SUSTAINING AFFORDABLE

HOUSING IN A COMPETITIVE

REAL ESTATE MARKET: A Case

Study of Mitchell­Lama Rental Units

Prepared by Wendy D. Anderson

Joanna Raymundo Lindsay Ruprecht Heather Sheridan

COMMUNITY

DEVELOPMENT FINANCE LAB

April 7, 2008

Sponsored By

Prepared for TABLE OF THE URBAN HOMESTEADING ASSISTANCE BOARD

Table of Contents

Acknowledgements……………………………………………………………………………………………….…..…………..3

Executive Summary…………………………………..………………………...……………………….………….…………….4

Project Mandate…………………………………….……………………………………………………...…………….…………5

Overview of the Mitchell­Lama Affordable Housing Program……………...……….………………….…….5

Methodology……………………………………..…………………………..….…………………………………………………12

The Key Players………………………………………………………………...………………………………………….……..12

Economics of the Deals………………………………………………………...…………...……………………………...…14

Investment by New York City Pension Funds………………………………….……………………………………16

The Importance of Section 8……………………………………………..…...………..………………………………..…18

New York City Housing Policies……………………………………………………………………………………………19

Local successes…………………………………………………………………..………………………………………………..20

Other City Models…………………………………………………………….…………………………………………….……21

Recommendations…………………………………………………….………………….………………………………..……22

Appendices Appendix A: List of Mitchell­Lama Rentals Expiring Out of the Program…………………..….25

Appendix B: Loss of Mitchell­Lama Units by Borough……………………………….……………….….26

Appendix C: Lenders Involved in Buyouts or Pending Buyouts…………………………………..…28

Appendix D: HDC Preservation of Mitchell­Lama Properties: Mortgage Restructuring and Repair Loan Programs……………………………………………………………………………….…………..29

Appendix E: Development and Management Companies Participating in the HDC Preservation of Mitchell­Lama Properties: Mortgage Restructuring/Repair Loan Programs………………………………………………………………………………………………………………………30

Appendix F: Average Rent Stabilized Unit Rent…………………………………………………….……….36

Appendix G: Ten­Year Rent Increases…………………………………………………………………………...38

Appendix H: Buyout Transactions…………………………………………………………………………………39

2 Appendix I: Financial Models………………………………………………………………………………………...42

Appendix J: Tenant Association Contacts and Meeting Dates…………………………….…….……59

Appendix K: Resident Survey………………………………………………………………………..……….………60

References……...………………………………………………………………………………………………………………...…61

Acknowledgements

We would like to extend a special thank you to our faculty advisor Blaise Rastello who made great contributions to our direction as he guided us through the process and some of the technical details involved in the project. We also appreciate the insight of Dr. Lisa Servon, Associate Director of the Community Development Research Center at Milano The New School for Management and Urban Policy and Associate Professor of the Community Development Finance Lab. We would also like to thank HSBC for funding this project. Contributions like theirs allow Milano students to gain significant experience while working towards making a difference in the community.

3 Executive Summary

The limited Profit Housing Companies Act was created in 1955 to create affordable housing for middle‐income residents. Mitchell‐Lama housing came as a result of this legislation. After twenty years from the original occupancy date, owners of the developments were allowed to buyout and leave the Mitchell‐Lama program. Policy‐makers did not plan for the soaring real estate market that New York City has experienced over the last decade; and this has enticed owners of limited‐profit housing projects prepay their mortgages in order to gain early departure from the affordable housing program restrictions. New York is running out of land on which to build and the numbers of affordable housing units available in the city are dwindling. This is an extremely important issue not only for affordable housing advocates but tenants, community leaders and other stakeholders who have a vested interest in preserving the affordability of expiring Mitchell‐Lama units.

Our research focused strictly on Mitchell‐Lama rental units. We looked at three properties that are pending a buyout from the Mitchell‐Lama Program and four properties that have finalized the buyout process. Utilizing policy reports, case studies, legislation, financial reports and the Automated City Register Information System (ACRIS) and interviews with tenants, developers, banking specialists and political officials, we created financial models projecting the rent changes that can be expected for the seven properties with industry‐ standard investment practices. The models generally demonstrate extreme rent increases, which carry high probability of tenant displacement and therefore permanent loss of the units' affordability. We also identify key lenders and developers in these buyout deals.

Our recommendations to the Urban Homesteading Assistance Board (UHAB) are the continuation of advocacy efforts persuading the Department of Housing Preservation and Development (HPD) and the Housing Development Corporation (HDC) to vet these deals and meeting with the Comptroller’s Office on an on‐going basis to ensure that public pension funds are not being used in these deals. Other short‐term strategies include meeting with lenders that underwrite the deals involving the sale of affordable housing units and educating them about their role, participation and responsibility as lenders, emphasizing that these activities could be detrimental to their credibility as responsible lenders. Reticent lenders’ practices, which add to the instability in the affordable housing market, should be exposed through a focused media campaign. In the long‐term UHAB should develop and implement the policies and mechanics on purchase options on city financing programs to ensure permanent affordability through collaboration with other non‐profit advocacy organizations such as the Association for Neighborhood Housing and Development (ANHD) and for‐profit developers who can implement finance strategies to preserve affordable housing. Most importantly UHAB must create a broad coalition of developers, bankers and other advocacy organizations to present policy solutions to the city as a united front.

4 Project Mandate

Our team was charged with answering the following: Due to the rising population growth and increasingly competitive real estate market in New York City, what can be done to preserve sustainable affordable rental housing units for low and middle‐income residents?

Overview of the Mitchell­Lama Affordable Housing Program

The limited Profit Housing Companies Act was created in 1955 for the purpose of building affordable housing for middle‐income residents. The housing that was built as a result of this legislation was called Mitchell‐Lama units, derived from the names of former Manhattan State Senator MacNeil Mitchell and former Brooklyn Assemblyman Alfred Lama who sponsored the legislation. The Mitchell‐Lama program facilitated the construction of nearly 142,000 units of affordable housing in New York City. Owners were required by law to keep rents affordable in exchange for low‐interest mortgage loans and real property tax exemptions. 1

Table 1 shows the number of Mitchell‐Lama Rental and Co‐op Units created in each borough. Manhattan had the most rentals, 25,219 and the Bronx had the most co‐ops with 22,732. There were 74,182 rentals created in New York City and 67,815 co‐ops for a total of 141,997 Mitchell‐Lama Units.

Table 1: Total Number of Mitchell­Lama Units Created in Each Borough

Borough Rentals Co­ops Total

Bronx 21,755 22,732 44,487 Brooklyn 18,044 16,391 34,435 Manhattan 25,219 15,876 41,095 Queens 8,176 12,8 16 20,992 Staten Island 988 0 988

NYC Total 74,182 67,815 141,997

Sources: Division of Housing and Community Renewal (DHCR) and NYC Comptroller’s Office

The Mitchell‐Lama program did not ensure permanent affordable housing. After twenty years from the original occupancy date, owners of the developments were allowed to buy out and leave the program. The process of leaving the supervision of the Mitchell‐Lama program begins when a development owner serves the New York State Division of Housing and Community Renewal (DHCR) or the New York City Department of Housing

1 Affordable No More, 2006

5 Preservation and Development (HPD) and the tenants of the building, with a formal notice of intent to leave the program. One year after filing this document, the owner may leave the program if all other terms and obligations of the contract that established the original development, have been met.

Many buildings began timing out of the program in the early 1990’s. At this time DHCR issued regulations stipulating that certain areas are subject to the Rent Stabilization Law (RSL) of 1969 or the Emergency Tenant Protection Act (ETPA) of 1974, and Mitchell‐Lama buildings in those areas would be protected under Rent Stabilization guidelines after being bought out.

