Volume 19 • Issue 22 | October 13 - 19, 2006
Downtown Express photo by Lorenzo Ciniglio
Big bucks at Southbridge residents will be rich, study says
By Josh Rogers
Some Southbridge Towers residents could get up to $1 million for their apartments if they decide to leave a state middle class housing program, according to a report that will be presented to the 4,000 or so tenants in about two weeks.
The Seaport complex’s residents have been arguing about the question of whether or not to leave the Mitchell-Lama program for at least 10 years, but the movement to privatize the 35-year-old towers got a boost last year when they voted to study the issue.
John Fratta, president of Southbridge’s board and a privatization opponent, said with the draft study, “the privatization people are a little happier, but I don’t think it’s over… I don’t believe they are going to get two thirds of the complex [to vote to leave Mitchell-Lama]. It’s going to be a long haul for them, despite what the report may say.”
There will likely be a vote in the coming months to do a more comprehensive economic analysis of the decision’s pros and cons. Each of the 1,651 apartments in the complex represents one share, and if a majority of the shareholders vote to begin the comprehensive study, commonly called a “black book,” then it will set up a final vote to leave the program. Two-thirds of the shareholders would have to vote to leave Mitchell-Lama in order to make the change.
Jared Brown, a board member who founded Southbridge Rights, a pro-privatization group, said “after seeing the draft, I’m much more optimistic about [leaving Mitchell- Lama]….This is a slow education process. This is a huge change.”
He said it would definitely take more than a year to get to the final vote stage and it could take as many as three. If residents vote to prepare the black book, the state Division of Housing and Community Renewal, which oversees Southbridge, would review the analysis and look for oversights or faulty assumptions. D.H.C.R. would submit a report to the state attorney general, who has the authority to approve or reject the book. Fratta said preparing the book could cost between $100,000 - $300,000 and he may vote against going through the process if he feels it is too costly.
The 15 board members saw the draft report last week and pledged to keep it’s contents confidential until it is released to residents in about two weeks. Two members of the board on opposite sides of the privatization question gave Downtown Express similar accounts of the report’s contents and other members of the board and others who have seen parts of it spoke more generally about it and did not contradict the two members’ interpretation.
The draft predicts that the least valuable studio apartments (about 370 square feet) in Southbridge would fetch about $285,000 and other studios would be about $100,000 more. A small handful of three-bedrooms over 1,000 square feet with particular views would go for $1 million and a larger number would be as much as $915,000. Many of the apartments look out at the Brooklyn Bridge, the East River and someday will have a view of a Frank Gehry-designed tower to be built on Beekman St.
Residents already own the complex so they would not have to pay an insider price to get control of their individual apartments. It would be a paper transaction, said Brown, an attorney.
Jacob Goldman, owner of LoHo Realty, which markets similar apartments nearby including at Co-op Village, said Southbridge apartments are more valuable than many of his Lower East Side properties, but he thinks the report’s estimates are a little too high.
“The first few years, the prices aren’t going to be where they think they’ll be,” Goldman said after Downtown Express told him of some of the estimates. He said more apartments are likely to go on the market at the beginning, which will depress prices, and even after a few years, he doesn’t think the prices will climb quite as high as the report predicts.
Goldman thought Southbridge is a more valuable location than the Lower East Side because it’s closer to subways and is walking distance to the courts and City Hall area, where many people work.
A spokesperson for Stuart Saft, the attorney who prepared the report, said a well-respected appraisal firm made the estimates, but she declined to name the firm. She said Saft is not authorized to speak about the report.
Fratta, Southbridge’s president, said the board will have Saft present the report to residents at sometime within the next month.
No resident interviewed for this article said they would definitely sell it if they could. Those in favor of going private said they wanted to own a valuable asset that they could sell, use to pay debt, or pass to their heirs.
William Albert, 49, who has a two-bedroom apartment he moved into with his parents when he was a teenager, said he wants to own his apartment outright. “It’s a no-brainer,” said Albert, who collects disability and uses a motorized scooter to get around. “We would get tremendous profit, tremendous equity.”
He said a real estate appraiser told him his two bedroom would sell for between $750,000 - $850,000, a figure probably more than the Southbridge estimate. He said even if it was worth considerably less money, he would still be in favor of leaving the program because it would still be a lot more than if he moved out tomorrow and sold his shares back to Southbridge.
