Wednesday, August 6, 2008

Bronx Building to Be Withdrawn From Mitchell-Lama Participation

Published: August 5, 2008

The sale of a Bronx apartment building is proceeding, even though city housing officials rejected the deal just months ago.

The owners of the 100-unit building at 1520 Sedgwick Avenue, widely regarded as the birthplace of hip-hop, have notified the Department of Housing Preservation and Development that they intend to cancel the building’s participation in the Mitchell-Lama program by paying off the mortgage, effectively ending the city’s regulatory power over any sale.

“They have requested a payoff letter for early September,” said Seth Donlin, a spokesman for the housing department. “It means they want to pay off their mortgage and exit.”

Steven Frankel, a lawyer for 1520 Sedgwick Associates, the owner, would not comment.

A proposed sale of the building had alarmed tenants and advocates of moderate-income housing because the reported price being paid by an investment group led by Mark Karasick, a real estate developer, significantly exceeded the building’s assessed value of $7.5 million. They feared that such a high price meant that the investment group would almost certainly take the building out of the Mitchell-Lama program after the sale.

Earlier this year, the Department of Housing Preservation and Development rejected a previous sale “because the proposed purchase price is inconsistent with the use of property as a Mitchell-Lama affordable housing development.”

José M. Serrano, the state senator who represents the area, said: “A few months back, there was a lot of fanfare; it looked like we had been able to save affordability at 1520. All of that is now in jeopardy.”

Tenants had hoped to buy the building, but advocates of that plan said that the tenants’ offer fell far short of the asking price.

“This was the nuclear option,” said Senator Charles E. Schumer, whose office has been active on the issue. “It is simply outrageous for the owners to ignore the tenants’ offer to negotiate, and instead push blindly ahead with their decision to take this building out of the Mitchell-Lama program.”

That program, established in 1955 by the State Legislature, spurred the development of about 105,000 units of housing in 269 developments by giving developers subsidies and tax breaks in exchange for rent limits for a fixed time period. Rents under the Mitchell-Lama program are generally determined by the budget of the landlord in operating the building, and are generally raised when there are substantial investments.

In recent years, the 20-year time limits on developers’ contracts expired, and buildings across the city have been taken out of the program and sold to investors, many for what tenants’ advocates call worrisomely inflated prices.

The immediate impact on the rents at 1520 Sedgwick will not be substantial, because buildings removed from the Mitchell-Lama program are generally subject to rent stabilization. A number of elected officials, however, have raised concerns that an inflated purchase price is very risky.

The officials said that the debts on some other buildings that left Mitchell-Lama were so large in relation to the rents that they might trigger foreclosure or a substantial cut in services.

The officials pointed to another Bronx building, Robert Fulton Terrace, which was sold in 2006 at what they said was an inflated price. Mr. Karasick was also involved in that sale. Michael Benjamin, a Bronx assemblyman whose district includes the building, said that his office had already received complaints about repairs and cleanliness.

Others predicted that such purchases could become the apartment-building equivalent of the mortgage crisis surrounding single-family homes.

“The bank is taking a speculative position by lending money on that property,” said Thomas J. Waters, a housing-policy analyst who has taken a look at the real estate financing. The commercial mortgages, like mortgages on single-family homes, are often packaged into securities that are sold on Wall Street — as was the case with Robert Fulton Terrace.

“The same kind of thinking went into lending $400,000 to someone who had the $50,000 income, or someone who couldn’t prove their income,” Mr. Waters said.

Dmitry Kiper contributed reporting.

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