The policy report, “Affordable No More: An Update” released by the New York City Comptroller’s Office in 2006 states the circumstances under which Mitchell‐Lamas are subject to RSL and ETPA. As stated in this report, Mitchell‐Lama developments occupied on or after January 1, 1974, are not subject to rent stabilization. Also, all units that were built prior to 1969 but were not occupied continuously between July 1, 1971 and December 31, 1973, and those that were built between March 10, 1969 and January 1, 1974 are governed by the ETPA. A section in the ETPA states that owners can submit a request to DHCR, within 60 days of leaving the program, to increase rent in a building due to “unique and peculiar circumstances,” when the neighborhood market rent is significantly higher than the rent in that building. Under these circumstances, more than half of the Mitchell‐Lama rental units created, 54%, did not have ensured affordability upon leaving the program.

Low‐interest rates and a soaring real estate market have continued to entice owners of limited‐profit housing projects into prepaying their mortgages to seek early departure from the affordable housing programs2. Our research focused on the Mitchell‐Lama rental units and, according to the data compiled from both the DHCR Annual Reports on Mitchell‐ Lama Housing Companies in New York State and “Affordable No More: An Update,” 34,277 rental units, or 46%, have exited the Mitchell‐Lama program as of 2006. 70% of the 39,905 units that still remain in the program were occupied on or after January 1, 1974, and, therefore, are not subject to rent stabilization upon leaving the program. Table 2 shows the breakdown of these data.

2 Affordable No More, 2006

6 Table 2: Number of Rental Units Not Subject to Rent Stabilization Upon Leaving the Mitchell­Lama Program

Original Existing Units Units as of 2006 Bronx 7009 Bronx 5,688 Brooklyn 12,193 Brooklyn 12,151 Manhattan 14,632 Manhattan 4,968 Queens 4,951 Queens 4,034 Staten Island 988 Staten Island 988 Total 39,773 27,829 Source: DHCR, NYC Comptroller’s Office

According to the report “Changes to the Rent Stabilized Housing Stock in New York City in 2006, released by the NYC Rent Guidelines Board, 7,264 Mitchell‐Lama rental units that have left the program since 1994 have become part of the rent stabilized housing stock. Out of these units, 42%, or 3,040 units, in fourteen former Mitchell‐Lama rental developments became rent stabilized in 2006.

Figure 1 shows the existing number of Mitchell‐Lama rental units in each borough as of 2006 compared with the original number of units in each borough. Appendix B has a detailed pie chart that shows the percentage of units lost in each borough and compares the losses between boroughs. Manhattan has lost the most units, with 65% of the Mitchell‐ Lama units in that borough exiting the program since 1979.2 This has been fueled by the rising real estate market. It has been more lucrative for Mitchell‐Lama owners in high market, such as Manhattan, to buy out of the program and convert to market rate rents than to remain in the program and keep rents affordable.3 The average asking rent in New York City increased 9.1% from 2006 to 2007, the highest rent increase in the country within one year.4 The 2007 average asking rent is $2,759, which is 2.7 times higher than the United States average asking rent of $1,015.3 Brooklyn has lost the least number of units. Only 16% of the units in Brooklyn have left the program. The fact that Brooklyn has been able to retain most of its Mitchell‐Lama rental units as compared to the other boroughs may be linked to the rents in that borough not increasing as much as each year as the other boroughs. Appendix G shows the percent rent increase each year in rent stabilized properties in New York City. Because rents in Brooklyn have remained steady, it is not necessarily more lucrative for owners in Brooklyn to switch to market rate rents than it is in Manhattan.

3 Interview with HDC 4 “Priciest, Cheapest US Rental Markets”

7 Figure 1: Existing Mitchell Lama Rental Units as of 2006

30,000

25,219 25,000 21,755 s 20,000 18,044

15,144 15,000 11,185

Number of Unit of Number 10,000 8,832 8,176

5,000 3,756

0 Bronx Brooklyn Manhattan Queens Borough

Sources: DHCR and NYC Comptroller’s Office

Figure 2 illustrates the trend of the loss of Mitchell‐Lama units since the 1985. Manhattan has experienced the steepest decline, from 24,733 units in 1985 to 8,832 units in 2006. The number of units in Manhattan dropped 46% from 16,692 to 8,832 between 2003 and 2006. This is tied to the accelerating real estate market in Manhattan combined with the timing out period of the properties.

8 Figure 2: Decline in Mitchell­Lama Rental Units from 1985 to 2006

30000

25000 s 20000 Bronx 15000 Brooklyn Manhattan 10000 Number of Unit of Number Queens

5000

0 1985 1995 2002 2003 2006 Ye ar

Source: DHCR, NYC Comptroller’s Office

Figure 3 illustrates the trend in the number of units that have left the program each year according to the report “Affordable No More: An Update,” since the buildings started leaving the program in 1979. The most number of units were lost in 2005, with 5,434 units exiting the program.

9 Figure 3: Number of Mitchell­Lama Rental Units Lost

6000

5000 t

4000

3000

2000 Number of Units Los 1000

0 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Year

Source: DHCR, NYC Comptroller’s Office

In addition to the 34,277 units that have exited the program, 4,722 units, or 12% of the remaining units, are currently pending buyouts. Appendix A has a list of these units and their management companies.

Section 250 On December 20th, 2007, the United States Department of Housing and Urban Development (HUD) decided to apply Section 250 of the National Housing Act to Castelton Park, a Mitchell‐Lama unit. Under Section 250, the current owner must set aside funding for rehabilitation and repairs of the buildings and any rent increases must be approved by HUD within strict affordability guidelines and all potential buyers of the complex must be approved by HUD.5 Castelton Park was constructed in 1974 and had a HUD‐insured mortgage and under Section 250 of the National Housing Ace, HUD can only approve the prepayment of a HUD‐insured mortgage if the agency determines that affordable housing is no longer needed in that community.

Although the Rent Stabilization Law and the HUD‐insured mortgage stipulation are saving a few tenants at a time, for the most part, owners are selling to private equity firms and developers to gain the highest return on their original investment. Once the units are sold out of the program, their affordability is lost forever as owners continue to deregulate the units. In his affordable housing plan, Mayor Bloomberg has pledged $7.5 billion dollars to create affordable housing for over 500,000 New Yorkers.6 He set a goal of creating and preserving 165,000 affordable housing units in ten years. Although Bloomberg has made

5 Sen. Schumer Press Release 12.20.07 http://www.mitchell-lama.org/MLRC%20NEWSLETTER%20JAN.%202008.pdf 6 http://www.nyc.gov/html/hpd/downloads/pdf/New-Housing-Market-Place-Plan.pdf March, 2008

10 the creation and preservation of affordable housing units a priority, as of fiscal year 2007, construction and/or preservation has only been started on 18,472 units.7 As of January 2008, 69,836 units of affordable housing had been started under the plan. Affordable housing units are being lost at a faster rate than they are being replaced and tenants are losing their homes.

The Breakdown of Mitchell‐Lama Policies Over Time The original intentions of the Mitchell‐Lama legislation were positively aimed at creating and preserving housing options for moderate‐income people, however it failed to evolve with the changing market. Authors of the original legislation did not adequately predict what would happen to the tenants when owners decided to reap the rewards of long‐term commitments to low return, low risk investments. The Mitchell‐Lama program has failed because it only limited the cash flow profit for owners and did not limit the profit owners could make on the resale value of the properties at the end of the regulatory restriction periods. The current real estate market in New York has created a lack of new housing stock, which has made the buyouts of Mitchell‐Lama properties an attractive way of gaining a high return on the resale value in a short period of time. Legislators did not anticipate that the market would appreciate at such a rate that owners would sell their buildings at prices that threaten the future affordability of the buildings and displace the current tenants. The extreme lack of affordable housing, paired with the buyouts of the Mitchell‐ Lama properties has created a severe situation where the tenants are the ones losing out.

Property owners who opt out of the program are selling to developers that make small capital improvements in order to raise the rents to market rate. As seen in table 3, a majority of the units lost are located in Manhattan, The Bronx and Queens.