“It’s worth $10,000 now,” said Albert. “Whatever it’s worth will be more.”
Clara Patti, 39, who was watching her children play in the Pearl St. playground with her husband Tuesday, said she is not sure if she wants to go private or not. “I’m concerned about the rent,” she said. “My husband is on disability and I have three kids.”
She guessed her two bedroom was worth about $250,000, probably about half the complex estimate. She said she would stay in the neighborhood no matter what happens and probably use the money to pay off credit card bills if it went private.
Joan Barth, 76, who lives in a two bedroom with her brother, said she is against changing because she is sure it will increase her monthly bill from $650 to perhaps about $800. “It’s going to cost us more money each month,” she said. “It’ll be more for gas and electric.”
The report predicts monthly costs will stay about the same because the 20 percent “flip tax” that sellers will pay will cover the $8 million - $9 million in real estate taxes as well as the $20 million or so in capital costs facing Southbridge. The report estimates somewhere between three and seven percent of the residents will sell the first year, and opponents say this figure is too high, in which case the flip tax revenue would be less. On the other hand, Goldman, the real estate broker, thought if too many sell, the selling prices would be reduced.
Victor Papa, a board member who is against privatization, thought monthly maintenance costs will increase either way because of the pending capital costs.
Surprisingly, Papa and Brown agreed on several points: that the neighborhood was “blighted” when they moved in over 30 years ago, that residents were justified feeling that they had a right to sell their apartments because the state’s tax subsidies were equalized by Southbridge’s long-term commitment to Lower Manhattan and that the new report suggests privatization is an attractive option.
Papa, Fratta and other opponents, however, believe the estimates are too optimistic.
“Not everything is as rosy as it looks and smells,” Fratta said.
But implicit in some of the opponents’ statements is almost an admission that it makes economic sense for residents to go private.
Papa said Albany should enact incentives to make it “more worthwhile” to stay in Mitchell-Lama.
Fratta said keeping the complex affordable “is a moral issue, but they’re dangling money in front of people’s eyes. No one living in Southbridge now would have been able to move in under that system because they couldn’t have afforded it. If they could have afforded it, then they are here illegally because they’re making too much money.”
Residents submit income affidavits every year and pay surcharges if they make over a certain amount. New tenants are not allowed to move in if they make too much.
Brown said income levels have not kept pace with inflation and he probably wouldn’t be allowed to move in now on a social worker’s salary as he did many years ago, and certainly couldn’t have done it had he become an attorney before he got his apartment. The philosophy behind Mitchell-Lama has been lost, he said, because teachers and other similar middle class workers make too much to get an apartment.
Scott Stringer, the Manhattan borough president who has been working on affordable housing issues for over 20 years, acknowledged that was a problem. Stringer, a strong supporter of the 50-year-old Mitchell-Lama law, spoke to Southbridge residents Monday. Even though the meeting was organized by privatization opponents, many of the comments from the 100 or so people who attended were from people who want to go private.
Stringer made it clear that residents have to look at the issues closely and decide together what is the best action to take. When a resident asked how he would vote, Stringer said since he is in a financially stable position, he would vote to stay in Mitchell-Lama, but if things were different, he would likely vote yes.
“If I had a family member who was sick, or there was an emergency -- you’ve got to protect your family,” Stringer said. After the meeting, he could not think of a hypothetical situation in which a resident would benefit economically by staying in Mitchell-Lama.
Stringer said he always opposes Mitchell-Lama rental buyouts in which private landlords pay to leave the system, but when the tenants own the co-op, it should be their decision.
Brown said the privatization package will be structured so that any resident would have the option to opt-out, in which case monthly increases would be tied to Rent Stabilization or cost of living increases. He said it might make sense for someone in their 30s or 40s, who knew for certain they would not move for 30 years, to opt-out, but he thinks it will be smart for everyone else to take full control of their homes.
“If it’s not good for everyone, it’s not good for anyone,” Brown said.
One board member, Eleanor McCartan, said privatization would help her, but she worries about people on fixed incomes and would need iron-clad guarantees that they would stay protected long into the future before she would change her mind.
“I know myself, I can benefit from it,” she said, “but I would have to be very, very certain that no one would be hurt by this before I could vote for it.”