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Residents are at one another's throats as once-affordable apartments built by 's father soar in value

Aaron Elstein

Published: August 21, 2017 - 12:01 am

Faina Shvadronova and her 8-year-old son, Jerry, emigrated from the Soviet Union to in 1979. She found work cracking eggs at a bakery and taking care of an elderly couple, while Jerry helped furnish their Borough Park apartment by scavenging for tables and chairs off the streets. A few years ago the breast cancer Shvadronova thought had gone into remission returned. She died at age 68 in February 2016.

For all her struggles, Shvadronova managed to leave something substantial behind for Jerry: a two-bedroom co-op in that she bought for about $30,000 in 1993.

The apartment, in a complex called Trump Village, was built in 1964 by Donald Trump's father, Fred. It was the first project the young Donald worked on as a developer and the first property the family named for itself. Trump Village consists of seven 23-story towers housing 3,700 co-op and rental apartments close to the beach. To help pay for the $70 million project ($564 million in today's dollars), turned to a state and city program called Mitchell-Lama that granted him financial incentives in exchange for building affordable housing. The Trumps owned parts of Trump Village until 2003, when the family sold them and other outer-borough properties for $600 million four years after Fred died.

In spite of the constraints imposed by Mitchell-Lama—landlord profits were capped, and residents were barred from selling their apartments for more than they paid—nearly 140,000 affordable units were built under the program between the late 1950s and the early 1980s. Demand far outstrips supply: Middle-class New Yorkers who qualify under the income requirements routinely have to wait years to get one.

Shvadronova waited at least five years for hers, recalled Jerry, a librarian who is now 45 and has shortened his last name to Shvadron. "The apartment was my mother's great achievement," he said.

To pass that achievement on to her son, Shvadron's mother placed ownership in a trust that named him the sole beneficiary. After her death he prepared to move into her apartment with his two daughters and his wife, a secretary at Coney Island Hospital.

Something important had changed, however, since his mother bought the place: Trump Village was no longer the affordable-housing complex that Fred Trump had built. Much as Donald left behind his father's vision of

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building apartments for teachers and police officers to focus on luxury condos, in 2007 Trump Village residents voted to leave the Mitchell-Lama program, which meant they were free to sell their apartments for whatever the market would bear. It also meant the apartment Shvadron inherited was worth serious money—$400,000, by his estimation. His good fortune didn't sit well with the Trump Village co-op board, which refused to let him move in without coughing up a hefty sum that would have made the apartment unaffordable.

"Trump Village is defying my mother's very clear wishes," said Shvadron, who sued to get his apartment. The co-op fired back by suing him for libel after he criticized building management, the second such suit filed against one of its residents.

The war inside Trump Village provides a vivid example of the fights taking place as more of New York's affordable housing is converted into market-rate apartments. In the past 20 years, owners of 38,000 Mitchell- Lama apartments, representing 28% of the program's housing, have left. That has depleted the city's affordable-housing supply and poses a formidable challenge to Mayor Bill de Blasio, who has promised to preserve or create 200,000 affordable units. As additional Mitchell-Lama apartments look to enter the market, more battles loom for control of these valuable properties.

"Mitchell-Lama was one of the most successful affordable-housing programs ever," said Erica Buckley, a partner at law firm Nixon Peabody and former chief of the state attorney general's Real Estate Finance Bureau, where she reviewed the plans of buildings looking to exit the program. "As apartments leave, it has caused lots of complications."

Trumpian salesmanship

Fred Trump used the sort of puffery Donald would make famous when describing his newly built Trump Village. He called it a "miracle mile [of] luxury housing" featuring "a Taj Mahal of aesthetically appealing apartment houses [that would] combine resort living with city life," according to Gwenda Blair's book The Trumps: Three Generations That Built an Empire.

In reality, the apartments didn't come with air conditioning, and the buildings resembled many of the austere public-housing blocks rising up at the time. An architect whose firm designed Trump Village acknowledged as much. "The aesthetics of that job were not great," he said.

Trump Village was built under a program designed to address a problem in 1950s New York that sounds familiar today: lack of affordable housing for a surging population. In an effort to ease the shortage, in 1955 state lawmakers MacNeil Mitchell and Alfred Lama sponsored the Limited Profit Housing Companies Act, which offered low-interest loans and property-tax reductions to developers who agreed to build housing where their annual return would be capped at 6% for 50 years.

Few developers were interested, so a few years later the law was amended to say Mitchell-Lama properties could be rented or sold for whatever the market would bear after 35 years. It was subsequently lowered to 20 years if the mortgage was paid off.

The last tweak made affordable-housing development sufficiently attractive, especially for developers who built large complexes to help offset the small profit margins. Investors in Mitchell-Lama projects included Bob Dylan, once part owner of an apartment building in Rockaway, Queens. (That's right, the author of the song that begins, "Dear landlord / Please don't put a price on my soul" was once a New York landlord.)