Table 3: Existing Limited Dividend and Mitchell­Lama Units by Borough and Type that are Eligible to charge Market­Rate Rents in 2006 Number of Total Units Percentage of Rental Units that are Units Rentals Bronx 13,767 37,937 36% Brooklyn 15,286 31,639 48% Manhattan 10,421 26,288 40% Queens 3,756 16,958 22% Staten 988 988 100% Island NYC Total 44,218 113,810 39% Source: NYC Comptroller’s Office

As of May 2006, there were 9,127 rental units that had completed buyouts and could raise their rents to market rate levels.8 As of February, 2008, 87 buildings, totaling 30,946 units have been lost due to owners selling the property and leaving the affordable housing

7 http://www.nyc.gov/html/hpd/downloads/pdf/New-Housing-Market-Place-Plan.pdf March, 2008 8 New York City Comptroller Report “Affordable No More: An Update” (May, 2006).

11 program.9 There has been no long‐term solution created to ensure preservation of the units. Most plans are reactionary and the results are short‐term, which is not enough to guarantee adequate access to affordable housing for New Yorkers who need it.

Methodology

Our team researched seven Mitchell‐Lama buyout deals, 3 pending and 4 finalized. We looked at Undercliff House, General Sedgwick, Robert Fulton Terrace, Riverside Park Community, Lakeview, Castelton Park and Ocean Towers. Figure 2 is a map of these properties. We interviewed tenants in most of the buildings to discuss their experiences during a buyout or post buyout of the program. We also interviewed many real estate and housing industry experts to discuss options to save the Mitchell‐Lama properties. After collecting data from a variety of sources including the Automated City Register Information System (ACRIS) and extensive interviews with tenants, developers, nonprofit organizations, banking specialists and political officials, we sought to do the following:

1) Identify the key players involved in the ML buyout transactions 2) Demonstrate how the economics of these deals will ultimately result in significant rent increases to achieve returns on equity 3) Examine current housing policies to address the preservation of affordable housing highlighting their strengths and weaknesses 4) Make short‐term and long‐term recommendations on policy and advocacy strategies to preserve affordable housing

During our research, we found the same circles of owners, investors and developers involved in the deals. Current owners and developers of these affordable housing properties are presented with an extremely lucrative investment opportunity, which they do not pass up in order to, instead, preserve housing affordability for low‐ and middle‐ income New Yorkers.

The Key Players

Developers Two of the key players that have been identified as major purchasers of Mitchell‐Lamas are part of an elite circle known as “The New York Guys” who acquire property together in New York City and throughout the country and sell within their circle when possible10. The two who UHAB has asked us to track are Mark Karasick and Rubin Schron, head of Cammeby’s International. The other six “New York Guys” are Joseph Moinian, Asher Zamir, Joseph Chetrit, David Werner, Lloyd Goldman and Jeffrey Feil.

A few other noteworthy purchasers are Laurence Gluck of Stellar Management, Aaron

9 www.dhcr.state.ny.us/ohm/progs/mitchlam/ohmprgmi.htm 10 The Real Deal

12 Silberman, Bernard Jereski and Frank Phelan. Silberman works with the Schrons and Cammeby’s International as part of BSR Management and on his own in order to move properties away from other limited partners’ ownership and into each other’s portfolio11. Jereski and Phelan have sold multiple properties to Cammeby’s International, but it is unclear if they are actually partnering in the buyouts or not.

Jerome Belson of Belson Associates has been one of the main owners of Mitchell‐Lamas who is selling affordable housing properties for purchase prices that demonstrate goals for returns on equity that require transformatio n into housing for higher income residents.

Figure 4 displays these relationships, but does not show the intricacies of these relationships. While researching transaction patterns on ACRIS, we found that family members and friends are also often involved in the acquisition or transition of a property. For example, four Schrons besides Rubin and eight other people assisted in transferring Robert Fulton Terrace’s ownership to Cammeby’s International in May 2006.

Figure 4: Key Players in Mitchell­Lama Buyout Deals

Lenders and Investors They are so systematic in their acquisitions that there is even a trend toward certain lenders with which they most likely have a positive relationship. Deals made by these

11 ACRIS

13 players tended to use the following lenders as opposed to others12: New York Community Bank, North Fork Bank, Washington Mutual, CIBC, German American Capital Corporation and Eurohypo AG New York Branch. Both of the German lenders that we found were involved in Mitchell‐Lama buyout deals had American trustee banks, such as Wells Fargo and LaSalle Bank, involved with them. The only investors funding Mitchell‐Lama buyout deals that we were able to identify from ACRIS and our research were are the following: Stellar Structured Capital, LLC, Putnam Holding Company and the City Investment Fund.

Economics of the Deals

We created two different types of financial models. One displays how rents have and need to continue to increase for the properties that have exited the program and become private ventures. The other model estimates necessary monthly rent increases for current Mitchell‐Lama units in the event that a purchase would occur. These models are broken down into the following three parts: standard buyout model, five‐year flip model and preservation model for each building. Each part shows how much rents would need to increase in order to support the proposed purchase prices’ debt service, annual operating expenses, taxes and debt coverage. The preservation model price was calculated based upon the amount of debt that the buildings could support with no post‐sale rent increase. All of the models use industry standard assumptions for loan terms and New York City averages when building‐specific information was unavailable.

Figure 5 is an example of the financial models that we have created in order to demonstrate how we analyzed the ways in which these deals are structured. High purchase prices, which often require great rent increases in order for the property to receive the expected debt coverage and cash on cash returns for the investors, are typical.

Each of the four bought‐out models demonstrates an immediate shift toward market‐rate housing for middle to upper‐income families, those earning 66% to 132% of Area Median Income, yet three of these four also currently fall short of projected rent increases necessary for the assumed 1.2 debt coverage ratio, which results in a 16.4% to 18.4% cash on cash return for the investors. Rent increases for these buildings over the past five years range from 16% to 234% with additional 7% to 31% increases necessary in the near future in order to pay for the buildings’ investments. These rent increases may lead to tenant displacement.

The proposed models for the buildings that are pending buyouts have similarities across the deals. The current expected rents based upon the Rent Guidelines Board’s annual increases13 are lower than the actual monthly rent currently collected from Castleton Park tenants. General Sedgwick and Lakeview tenants, on the other hand, pay $52 and $20 less,

12 ACRIS 13 Rent Guidelines Board annual increases were applied to each building’s average rent in January 2006.

14 respectively, than the expected amount,14 proving that housing has remained affordable in these two buildings.

We decided upon appropriate purchase prices on a case‐by‐case basis. Both Castleton Park and General Sedgwick’s prices ended up being based upon prices that UHAB recommended. Lakeview’s assumed purchase price is the assessed market value of the building for 2007‐ 2008. Even though the building’s mortgage is roughly half that amount, we decided to use it anyways because of the building’s proximity to Central Park in Manhattan, which drives prices up. If any of these buildings was bought for the assumed prices, rents for each unit would have to increase by anywhere from $622 to $1,462 per month.

The five year flip model uses the same original purchase price and industry standards, but looks at the rent increases necessary five years later if the first purchaser resells the building for a 20% Internal Rate of return (IRR). Current rents increase by 86% to 193% by 2013 in this model. Both the standard buyout and five year flip buyout models represent deals with high potential of tenant displacement due to extreme rent increases in some cases.

The preservation model should have a low impact on tenant relocation because it works backwards from the current tenants’ rent to calculate the purchase price and allows for a full tax abatement due to its preservation of low‐income housing. Lakeview’s and General Sedgwick’s operating expenses are reduced by 25% under the assumption that the preservation partner would more conservatively manage the buildings. Castleton Park’s operating expenses of $532 per unit per month are already slightly below the city’s 2005 average of $59215 and therefore were not adjusted. All three buildings’ preservation models require a lower purchase price than the ones suggested by the other two models in order to maintain the current roll. This is why organizations such as UHAB must obtain outside subsidies such as low‐interest loans and government grants as well as forgiveness of pre‐sale outstanding debt in order to have a competitive edge in the explosive New York real estate market.

