COMMITTEE ON HOUSING, PLANNING & GOVERNMENT OPERATIONS
MEETING MINUTES: May 1, 2007, 2:00 pm
IN ATTENDANCE:
Committee Members: Leg. Lois Bronz, Chair, Leg. Bernice Spreckman, Leg. Vito Pinto, Leg. William Burton, Ms. Marsha Gordon, Mr. Thomas McGrath, Mr. Dennis McDermott. Committee Coordinator: Barbara Dodds.
Others: Lisa Buck, The Bridge Fund; Alan Gordon, Housing Action Council; Melvyn Tanzman, Westchester Disabled on the Move; Richmond McCurnin, DHCR; Norma Drummond, Dept. of Planning; William Randolph, CEO’s Office.
ITEMS DISCUSSED
• Addressing the Mitchell-Lama gap—Richmond McCurnin, Assistant Commissioner, NYS Division of Housing and Community Renewal (DHCR)
• Loss of affordable housing—Thomas McGrath, Senior Vice President, CPC Resources, and HPGO Committee member
• Westchester County Housing Land Trust—Norma Drummond, Deputy Commissioner of Planning
With a quorum present, Leg. Bronz opened the meeting and welcomed Richmond McCurnin, Asst. Commissioner of the NYS Division of Housing and Community Renewal.
Richmond McCurnin—Mitchel-Lama. Mr. McCurnin gave an overview of the Mitchell-Lama Housing Program. One responsibility of the division is supervision of Mitchell-Lama housing in NYS. Initially, 269 Mitchell-Lamas were built across the state with state financing for 105,000 units. Most of the larger projects were in New York City. They included co-op Mitchell-Lamas, family rentals, senior citizen rentals and staff residences associated with hospitals. Twenty-seven buildings were in Westchester County, with the same mix of housing as NYC. One of the provisions of the Private Housing Finance Law was that owners were given an incentive to invest in the program by being able to leave after 20 years upon prepayment of mortgage and certificate of no objection signed by the Housing Commissioner. So far, 80 buildings have been lost. The state is down to about 188 left with 75,000 units. Most coops remain in the program the program but privately owned for-profit rental housing are the type that leave the program.
but privately owned for-profit rental housing are the type that leave the program.
In the seventies, the cost to build and support a Mitchell-Lama development and support it through the rent structure would not have made it affordable. The federal government came up with the “236 Mortgage Reduction Subsidy” which wipes the interest rate down to 1%-- building owners in the federal program are entitled to apply to the feds for enhanced Sec 8 vouchers. This provides stability to current tenants. Even at market rate, tenants would be able to have their rents subsidized so they don’t go beyond the 30 percent cap. The enhanced Sec. 8 vouchers become a preservation tool for current tenants. Owners look at them as a guaranteed cash flow. So they are willing to take units out of the program, raise rents to market rate and let the federal government pay the rest in enhanced Section 8. They don’t care where they get their rental stream from.
The number of these buildings is up to 80 buyouts. With the Spitzer administration–there had not been an aggressive program to preserve this kind of housing in almost thirty years—the government is talking about developing an initiative to preserve this kind of housing and get appropriations. In the past 29 yrs, there never any pot of money dedicated. There are three mortgagees in Mitchell-Lama housing: Empire State Development Corporation, NYS Housing Finance Agency and the Office of the NYS Comptroller.
DHCR acts on behalf of the Comptroller’s Office. They have been meeting to discuss a preservation initiative to actively talk to every owner about staying in the program. There’s $50 million of state funds available this year. There are bond caps being dedicated to refinance these properties. Members of the division have met with residents of Fellowship Hall, a senior housing rental in Bedford, the only senior housing in the Mitchell-Lama portfolio and with A-Home, Inc. and will talk to the board about refinancing. For profit, and not-for-profit owners, the state would like to upgrade the properties and do whatever they can to keep them affordable in the foreseeable future.