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In all, developers built 66,000 Mitchell-Lama rental units and 69,000 co-ops before the program petered out and the Reagan tax-reform package of 1986 marked its death knell. The new law discouraged investors in rental properties from using "passive losses," such as depreciation costs, to offset wages or other sources of "active income." As a result, "people with high active incomes were no longer motivated to invest in real estate as a tax shelter," said Tom Waters, a housing-policy analyst at the Community Service Society, a research nonprofit.

Since 1990 half of Mitchell-Lama rentals have left the program, according to Waters' research, as landlords who waited decades to charge market-rate rents began to do so. Last decade Mayor Michael Bloomberg began offering owners millions' worth of incentives to keep apartments in the program, and de Blasio and Gov. Andrew Cuomo have done the same.

Most co-ops have so far elected to remain in the program because their property taxes would soar if they left. Property-tax bills jumped to $8 million a year from $1.6 million after residents at Southbridge Tower in lower Manhattan narrowly voted to exit Mitchell-Lama in 2014, resulting in steep monthly maintenance increases for tenants, Manhattan Borough President Gail Brewer testified at a City Council hearing last year. Even so, soaring housing prices are intensifying pressure on co-ops to leave Mitchell- Lama so residents can sell their apartments for big sums. Buckley wrote in a Law360 article last year that of the 20 co-ops eligible to leave, two have had exit plans approved by the attorney general's office, and at least five others were considering it.

One of the first co-ops to take the plunge was Trump Village.

No entry

It didn't take Shvadron long to realize he wouldn't be able to move into his mother's apartment without a fight. He visited the place two weeks after she died, only to find it blocked off by packing tape. "It looked as if a crime had been committed inside," he said.

Trump Village management wrongly told him his trust documents had been shredded, and before moving in he had to pay a $100,000 transfer fee. Such fees, also known as flip taxes, are commonly levied by co-ops when residents sell their apartments. But Shvadron understood that, under the building's bylaws, children inheriting apartments from parents were exempt from flip taxes. Residents had insisted such language be included when they voted to leave Mitchell-Lama.

"Without the clause carving out children from flip taxes, I don't think people would have voted for conversion," said Allan Grody, a Wall Street executive whose parents moved into Trump Village around 1968 and whose mother lived there until she died in 2013 at age 100. Grody shared a copy of the bylaws that reads, "Bequests by stockholders and bona fide gifts by stockholders to members of their immediate family are exempt from the transfer fee." Trump Village attorney Dean Roberts asserts that apartments are not exempt from flip taxes if they're transferred to a trust before being passed to an individual.

After the tape incident Shvadron turned to the co-op's general manager and former president, Igor Oberman. The two men hailed from the same city of Gomel, Belarus, emigrating two years apart, and many years ago Shvadron's uncle helped Oberman's father get a job as a plumber's assistant. But those ties meant little when control of a vacant apartment was in question. Oberman threatened to have the locks changed and call the police if Shvadron tried to get inside his mother's apartment, according to court documents. He also urged Shvadron to sell his nearby apartment to demonstrate he really planned to live in Trump Village, which Shvadron did. Nevertheless, last summer the co-op board unanimously denied Shvadron's application to move in.

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Oberman represented a generation of owners remaking Trump Village after it left Mitchell-Lama. A former Taxi and Limousine Commission attorney and City Council candidate, he joined the co-op board in 2010 and became president in 2012, not long before Superstorm Sandy blew through. The storm not only caused more than $10 million worth of damage, but apartment sales also collapsed because nobody wanted to buy property in a flood zone. Trump Village's flip-tax revenue fell by 35%, or $700,000, according to city records, and accountants warned of a serious budget shortfall at the co-op that over the years had grown into an enterprise with more than $16 million in annual revenue.

Oberman figured the best way to shore up the co-op's balance sheet was to make the place more attractive to families priced out of Brooklyn's brownstone neighborhoods. He directed the organization to spend $250,000 on playground equipment and an indoor playroom. The co-op also changed its formal name from Trump Village Section 4 Inc. to the more inviting Trump Village West.

The strategy quickly paid dividends. Trump Village sales and property values picked up as memories of Sandy faded. The median price of a Coney Island co-op has risen by 58% since 2012, according to the Real Estate Board of New York, double the rate of increase in Brooklyn overall.

While the fortunes of the neighborhood and the co-op improved, plenty who bought their apartments in the Mitchell-Lama days remained. If these residents were to sell, the co-op would not only collect at least 20% of the sale proceeds in flip taxes, but because bylaws give the co-op the right to match any potential buyer's offer, it could also accumulate an inventory of apartments to sell into the red-hot market and generate even more revenue for improvements and upkeep. City records show that the co-op bought one apartment from a resident for $200,000 in December 2015 and sold it four months later for $370,000. It bought another for $200,000 in May 2015, which it sold 14 months later for $470,000.

"The gestalt is to get the old-timers out," said Grody. "Buildings are being refurbished. Coney Island is being dressed up. It's the rebirth of Brooklyn. The losers are people looking for affordable housing."