14 based upon average monthly rent for the building 15 mean operating costs for New York City rent-stabilized buildings, excluding core Manhattan, from Housing NYC: Rents, Markets and Trends 2007

15 Figure 5: Financial Model for General Sedgwick

Year Built 1969 Block 02880 Lot 0017 # of Units 101

Standard Buyout 5 Year Flip Model (2013) Preservation Model

Equity1 20% 20% 20% Debt1 80% 80% 80% Amortization (Lease Term)1 30 30 50 Interest Rate on Loan2 6.27% 6.27% 6.27% Debt Coverage Ratio1 1.20 1.20 1.20 Area Median Income (AMI)3 $71,300 $71,300 $71,300

Entire Building Per Unit Entire Building Per Unit Entire Building Per Unit Avg Monthly Rent Collected January 20064 $114,103 $1,130 $114,103 $1,130 $114,103 $1,130 % of AMI needed to afford unit 63% 63% 63%

Expected Current Rent5 $1,213 $1,326 $1,213 Household Income Required to afford unit $48,523 $53,023 $48,523 Proposed Purchase Price9 $9,000,000 $89,109 $10,758,254 $106,517 -63% $3,366,607 $33,333 Debt $7,200,000 $71,287 $8,606,603 $85,214 $2,693,285 $26,666

Annual Debt Payment $533,104 $5,278 $637,252 $6,309 $176,615 $1,749 Annual Operating Expenses6 and 7 $1,328,380 $13,152 $1,539,957 $15,247 $996,285 $9,864 Annual Taxes5, 6 and 10 $483,084 $4,783 $577,460 $5,717 $0 $0

Gross Rent Needed for 1.2 Debt Coverage $2,813,482 $27,856 $3,305,603 $32,729 $1,407,480 $13,935

Avg Monthly Rent Currently Collected6 and 7 $117,290 $1,161 $135,971 $1,346 $117,290 $1,161 Avg Monthly Rent Needed for Debt Coverage $234,457 $2,321 $275,467 $2,727 $117,290 $1,161 Shortfall in Rents ($117,167) ($1,160) ($139,496) ($1,381) ($0)

% of AMI needed to afford unit after purchase 130% 153% 65% Household Income Required to afford unit $92,854 $109,096 $46,451

Current Outstanding Debt8 ($5,000,000) ($5,000,000) ($5,000,000) Proposed Purchase Price $9,000,000 $10,758,254 $3,366,607 Difference $4,000,000 $5,758,254 ($1,633,393)

Cash Flow $468,914 $550,934 Cash on Cash Return 26.05% 25.61%

Original Purchase is $9,000,000 25% Reduction in Annual Operating Expenses with a 20% Internal Rate of Return Price Difference from Standard Buyout 1Assumptions based upon industry standards 2New York City Rent Guidelines Board Housing NYC: Rents, Markets and Trends 2007 3FannieMae HUD Higher AMI Lookup 4Building specific data from the New York State Division of Housing and Community Renewal 2007 Annual Report Mitchell-Lama Housing Companies in New York State 52006 average monthly rent increased by the New York City Rent Guidelines Board's annual allowable rate 61520 Sedgwick Associates Financial Statement & Supplementary Information 2006 7Adjusted for Inflation 3% per year 8According to the Urban Homesteading Assistance Board 9Proposed purchase price for property 10Assumptions that taxes are paid for a buyout and abated for a Preservation Model

Investment by New York City Pension Funds

New York City and New York State pension funds are investing in private equity funds that are purchasing buildings that have opted out of the Mitchell‐Lama program. The New York City Comptroller serves as a member of the Board of Trustees of four of the five city pension funds and is the investment advisor to and custodian of the five funds.16 The five funds are The New York City Employees’ Retirement System (NYCERS), the Teachers’ Retirement System of the City of New York (TRS), the New York City Police Pension Fund Subchapter Two (POLICE), the New York City Fire Department Pension Fund (FIRE) and the New York City Board of Education Retirement System (BERS). Each board establishes an asset allocation policy and defines investment objectives and investment decisions are

16 www.comptroller.nyc.gov/bureaus/van/index.asp

16 made independently through each funds’ board of trustees. The Bureau of Asset Management (BAM) assists the pension funds in selecting investment advisors and consultants. Overall, the funds invest their money in three different types of investments; US and foreign equities, US Fixed Income Products and Economically Targeted Investments.

The Mitchell‐Lama units were classified as economically targeted investments and the city pension funds invested in City Fund Management Limited and Tishman Speyer, which then invested in the Mitchell‐Lama buildings. The Townsend group is a due diligence consultant that works with the pension funds to asses potential investments. After analysis of proposed investments, the Townsend group recommends to the trustees of the pension fund boards, their investment recommendation. The trustees vote on the decision after interviewing the general partners of the company/developer to be invested in. The process is all private and typically, the Trustees support recommendations of the Townsend group, rarely do they disagree. Once the necessary forms are filled out, the pension fund wires the investment payment to the investment fund(s).

We spoke with Joyce Miller, former Director of Real Estate Investments for the New York City Pension Funds within the New York City Comptroller’s office. She explained that the origination of the pension fund involvement in purchasing Mitchell‐Lama buildings arose from tenants who approached the comptroller’s office in 2003, asking for help to save their buildings that were timing out of the program. The intention was to just invest in New York City properties mainly in the boroughs outside of Manhattan and this was seen as a smart investment because it was good for the city economy. Initially they just worked with Mitchell‐Lama units that were already slated to be privatized. The original owners of the buildings sold their buildings to Putnam Investments and then sold them to the city investment fund. There is a targeted level of return set by each pension board and it is typically 7‐8%. If the investment is considered to be of higher risk, this expected level of return increases. The Townsend group provides quarterly reports on all of the investments and this is reported to the pension board members. It is unclear if the pension funds still invest in Mitchell‐Lama units but despite current assumptions of their involvement in the financial deals, the original intent of the funds was to help preserve the affordability of the units.

The interconnectedness of the developers and political players is highly complex. Miller expressed that “the fund managers know the developers very well and therefore have access to the deals.” Pension fund investments in real estate and other economically targeted investments are very common. For example, the California Pension fund which is the largest in the nation has assets totaling $244.7 billion as of January 31, 2008. The California fund has the highest returns in the portfolio.17 The California pension fund invests in five types of investments; Global equity investments, Inflation‐Linked Assets, Alternative Investments and real estate investments.18

17 Joyce Miller Interview 2/22/08 18 https://www.calpers.ca.gov/index.jsp?bc=/investments/policies/inv-asset-classes/home.xml

17 The Importance of Section 8

When rents increase at the high rates that the models project, tenants are at risk of being displaced, especially low‐income people who do not receive Section 8 vouchers.18 As Table 4 demonstrates, certain buildings, such as General Sedgwick, have a large percentage of tenants who depend upon Section 8 assistance in order to pay their rent. The number of tenants in General Sedgwick receiving vouchers has more than doubled since 1985, from 26% to 61%, with a sharp increase between 2002 and 2003 from 40% to 63%. Riverside Park Community and Robert Fulton Terrace have had no more than 10% of the tenants receiving Section 8 vouchers. The data for Riverside Park Community, Robert Fulton Terrace, and Undercliff for 2006 are not available. The data for Undercliff in 1985 is not available.

Table 4: Percent of Occupied Units Receiving Section 8 Subsidies 198 199 200 200 200 Building (#units) 5 5 2 3 6 Castleton Park (454) 32% 37% 31% 32% 32% General Sedgwick (101) 26% 27% 40% 63% 61% 18 18 Lakeview (446) % % 18% 19% 18% Ocean Towers (360) 16% 40% 36% 36% 39% Riverside Park Community (1190) 2% 10% 10% 8% NA Robert Fulton Terrace (319) 5% 10% 7% 8% NA Undercliff House (124) NA 4% 12% 10% NA Source: DHCR

Mitchell‐Lama buildings are where many of the city’s low‐income service employees live. As buildings are being bought out, tenants have expressed resistance by new owners to accept Section 8 tenants. Legislation was recently passed to protect tenants from such discrimination, however the effects of regulation are yet to be seen. Without acceptance of government assistance, many tenants are displaced from their homes. Many look to Section 236 funds to fill that gap.