Leg. Burton asked If a way to stop program exits would be by putting an end to the automatic certificate of no objection signed by the Housing Commissioner? — McCurnin: Purpose of the certificate is simply to dissolve the article 2. Unless the law is amended, owners have the right to buy out after 20 years. In 1990, an informational process was established for the owner to apply for the certificate that takes one year in length and must be completed fully.
Ms. Gordon said that many people leaving Mitchell Lama go looking for housing elsewhere usually up -market. McCurnin: Although people see the enhanced vouchers as a way to preserve the Mitchell Lama units, the vouchers actually stay with the people not with the building and the people can stay there receiving the higher rate of the enhanced voucher or go wherever they like with a regular Section 8 voucher. When the current tenants leave, the unit goes to market rate. Enhanced vouchers, which pay on a higher payment standard, only preserve the housing for a very short time at a Mitchell-Lama rate. The County administers the vouchers.
Discussion ensued on specific Mitchell-Lama developments in various municipalities. A list of all Westchester Mitchell-Lamas was distributed. Of 27, 13 have left and all co-ops are still here, but some section 8 and some senior buildings left. Owner gets excess of reserves in section 8 buildings.
Tom McGrath—Loss of affordable housing: He was asked to speak by the Housing Action Council about two years ago to report on the state of expiring affordable housing in the county. With information provided from Planning Dept., information from DHCR and HUD, which should be fairly accurate although two years old, he found there were over 4200 Mitchell Lama units, over 3300 section 236 units and 3000 section 8 units built in the County. Based on when they were built, 8300 units were in a position to opt out based on their number of years in the program. Properties in areas with further protections such as ETPA were taken out of the mix leaving about 3800 units in jeopardy of a potential opt out in the County.
He further looked at the pros and cons of why they were developed in the first place and why there is such an incentive to opt out. Pros: Original Mitchell-Lama projects had low interest rates, 40-50 year mortgages, real estate tax benefits, pilot programs, opportunity to opt out in 20 years and owners enjoyed a 6% return on their equity. Cons: Rental increases are budget based and there is little opportunity to create greater value for their property. In addition, it is a battle to get capital improvements funded.
HUD has provided some inducements to owners or buyers to stay in the 236 program, mostly by allowing the de-coupling of the interest reduction payments from the original mortgage. Originally, the 236’s were built as low income housing and enjoyed PILOTS and very low interest rates. HUD made the interest reduction payment annually directly to the lender. In effect a 0% loan. Twenty yrs into the program on a 30 or 40 year bond, the developer is allowed to opt out. They still have ten years remaining on the financing which still enjoys 10 yrs worth of this interest reduction payment. HUD will allow that payment plan to stay in place together with new financing to be leveraged over the final ten years.
Most owners that stay in the program refinance with tax-exempt bond financing and the low income housing tax credit program. Owners are again able to earn their developer’s fees for starting over, contractor’s fees for renovations, while signing on to an additional 30 years of affordability. There are enough incentives to allow developers to stay in. But for Mitchell-Lama, the incentives may have to be tweaked to keep developers in the program. He thought there might be about 3800 units in jeopardy.
Fellowship Hall has been operating as a limited equity coop within the Mitchell Lama program. It has a very minimal buy in for a resident. Developers with offers of $50-75,000 per unit have approached the cooperators directly to the shareholders to opt out. This affordable housing is a valuable commodity in northern Westchester. Other coops have opted out because the value of the individual units may have tremendous value.
McCurnin: Large coop developments comprise a third of all units. A number of them took up our suggestion that they refinance at very favorable rates four or five years ago. Legislation was passed that says if your Mitchell-Lama expires and the tax abatement that goes along with that, and you want to remain in the program, you can get tax exemption for the amount of time you stay in. Since it is only enabling legislation, localities need to approve that. Everyone who refinanced felt those buildings provided them with something when they were younger families needing affordable housing. They appreciated that and wanted to continue giving other generations the same kind of benefits. So far only two of over thirty coop complexes have decided to opt out. At least a dozen consciously stayed in the program and refinanced
.