Oberman said he had "no idea what this allegation is" and added that Trump Village supports longtime residents, noting that the board contributes $100,000 annually to the nonprofit Jewish Association Serving the Aging.

Justice Department charges

Nonetheless, in 2015 the U.S. Justice Department charged Oberman and the co-op with unlawfully attempting to evict residents, citing a "pattern or practice of discrimination against residents." The feds said Oberman allegedly began eviction proceedings against a resident who had a dog in violation of building rules at the time. It turned out the dog owner was a veteran of combat in Afghanistan who under federal law had the right to own a pet—a shih tzu named Mickey—to help cope with post-traumatic stress disorder. Prosecutors also accused Oberman and Trump Village of threatening to evict three other dog-owning residents, denying them preferred parking spaces and retaliating against one by removing the person from the co-op board.

The case came after the U.S. Department of Housing and Urban Development charged Oberman and Trump Village in 2015 with freezing people on the waiting list for parking spaces and leapfrogging at least one person to the top of the line.

Oberman, who stepped aside as co-op board president in 2015, said Trump Village is now pet-friendly and the Justice Department case was settled confidentially in July.

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In the meantime Oberman faces other legal challenges. As part of the strategy to market Trump Village apartments to families, a photo showing him with his wife and young child was put on the co-op's marketing materials at the same time he was running for City Council. In May the Campaign Finance Board staff determined that Oberman illegally used co-op cash to promote his unsuccessful campaign, according to records obtained by Crain's under the Freedom of Information Law. He and his campaign face up to $25,000 in penalties and restitution, although a lawyer for Oberman, Laurence Laufer, said he believes the case will be dismissed without financial penalties at an administrative hearing scheduled for Aug. 21. In 2014 the city fined Oberman $7,500 after saying he used his TLC workplace phone to raise money for his campaign.

Shvadron knew of Oberman's troubles and plenty about his background when he confronted Oberman about taking possession of his mother's apartment. When Shvadron lashed out in frustration, he knew how to make it hurt.

"You know, people say you're a Russian gangster. They fear you're part of the mob," Shvadron recalled telling Oberman, who remembers the exchange differently, saying in court papers that Shvadron accused him of running "a scam," of being a "Russian f--king gangster" and "a f--king connected mobster."

What's not in dispute is that after that exchange, Shvadron posted a petition on moveon.org urging fellow residents to storm the barricades. "We are the shareholders of Trump Village, and we are tired of being treated unfairly by the management," the proclamation read. "We are tired of being afraid to speak up against the management. Stop Trump Village harassment and intimidation of its shareholders and residents."

Oberman fired back by suing Shvadron for libel and slander earlier this year. It was the second libel suit Oberman and Trump Village filed against residents. The first was in 2014 against two women, Julia Bezvoleva and Inna Yeselson, who under the online pseudonym Josef Stalin called Oberman a "psychopath" and complained "Igor Oberman spends corporate money for his personal retaliation (eviction attempts)." They said he monitored neighbors with a personal video camera and used security guards to threaten residents who asked "inconvenient questions." The case has been halted while Bezvoleva, a U.S. Army reservist, is deployed at an undisclosed Middle East location. "The most authoritarian aspects of Soviet life have found their way into Trump Village," Shvadron said.

Oberman, who sold his Trump Village apartment last year but remains the building manager, responded: "America has freedom of speech but has limits. To defame reputations online will not be tolerated, and I look forward to our day in court."

Buckley, the former attorney general's office official, said the brawl at Trump Village should serve as a cautionary tale for co-ops thinking about leaving Mitchell-Lama. One of the benefits of sticking with the program is co-ops can turn to city or state authorities to handle disputes, while residents in private co-ops are left to fight their battles before a judge. "They have a whole set of problems, no one to turn to, and they're begging for a co-op or condo ombudsman that the Mitchell-Lamas have," she said.

The wars of words within Trump Village may be only the start of a long legal battle. Shvadron has found a potentially powerful ally in Grody, the Wall Street executive who has his own beef with the co-op.

Grody believes Trump Village charged him more than $9,000 in excessive flip taxes when he sold his mother's apartment for $185,000 after her death. He said the co-op's financial statements may be materially distorted by improperly collected flip-tax revenue and has submitted numerous requests for information with the attorney general's office. He thinks the co-op may be a corrupt organization and is looking to lead residents in a class-action lawsuit against Oberman and the Trump Village board. As a former partner at

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accounting firm Coopers & Lybrand (now PwC), where he advised financial giants like Goldman Sachs and JPMorgan, the 72-year-old Grody says he has the expertise, patience and legal contacts to make his case.

"I'm doing this for my mother," he said. "She wouldn't be at all happy with how things have gone at Trump Village."

"The gestalt is to get the old-timers out. It's the rebirth of Brooklyn. The losers are people looking for affordable housing"

20%

PORTION OF FLIP TAXES Trump Village receives 58%

MEDIAN INCREASE in sales price of Coney Island co-ops since 2012, twice the overall Brooklyn rate

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