Section 236 Section 236 of the National Housing Act,19 as enacted in 1968, provides a subsidy to reduce mortgage interest payments and effectually covers certain tenant rent increases. The maximum subsidy available to a project was set at the difference between the monthly payment for principal, interest, and mortgage insurance premium on the outstanding mortgage at the market rate of interest and the monthly payment that would be required under a mortgage bearing an interest rate of 1%. A basic rental charge that was deemed sufficient to meet operating expenses plus debt service expenses at the 1% interest rate was determined for each unit. Every tenant is required to pay the basic rental charge or up

19 http://www.hud.gov/offices/hsg/mfh/map/actloan/activesec236proj.cfm

18 to 30% of income, whichever is higher. Contract approvals for new projects were discontinued in January 1973, except for "bona fide" commitments outstanding at that time. In addition, contracts approved prior to termination of the Program could be amended.

According to HUD, buildings not protected under Section 236, such as General Sedgwick, do not qualify for enhanced vouchers,20 providing tenants in non‐rent‐stabilized buildings with basically no protection from exorbitant rent increases after the building moves out of the Mitchell‐Lama Program. This continued transition from affordable housing for low‐ income and middle‐income people to a niche market for upper‐middle class residents may imply displacement of key workers from the city.

New York City Housing Policies

There are state rent control laws and city rent control laws, state rent stabiliz ation laws and city rent stabilization laws, all of which have been rewritten and revised over the years, To further complicate the matter, both the city and state laws sunset at the same time, creating instability in the affordable housing market. The debate over the laws, which ''sunset,'' or expire, every two years, has become a ritual test of strength between the Democratically controlled Assembly, which has generally favored a broader application of the laws, and the Republican‐held Senate, which has taken a more conservative approach to housing issues21.

New York City Local Law 79 The City Tenant Empowerment Act, which subsequently became Local Law 79, was first passed by the New York City Council on June 23, 2005, and then enacted, overriding Mayor Bloomberg’s veto, on August 14, 2005. According to its terms, the legislation became effective on November 15, 2005. The legislation has been in limbo since that time as the City’s Department of Housing Preservation and Development (HPD) failed to issue implementing regulations as instructed by the legislation. The Real Estate Board of New York (REBNY) brought a lawsuit seeking to enjoin the e nforcement of the legislation.22

The legislation sought to address the “increasing scarcity in affordable housing” by imposing additional restrictions on owners of certain multi‐family residential developments, including those developed under the following programs: (i) Mitchell‐Lama and occupied on or after January 1, 1974; (ii) Project‐based Section 8; and (iii) HUD Sections 202, 207, 221, 232, and 236. The legislation required such owners to give 12 months’ notice to tenants before they took any action that would terminate a project’s participation in the applicable housing program. During the 12‐month notice period, a

20 Enhanced vouchers are also known as preservation vouchers or sticky vouchers. These section 8 vouchers are “sticky” because they stick with residents, who can move out and take the vouchers with them. http://www.nhtinc.org/policy/presglossary.asp 21 http://query.nytimes.com/gst/fullpage.html?res=9B0DE5DB1E3CF932A35750C0A961948260 22 http://www.thevillager.com/villager_161/realestateboardchallenges.html

19 “tenant‐approved entity” must have been afforded the first opportunity to purchase the building and/or a right of first refusal in response to a bona fide offer from another prospective purchaser. The legislation further provided that, even if the tenants elected not to purchase the building, when a conversion occurs, the owner was required to allow the current tenants to remain in their respective dwelling units for the longer of (i) six months from the effective date of the conversion or (ii) until the tenant’s lease expires, and at the same terms and conditions as before such conversion23.

In two distinct but related decisions handed down on April 11, 2007, Judge Marilyn Schafer of the Supreme Court of the State of New York held that the legislation is void and enjoined the City of New York, the Council, and HPD from enforcing the legislation. In the decisions, Real Estate Board v. City of New York and Mother Zion Tenant Association v. Donovan, the court reviewed the state Mitchell‐Lama and Urstadt laws and the relevant HUD statutes, and concluded that the legislation was preempted by all three. With respect to the Mitchell Lama statute, the court held that, since the law explicitly allows Mitchell Lama projects to exit the program after 20 years, the legislation impermissibly “imposes additional restrictions on rights granted by State law.” In addition, the court found the legislation preempted by the state’s Urstadt Law, which prohibits localities from subjecting previously unregulated or decontrolled properties to rent restrictions unless such is first approved by the State Division of Housing and Community Renewal24.

While the legislation is dead for now, the final story may not have been written. The court was clearly moved by the plight of low‐income tenants and characterized both its decisions as “reluctant.” The court pointedly characterized as a “failure” the state’s refusal to enact similar legislation or allow the city to do so, and urged the New York State Legislature to take “immediate action” to protect low‐ and moderate‐income residents. This may spur new initiatives by the state and/or city25.

Local Successes

HUD saves 454 units of affordable housing On December 20th the U.S. Department of Housing and Urban Development applied Section 250 of the National Housing Act to Castleton Park, ensuring the continued affordability of the development. Castleton Park is a 454‐unit complex in St. George and one of only two Mitchell‐Lama developments on Staten Island. Under Section 250, the current owner must set aside funding for rehabilitation and repairs of the buildings, any rent increases must be approved by HUD within affordability guidelines and all potential buyers of the complex must be approved by HUD. Under Section 250, all rent changes must be approved by HUD within affordability guidelines. Ownership changes must be agreed to by HUD and Owners must commit to building improvements26.

23 http://www.nixonpeabody.com/publications_detail3.asp?ID=1804 24 http://www.nixonpeabody.com/publications_detail3.asp?ID=1804 25 http://www.nixonpeabody.com/publications_detail3.asp?ID=1804 26 www.save-ml.org

20

HPD rejects sale of Building On Feb. 28, 2008 New York City’s Department of Housing Preservation and Development informed landlords of a 100‐unit building at 1520 Sedgwick Avenue that “because the proposed purchase price is inconsistent with the use of property as a Mitchell‐Lama affordable housing development,” the department could not approve the transfer of the building from the current owners to 1520 Sedgwick GP LLC, because the financing of the sale was not viable under current rent restrictions27.

Other City Models

California State Law California Government Code Section 65863.10 requires owners of specified federally‐ assisted projects to provide Notices of Intent to prepay a federally‐assisted mortgage, terminate mortgage insurance, or terminate rent subsidies or restrictions at twelve and six months, unless the projects are exempted. These Notices of Intent must be sent to all affected tenant households and to affected public agencies. Affected public agencies include the City or County where the project is located, the local Public Housing Authority, and the Department of Housing and Community Development (HCD). Pursuant to California Government Code Section 65863.11, owners of government‐assisted projects cannot terminate subsidy contracts, prepay a federally‐assisted mortgage, or discontinue use restrictions without first providing an exclusive Notice of Opportunity to Submit an Offer to Purchase. This Notice is required to be sent to Qualified Entities at least twelve months prior to sale or termination of use restrictions. Qualified Entities are nonprofit or for profit organizations or individuals that agree to maintain the long‐term affordability of projects28.

Portland City Council Ordinance In Portland Oregon, a city ordinance has created a partnership between the city, the property owner, the taxpayers, from which subsidies come from and the low‐income tenants who reside in the property. The ordinance, brought to the council by Commissioner Gretchen Kafoury, requires owners of Section 8 housing who are preparing to sell or switch to market rents to give tenants 180 days notice; provide monetary moving assistance; and consider a market rate offer for the property by the city. If the owner rejects the offer, he or she must pay a $30,000 per‐unit fine.

In addition, the ordinance requires existing low‐income housing projects subsidized by the city to give 90 days notice to the city before selling their buildings. As well, under the ordinance, all new projects subsidized by the Portland Development Commission will have to commit to 60 years of affordability. Most owners feel however that these laws are unfair because they entered into a contract with the government in which there was an exchange

27 http://cityroom.blogs.nytimes.com/2008/03/03/city-rejects-sale-of-building-known-as-hip-hops-birthplace/ 28 http://www.hcd.ca.gov/hpd/hrc/tech/presrv/

21 of value on both sides and at the end of the contract, the government imposes additional restriction not part of the original exchange of value29.

