Starrett City, a 46- tower, 5,881-unit affordable housing complex located near Jamaica Bay in Brooklyn, N.Y., was the year’s biggest deal that never happened.
In February, the development’s owner, Starrett City Associates, agreed to sell the massive property to Clipper Equity, LLC, for $1.3 billion, or $221,000 per unit, reportedly hundreds of millions more than the next-highest bid.
In announcing the deal, Clipper Equity also stated its intention to take the property out of New York’s Mitchell-Lama program, which provides subsidies for the state’s affordable housing developments.
The announcement raised fears that the country’s largest subsidized housing development would be repositioned as market-rate housing and become prohibitively expensive to its more than 14,000 residents. About 90 percent of Starrett City residents receive federal, state, or local housing aid, a significant consideration for a housing complex that has its own zip code.
Also at issue was the history of Clipper Equity Partner David Bistricer, who has been under a permanent State Supreme Court injunction since 1998 against selling or operating cooperative buildings in New York, stemming from the court finding of a pattern of abuse and deception in prior co-op transactions. Additionally, many feared that the new owners would build more luxury units on the nearly 150-acre property (the current towers only take up about 20 percent of the land).
Soon after the sale was announced, protests from groups ranging from grassroots tenant organizations to the highest offices of state government began. New York Mayor Bloomberg, Sen. Charles Schumer, and Attorney General Andrew Cuomo all vowed to block the sale, and with the help of Department of Housing and Urban Development Secretary Alphonso Jackson, the transaction was blocked.
In response, Clipper Equity proposed a new deal wherein rents would reach market-rate levels after three years. That deal, too, was rejected.
Provident jumps in
At that point, the Provident Group, a nonprofit affordable housing owner/developer, was asked to get involved by its investment adviser, Citigroup, which was helping to put together an alternative last-minute deal between Clipper Equity and the New York City Central Labor Council (CLC), a coalition of 400 AFL-CIO locals. The new deal was meant to preserve affordability to appease the deal’s critics.
“It became obvious to Mr. Bistricer that he was not going to get the approvals that he needed to acquire the housing,” said Steve Hicks, CEO of Louisiana-based Provident Group. “We began negotiations with him as well as with the seller whereby the purchase agreement would be assigned to a nonprofit entity affiliated with the Provident Foundation.”
Under that agreement, Provident would be the sole owner and manager of Starrett City’s housing, and its retail component would have been owned by other parts of the investment group, which included Clipper Equity. Hicks said that Provident would have maintained affordability of the units “in perpetuity.”
“The city of New York has lost over 17,000 units of affordable housing in the past four to six years,” Hicks said. “That’s a lot of affordable housing.”
The new deal struck by Provident and the CLC would have capped the rents paid by 90 percent of the residents (10 percent of the units were already renting at market rates) at 30 percent of their incomes. But once those tenants left the units or died, only 30 percent of the units would be preserved for low or very low-income residents. Bistricer would have become a bit player in the deal, with a stake in the retail parts of the complex and future development interests.
The purchase agreement with Bistricer expired in early August, and though Hicks met with Sen. Schumer and Secretary Jackson toward the deadline, the agreement expired before all opposition to the deal could be overcome. The financing from Provident would have come in the form of tax-exempt bonds issued through the New York Housing Finance Agency, totaling $1.1 billion.
Incredibly, the deal may yet go down. Hicks said he maintains contact with Starrett City Associates and hopes to re-engage by the end of the year, but gives the deal a 50 percent chance of getting done this winter. “We ran out of time, but we’re not giving up,” he said.
“We hope that sometime between now and the end of the year that we will have the opportunity to re-engage with the seller.”