to go when they need assisted living with the equity they have now. Should they not have the right to go to a place whereby they can live out the rest of their lives in comfort?

      Have you ever seen some of these nursing homes? They are not pleasant to say the least. I would like to know if we go private, will you opt out? If you say no, then you are just contradicting yourself. I guarantee you that not one of the people at the head of the anti-privatization movement will opt out. This is when you will finally know the truth.

      The entire Mitchel-lama program was based on the fact that people will go into areas that are desolate and revitalize them. We have done that. The program also states that because you did this, we will allow you the right to go private. Here we are, 40 years later and we are still not private. Two former presidents of the board stated that we voted on this issue once before.and we voted against it.

      Do you remember voting on this issue? I know I did not and no-one I know has any idea of this fact. Ask Mr. Papa this question because he is one of the two who stated this in print. I guess what happened was that the then board voted against a feasibility study taking upon themselves what we, the shareholders should have known about. Go to the cooperator in the 2005 issue entitled the " THE BUYOUT PROCESS" and you will read where Paul Viggiano stated the same thing and then tell me what you think.

      I think privatization is good for all shareholders. Southbridge will become a much better place to live. Right now, it is not. One last thing…should you not be more concerned with your neighbors situation rather than just your own. Vote for privatization and opt out. This way everyone will have what they want. You do not own your apartment. Many shareholders think they do.

      I think your entire statement has too many holes in it and is based only on your situation and not Southbridge as a whole.

      • "I'd also like someone to explain how having market rate equity in my apartment will do me any good when the maintenance goes up and I can't afford to pay it."
        If you actually owned your apartment you could obtain a reverse mortgage. A reverse mortgage is when you take some the equity out of your home and it never has to be paid back until you move or pass away. The loan you could get on a NY apt would give you income for the rest of your life that would far in exeed even a small increase in maintenance.

        Also, it is unlikely maintanence is going to up significantly. Look up the Seward Park co-ops, which privatized a decade ago. The current maintenance on a one bedroom in Seward Park is currently $537 a month (see: http://streeteasy.com/sale/1065774-coop-266-e-bro…. That price is as low as our apartments, only we don't own our building. Additionally, old people and long term tenants have not been forced out of Seward Park. Last week the NY Times reported "48 percent of Seward Park shareholders are original tenants or their descendants." (See: http://www.nytimes.com/2014/06/22/realestate/my-l
        I know there is a long of anger between the two sides, and I don't want to contribute to that, but I wish those opposed to privatizing would at least do some research and take the time to educate themselves on the basics of finance.

  18. We have an unprecedented occurrence at Southbridge Towers. There are many who want the co-op to leave the Mitchell-Lama program and become a private co-op. The problem is the FNMA’s regulations on asbestos which clearly states that it is an impediment to buyers getting a mortgage (co-op buyer loan). The Board has not shown in the reconstitution plan “Black Book” that our shares of stock will be acceptable by lending institutions as collateral. This is the heart of the whole problem. The entire reconstitution is dependent on much additional income which will be needed to cover the high property tax which will happen when or if the co-op becomes private. Several trial attempts to get a buyer loan “mortgage” giving all necessary facts and figures about SBT, have been rejected. In addition if the City appeal on Trump 3 & 4 is upheld, we will have to pay $28M

    • I believe there is no basis for anything that you have said. I would also love to know why this publication does not allow me to write what I like. What ever happened to freedom of speech?

  19. MissDowntownNYC

    I believe in home ownership and equity.

    I read the Black Book and plan to attend the Public Information Meeting of SBT tenant-shareholders on Tuesday, July 29.

    I'm happy to see the Black Book allows periods of subletting, with Board approval. Some co-ops do not permit subletting or only permit it for a year or two. SBT shareholders who plan to stay can sublet if they need to move temporarily for a job transfer, to care for a family member, etc.

    I'm less concerned about buyers getting loans. Read the asbestos report in the Black Book. Doesn't look like an issue. A licensed mortgage consultant or their underwriter can confirm. Lenders review a co-op or condo and maintain a pre-approved building list. Some lenders maintain portfolio loans if the loan is non-conforming and can't be sold.

    My only remaining questions at this point:

    1. Are lenders offering home equity loans or HELOCs on co-ops?
    2. Co-op Board approval required for equity loans or HELOCs (I may have missed this in the Black Book)?
    3. Any Co-op Board limits on home equity loans or HELOC amounts and/or purpose (renovation, etc.) to protect the financial health of the co-op?
    4. Are reverse mortgages currently available on co-ops?

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