Problem with peculiar and unusual circumstances What we have found time and time again is that these ban‐aid approaches to short term fixes, undermine long‐term solutions.

Recommendations

UHAB should utilize both short‐term and long‐term solutions to preserve affordable housing. Short‐term strategies should be aimed at saving the currently existing Mitchell‐ Lama units. Long‐term strategies should be implemented to ensure that future city and state financing programs support permanent affordable housing by encouraging all parties involved ‐ tenants, government and regulatory agencies, affordable housing advocacy organizations, developers, and lenders ‐ to become proactive.

Short term • UHAB should advocate for the New York City Department of Housing Preservation and Development (HPD) and the Housing Development Corporation (HDC) to vet the real estate deals involving sale of affordable housing units. UHAB should monitor these regulatory agencies on an on‐going basis to ensure that the vetting processes are being carried out. Refer to Appendix A for the list of expiring Mitchell‐Lama rental buildings.

• UHAB should meet with the lenders that underwrite the deals involving the sale of affordable housing units and inform and educate them on the negative impacts of their activities on the preservation and availability of affordable housing. UHAB should emphasize that these activities could be detrimental to their credibility as responsible lenders. UHAB should also emphasize the incentives of underwriting deals that ultimately preserve affordable housing, and the long term benefits for the lenders. Refer to Appendix C for the list of lenders involved in transactions that have resulted in the loss of affordable housing.

• Afte the process of informing and educating the lenders, if thr ey still continue to participate in harmful deals, UHAB should utilize the media to expose their activities.

• We also recommend that UHAB continue to meet with the Comptroller’s Office on an on‐ going basis to ensure that public pension funds are not being used in these deals.

Long term • UHAB should develop and implement the policies and mechanisms for the financing of affordable housing for qualified non‐profit buyers. The policies should include

29 http://portland.bizjournals.com/portland/stories/1998/09/14/story2.html

22 restrictions on the internal rate of return and a purchase option to buy out before the end of the mortgage term. The policies should set the purchase price of a property based on a capped internal rate of return. The purchase price should be higher than the restricted value of the property, but at a price where qualified buyers can finance them through existing finance programs to keep them affordable. This can be accomplished through collaboration with another non‐profit organization, such as the Association for Neighborhood Housing and Development (ANHD)

• UHAB should collaborate with for‐profit developers to implement finance strategies to preserve affordable housing. The possible developers to collaborate with are those that have participated in preserving Mitchell‐Lamas through the HDC mortgage restructuring and repair/loan program. A summary of this HDC program and a list of participating management companies are listed in Appendix E.

23 APPENDICES

Appendix A: List of Mitchell­Lama Rentals Expiring Out of the Program

Appendix B: Loss of Mitchell­Lama Units by Borough

Appendix C: Lenders Involved in Buyouts or Pending Buyouts

Appendix D: HDC Preservation of Mitchell­Lama Properties: Mortgage Restructuring and Repair Loan Programs

Appendix E: Development and Management Companies Participating in the HDC Preservation of Mitchell­Lama Properties: Mortgage Restructuring/Repair Loan Programs

Appendix F: Average Rent Stabilized Unit Rent

Appendix G: Ten­Year Rent Increases

Appendix H: Buyout Transactions

Appendix I: Financial Models

Appendix J: Tenant Association Contacts and Meeting Dates

Appendix K: Resident Survey

24

Appendix A: List of Mitchell­Lama Rentals Expiring Out of the Program as of 2006

Bronx Date Pending Management Company Clinton Towers 12/16/05 Unlisted by NYC HPD Park Lane 5/12/05 Grenadier Realty 1230 Pennsylvania Ave. Brooklyn, NY 11239 718‐642‐8700 Twin Parks N.W. 4,5,11 12/16/05 Unlisted by NYC HPD Twin Parks S.E. 3,4 12/16/05 Unlisted by NYC HPD

Brooklyn Brookdale Hospital 2/1/06 Unlisted by NYC HPD Tivoli Towers 4/6/05 Lentnek Management Co. 2770 Ocean Ave. Brooklyn, NY 11229 718‐332‐8600

Manhattan Bethune Towers 3/31/04 Dalton Management Comp. LLC 3 Park Ave. Suite 2800 New York, NY 10016 212‐679‐9800 East 106th Street 5/4/04 Unlisted by NYC HPD Island House 6/29/05 RY Management 1619 3rd Ave. New York, NY 10036 Lionel Hampton Houses 12/16/05 Unlisted by NYC HPD Westview 1/31/05 RY Management 1619 3rd Ave. New York, NY 10036 Westview Apartments 11/30/05 Unlisted by NYC HPD

Queens Court Plaza 3/31/04 ETC Management Corp. 71 West 23rd St., 6th Fl. New York, NY 10010‐4205 212‐727‐0700/0800 Meadow Manor 5/24/05 Unlisted by NYC HPD Source: HPD, NYC Comptroller’s Office

25

Appendix B: Loss of Mitchell­Lama Units by Borough

Percent Units Lost as of 2006

Percent of Original Units Remaining in Program as of 2006

Manhattan Queens

35% 46% 54% 65%

Bronx Brooklyn

16%

49% 51%

84%

Source: DHCR, NYC Comptroller’s Office

These graphs compare the number of Mitchell‐Lama rental units that each borough has lost as of 2006. Manhattan has the greatest lost, with 65% of its units, followed by Queens, Bronx, and Brooklyn, with 54%, 49%, and 16% respectively. The table on page 26 shows the number of original units in each borough, the number of units that exist as of 2006, and the number of units that each borough has lost.

26

Units Lost in Each Borough as of 2006 Percent Original Existing Units Units Borough Units Units Lost Lost Bronx 21,755 11,185 10,570 49% Brooklyn 18,044 15,144 2,900 16% Manhattan 25,219 8,832 16,387 65% Queens 8,176 3,756 4,420 54% Staten Island 988 988 0 0% NYC Total 74,182 39,905 34,277 46%

Breakdown of Total Mitchell­Lama Rental Units Lost by Borough

Total Units Lost = 34,277

13% 2,900 units 31% Bronx 10,570 Brooklyn Manhattan Queens 8% 48% 4,420 units 16,387 units

Source: DHCR, NYC Comptroller’s Office

This graph shows the breakdown in percent by borough of Mitchell‐Lama rental units that have left the program out of the 34,277 units lost.

27

Appendix C: Lenders Involved in Buyouts or Pending Buyouts

Lender Contact Information Building(s) CIBC (888)947‐7736, dial 4 for Fordham Towers, Robert Fulton Terrace Investments Eurohypo AG New York Ben Marciano 10 Stanton Ave. Branch (212) 479‐5700 German American (212) 250‐2500 Independence Plaza, Riverside Park Community, Schomburg Capital Corporation 60 Wall St., 10th Floor, NY, NY Plaza (Deutsche Bank) 10005 LaSalle Bank National (312) 904‐0504 Independence Plaza (as trustee for German American Capital), Association [email protected] Robert Fulton Terrace New York Community (516) 683‐4408 Bruckner Towers, Boulevard Towers, Central Park Gardens, Bank Eastchester, Prospect Towers, Schomburg Plaza, 210 Stanton Ave. North Fork Bank Stevenson Towers, Undercliff House, Westwood (now Capital One Bank) Washington Mutual (877) 926‐8273 Ocean Towers, Clinton Towers, Lionel Hampton Houses, Robert Fulton Terrace Wells Fargo Bank 10 Stanton Ave. (as trustee for Eurohypo AG) National Association

28

Appendix D: HDC Preservation of Mitchell­Lama Properties: Mortgage Restructuring and Repair Loan Programs

In 2004, HDC implemented two programs with the goal of preserving Mitchell‐Lama properties: the mortgage restructuring program and the repair/loan program. In the mortgage restructuring program, owners and cooperative corporations can restructure their existing first and second HDC mortgages. They save in the form of reduced debt service payments and/or receive funds to repair their property. No interest is charged on the second mortgage, and it is no due and payable until prepayment or 90 days after the termination of the first mortgage. The repair loan program offers Mitchell‐Lama owners loans to make necessary capital improvements on buildings in need of repair. Both programs require that owners must remain in the Mitchell‐Lama program for an additional 15 years.