McGrath: Another incentive that is available to developers is along with earning their developer’s fee, HUD also allows for a 6% return on equity. The return is permitted on the tax credit equity which often is $5 million or more. A 6% return, along with the Section 8 enhanced vouchers, allows the developer to earn a substantial cash flow. His organization encourages developers to consider utilizing incentives. Acting as a developer, his company bought an expiring 236 property in Dutchess County. It was rehabbed it and kept as an affordable rental-100% section 8.
Discussion continued on specific developments in various municipalities. Question was asked about Co-op City. McCurnin: Coop City never left the program. It had a $250 million capital needs assessment and looked to refinance with the state but could not get the amount needed. So they refinanced privately with New York Community Bank, paid off the state mortgage and had enough left over to do the renovations. They continue to be a Mitchell-Lama but without a state mortgage. It is a high bar for a coop to leave the program. Eventually 2/3 of everyone must vote in favor of it. Process includes three votes: 1—a majority of shareholders who show up to vote to explore privatization 2—majority of all shareholders to do a filing with the attorney general and 3—2/3s of everyone must vote in favor of a dissolution.
Ms. Arnold asked about Mt. Kisco hospital staff housing. McCurnin: Majority of hospital staff residences have left the program since they could not be collateralized and the hospital’s incentive was to have assets, they financed privately and paid off the state mortgage.
Comm. Norma Drummond—Westchester County Housing Land Trust: With a concern for the loss of affordable units, the County has expanded its affordability period from 10 to 40 years over the last 15 years. On April 5th, the Westchester Housing Land Trust was officially incorporated with approval in March to use the word “trust” as a non-profit. Housing Action Council is taking the lead pro bono to put together all the documents associating with establishing this new entity. A presentation was made on how the Land Trust would work using the new senior project in Pound Ridge as a possible example. The County would be buying that property with the New Homes Land Acquisition Fund and instead of selling it to a developer for $1, the County would sell it to the trust for $1 so that the project could stay affordable in perpetuity. The trust would then issue a nine-year renewable ground lease back to the entity doing the construction and/or the management and/or the home ownership. A rental project in New Rochelle is also being considered and a condominium project in Ossining if possible.
One of the issues is that New York State law prohibits condominium complexes in New York from having ground leases. So legislation has been prepared and the County Executive will be working with the Westchester state delegation to amend the state law to allow condos to have ground leases. This is moving forward quickly—the ground leases are being finalized in a draft form to show developers.
Champlain, Vermont Land Trust is coming to give training on day-to-day issues. Fannie Mae has been one of our partners and is comfortable with the secondary market prospects. We would be the first County land trust and first scattered site land trust in New York. All new projects are being told that if the legislation is adopted in time, it would have a provision to go to the land trust—even for condo complexes, because Battery Park and Roosevelt Island were able to get exclusions under the law that Westchester will be able to get one as well
Mr. McDermott gave a historic perspective – you separate the land from the improvements. Taking public money such as the New Homes fund to buy the land keeps the land in the public domain forever but whoever owns the buildings owns them. Ms. Drummond added that If the amendment does not go forward, the condos would be owned by the developer until he sells them to the homeowners, then we would have a 40 year deed restriction on the property.
Leg. Burton asked if there was a way to bring a property out of the land trust. Mr. McDermott opined that it would likely be a Supreme Court issue—a non-profit, an IRS 501c3 organization that would sell an asset.
Leg. Bronz asked what we can do as a Committee. Ms. Drummond said the Land Trust will require some support and have difficulty the first couple of years until they amass a certain number of units when it would get income from monthly fees for the ground leases. $40,000 has been set aside from this year’s CDBG grant for trust administration. A capital reserve fund for Land Trust was discussed, so that in the event of foreclosure they can step in buy the unit thus saving court costs.
Leg. Bronz thanked the guests. Leg. Pinto moved to adjourn and seconded by Leg. Burton.
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