Since the implementation of the program, over 14,000 rental and co‐op units have participated out of the 27,681 units in developments that are eligible for this program.30 As of 2005, 4,112 rental units and 8,958 co‐op units have been preserved through this program.

Number of Units Preserved by HDC Refinance and Repair Loan Program as of 2005

Borough Rental Co­op Total Bronx 2,293 775 3,068 Brooklyn 716 984 1,700 Manhattan 569 7,200 7,769 Queens 0 0 0 Staten Island 534 0 534 NYC Total 4,112 8,959 13,071

Source: NYC Comptroller’s office

The goal of this program was for all owners to be able to participate. Because of the rapidly accelerating housing market in NYC in 2004, it was more attractive for owners in high market areas, such as Manhattan, to buyout of the Mitchell‐Lama program, which is why only 569 rental units were preserved in that borough. This preservation program was attractive to co‐ops and to rentals that had a lot of debt and are in low‐market distressed areas.31

30 Affordable No More 2006, Interview with HDC 31 Interview with HDC

29

Appendix E: Developments and Management Companies Participating in the HDC Mortgage Restructuring and Repair/Loan Programs

Development Name Managing Agent Brooklyn Co­ops Atlantic Terminal I Douglas Elliman Property Management 675 3rd Ave. New York, NY 10017 718‐636‐1690 Atlantic Terminal II Prestige Management 3485 East Tremont Ave. Bronx, NY 10465 718‐822‐7377 Brighton House ARCO Wentworth 3646 Nostrand Ave. Brooklyn, NY 11229 Cadman Plaza North Peter Burgess Management 25 Washington St., Suite 627 Brooklyn, NY 11201 718‐875‐4050 Cadman Towers Tudor Realty Services 250 Park Avenue South New York, NY 10003 212‐219‐9775 Contello Towers III Saparn Realty 450 West 42 St., Suite 2D New York, NY 10036 212‐629 ‐8288 Crown Gardens RY Management 1619 3rd Ave. New York, NY 10128 212‐534‐7771 Brooklyn Rentals Atlantic Plaza Douglas Elliman Property Management 249 Hopkinson Avenue Brooklyn, NY 11233 718‐636‐1690 Essex Terrace Shinda Management 217‐02 Jamaica Avenue Queens Village, NY 11428 718‐740‐0416 Tivoli Towers Lentek Management Co. 2770 Ocean Avenue Brooklyn, NY 11229

30

718‐332‐8600 Queens Co­ops Dayton Towers ARCO Wentworth 4 Executive Blvd., Suite 100 Suffern, NY 10901 845‐358‐2400 Forest Park Crescent Fashion Institute of Technology 210 West 27th St., 7th Floor New York, NY 10001 212‐217‐7903 Queens Rentals Bay Towers American Shelters Corp. 326 Third Avenue, 2nd Fl. Lakewood, NJ 08701 718‐474‐2226 Bridgeview III Apartments TUC Management Company 4 Executive Blvd., Suite 100 Suffern, NY 10901 845‐368‐2400 Court Plaza ETC Management Corp 71 West 23rd Street, 6th Fl. New York, NY 10010‐4205 212‐727‐ 0700/0800 Goodwill Terrace Goodwill Terrace 4‐21 27th Avenue Astoria, NY 11102 718‐932‐4200 Seaview Towers AIMCO 2911 West 36th Street, 2nd Fl. Brooklyn, NY 11224 718‐265‐7018 Bronx Co­ops Corlear Gardens Metro Management Development 42‐25 21st Street L.I.C., NY 11101 Kingsbridge Arms Total Realty Associates 733 Yonkers Ave. Yonkers, NY 10704 914‐964‐0554 Scott Towers Metro Management Development 42‐25 21st Street L.I.C., NY 11101 Woodstock Terrace Prestige Management 3485 East Tremont Ave.

31

Bronx, NY 10465 718‐822‐7377 Bronx Rentals Albert Einstein Staff Housing Unlisted by NYC HPD Carol Gardens Grenadier Realty 1230 Pennsylvania Avenue Brooklyn, NY 11239 718‐642‐8700 Keith Plaza R/Y Management 1619 Third Avenue New York, NY 10128 212‐534‐7771 Kelly Towers R/Y Management 1619 Third Avenue New York, NY 10128 212‐534‐7771 Kingsbridge Apartments 170 Kingsbridge Pistilli, LLC 37‐08 28th Avenue, Suite 300 Astoria, NY 11103 718‐204‐1600 Montefiore Staff Housing 2 Unlisted by NYC HPD Park Lane Grenadier Realty 1230 Pennsylvania Avenue Brooklyn, NY 11239 718‐642‐8700 Stevenson Commons Grenadier Realty 1230 Pennsylvania Avenue Brooklyn, NY 11239 718‐642‐8700 Manhattan Co­ops Columbus Park Towers A.D.A.M., Inc. 495 Broadway 6th Fl. New York, NY 10012 212‐651‐0615 Confucius Plaza 33 Bowery Street New York, NY 10002 212‐219‐9775 East Midtown Plaza Cooper Square Realty 6 East 43 Street New York, NY 10017 212‐634‐8907 1199 Housing Marian Scott Real Estate 107‐129 East 126 Street New York, NY 10035

32

212‐996‐0200 Esplanade Gardens Prestige Management 3485 E. Tremont Avenue Bronx, NY 10465 718‐822‐7377 Goddard‐Riverside Cooper Square Realty, Inc. 6 East 43rd Street New York, NY 10017 212‐634‐8900 Gouverneur Gardens Excelsior Management 70 West 36th Street, Suite 602 New York, NY 10018 212‐630‐0212 Jefferson Towers Tudor Realty Services 33 Bowery Street New York, NY 10002 212‐219‐9775 Lincoln‐Amsterdam Arco Management Corp. 4 Executive Blvd., Suite 100 Suffern, NY 10901 845‐368‐2400 Riverbend Prestige Management 3485 East Tremont Avenue Bronx, NY 10465 718‐822‐7377 R.N.A. House Maxwell‐Kates, Inc. 9 East 38th Street, 6th Floor New York, NY 10016 212‐684‐8282 Rosalie Manning Maxwell‐Kates, Inc. 9 East 38th Street, 6th Floor New York, NY 10016 212‐684‐8282 Ruppert House Unlisted by NYC HPD St. Martin’s Towers ARCO Wentworth 3646 Nostrand Ave. Brooklyn, NY 11229 718‐332‐0777 Strykers Bay AKAM Associates 8 West 38th St., 7th Floor New York, NY 10018 212‐986‐0001 Tri Faith Maxwell‐Kates, Inc. 9 East 38th Street, 6th Floor

33

New York, NY 10016 212‐684‐8 282 Village East Towers Metro Management 42‐25 21st St. L.I.C., New York, NY 11101 718‐706‐7755 Washington Square Southeast MHR Management 1191 Broadway Brooklyn, NY 11221 718‐665‐4398 Manhattan Rentals Beekman Staff Unlisted by NYC HPD Bethune Towers Dalton Management Comp. LLC 3 Park Ave. Suite 2800 New York, NY 10016 212‐679‐9800 Clinton Towers P&L Management & Consulting P.O. Box 9 Rte. 22 Brewster, NY 10509 212‐489‐4049 Hamilton House Find Aid For The Aged, Inc. 160 West 71st Street New York, NY 10023 212‐874‐0300 Phipps Plaza East Phipps Houses Services 902 Broadway, 13th Fl. New York, NY 10010 212‐243‐9090 Tanya Towers AAA Management 495 Broadway 6th Floor New York, NY 10012 212‐941‐9500 Trinity House Maxwell‐Kates, Inc. 9 East 38th Street, 6th Floor New York, NY 10016 212‐684‐8282 Westview Apartments Unlisted by NYC HPD Staten Island Rentals Arlington Terrace Grenadier Realty 1230 Pennsylvania Ave. Brooklyn, NY 11239 718‐642‐8700 Sources: HDC, NYC HPD, NYC Comptroller’s Office

34

Appendix F: Average Rent­Stabilized Unit Rent

Average Monthly Rents Collected from Rent Stabilized Properties 1995 to 2005

Borough 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Bronx $477 $485 $503 $508 $527 $560 $594 $608 $636 $674 $657 Brooklyn $495 $509 $531 $536 $556 $589 $616 $643 $668 $698 $714 Manhattan $731 $765 $844 $892 $929 $967 $1,023 $1,081 $1,071 $1,112 $1,131 Queens $546 $560 $575 $609 $630 $684 $696 $745 $734 $790 $796 NYC $591 $611 $654 $681 $706 $744 $781 $821 $816 $855 $859

1999 2000 2001 2002 2003 2004 2005 Core Manhattan $1,066 $1,112 $1,182 $1,262 $1,245 $1,275 $1,320 Upper Manhattan $597 $633 $670 $683 $693 $750 $810 Source: NYC Rent Guidelines Board

This table and graph show the average monthly rent collected from Rent Stabilized Properties in New York City from 1995 to 2005. Manhattan has the highest average rent, followed by Queens, Brooklyn, and the Bronx. The breakdown between Core and Upper Manhattan is only available from 1999.

35

Rent Increases in Rent Stabilized Buildings from 1995 to 2005

$1,200 $1,150 $1,100 $1,050 $1,000 Bronx $950 Brooklyn $900 Queens Rent $850 $800 NYC $750 Manhattan $700 $650 $600 $550 $500 $450

Year

Source: NYC Rent Guidelines Board

Rent in NYC rent stabilized properties has increased 31% during the 10 year period from 1995 to 2005, from $591 to $859. Rent in rent stabilized properties in Manhattan has increased 35% during the same time period, from $731 to $1,131. Rent in The Bronx, Brooklyn, and Queens increased 27%, 31%, and 31% respectively, during this ten year period. In 2005, the rent in Manhattan was higher than rent in Queens, Brooklyn, and the Bronx by 30%, 37%, and 42% respectively.

36

Appendix G: Ten­Year Rent Increases

Percent increase in rent from previous year

Borough 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Bronx 1.6% 3.6% 1.0% 3.6% 5.9% 5.7% 2.3% 4.4% 5.6% ‐2.6% Brooklyn 2.8% 4.1% 0.9% 3.6% 5.6% 4.4% 4.2% 3.7% 4.3% 2.2% Manhattan 4.4% 9.4% 5.4% 4.0% 3.9% 5.5% 5.4% ‐0.9% 3.7% 1.7% Queens 2.5% 2.6% 5.6% 3.3% 7.9% 1.7% 6.6% ‐1.5% 7.1% 0.8% NYC 3.3% 6.6% 4.0% 3.5% 5.1% 4.7% 4.9% ‐0.6% 4.6% 0.5%

2000 2001 2002 2003 2004 2005 Core Manhattan 4.3% 6.3% 6.8% ‐1.3% 2.4% 3.5% Upper Manhattan 6.0% 5.8% 1.9% 1.5% 8.2% 8.0% Core Manhattan : South of 96th Street on the East Side and 110th Street on the West Side Upper Manhattan: North of 96th Street on the East Side and 110th St on the West Side

Source: NYC Rent Guidelines Board

This table shows the percent increase in rent in rent stabilized buildings from the previous year, based on the average rent collected from rent stabilized properties each year. Manhattan has the largest range of rent increases. With the exception of 2002 to 2003, when the average rent collected in Manhattan decreased by 0.9%, rent in this borough has increased from 1.7% to 9.4% each year. The rent increases in Brooklyn have the lowest range, from 0.9% to 4.4% each year.

37

Appendix H: Buyout Transactions

38

39

40

Appendix I: Financial Models

Property Name Riverside Park Community Robert Fulton Terrace Ocean Towers Undercliff House Address 3333 Broadway 59 East 169 St 2401 Surf Ave 1655 Undercliff Ave Year Built 1975 1965 1972 1967 Block 02001 02610 07055 02880 Lot 9005 0012 0013 0115 # of Units 1193 320 360 124

Equity1 20% 20% 20% 20% Debt1 80% 80% 80% 80% Amortization (Lease Term)1 30 30 30 30 Interest Rate on Loan2 6.27% 6.27% 6.27% 6.27% Debt Coverage Ratio1 1.20 1.20 1.20 1.20 2007 Area Median Income (AMI)3 $71,300 $71,300 $71,300 $71,300 2002 AMI4 $63,600 $63,600 $63,600 $63,600

Entire Building Per Unit Entire Building Per Unit Entire Building Per Unit Entire Building Per Unit Avg Monthly Rent on 12/31/035 $839,243 $703 $239,009 $747 $361,814 $1,005 $95,737 $772 % of 2002 AMI needed to afford unit 44% 47% 63% 49%

Expected 2008 Rent6 $839 $891 $1,199 $921 Household Income Required to afford unit $33,578 $35,651 $47,973 $36,853 Sale Date8 Apr-07 Apr-07 Jan-07 Oct-07 Sale Price8 $278,433,291 $233,389 $23,836,735 $74,490 $30,478,000 $84,661 $7,879,400 $63,544 Debt $222,746,633 $186,711 $19,069,388 $59,592 $24,382,400 $67,729 $6,303,520 $50,835

Annual Debt Payment $16,492,657 $13,825 $1,411,940 $4,412 $1,805,327 $5,015 $466,727 $3,764 Annual Operating Expenses2 $9,835,092 $8,244 $2,142,720 $6,696 $3,427,389 $9,521 # $830,304 $6,696 Annual Taxes10 $0 $0 $360,595 $1,127 $0 $0 $150,829 $0

Gross Rent Needed for 1.2 Debt Coverage $31,593,298 $26,482 $4,698,306 $14,682 $6,279,259 $17,442 $1,737,432 $14,012

Avg Monthly Rent Received Currently $2,804,743 $2,351 7 $352,000 $1,100 7 $488,160 $1,356 9 $110,856 $894 11 Avg Monthly Rent Needed for Debt Coverage $2,632,775 $2,207 $391,525 $1,224 $523,272 $1,454 $144,786 $1,168 Difference in Rents $171,968 $144 ($39,525) ($124) ($35,112) ($98) ($33,930) ($274)

% of AMI needed to afford unit after purchase 132% 12 69% 82% 66% Household Income Required to afford unit $94,040 $48,941 $58,141 $46,705

Cash Flow $7,329,167 $783,051 $1,046,543 $289,572 Cash on Cash Return 13.2% 16.4% 17.2% 18.4%

1Assumptions based upon industry standards 2New York City Rent Guidelines Board Housing NYC: Rents, Markets and Trends 2007 3FannieMae HUD Higher AMI Lookup 4U.S. Department of Housing and Urban Development Estimated Median Family Incomes for FY 2002 5New York State Division of Housing and Community Renewal 2004 Annual Report Mitchell-Lama Housing Companies in New York State 62003 average monthly rent increased by the New York City Rent Guidelines Board's annual allowable rate 7According to building rental office 8ACRIS Online City Register 9Average Rent for Studio to Three-Bedroom apartment, according to the Tenant Association President 10Property Shark 11Survey of current building tenants 12AMI needed and cash flow for this building is based upon actual rent roll since it exceeds our estimated values 41

Narratives to Accompany Bought out Mitchell­Lama Financial Models

Riverside Park Community This building is located at 3333 Broadway, Harlem, NY 10031. The block is 02001 and the lot is 9005. Riverside Park Community has 1193 previous Mitchell‐Lama affordable housing units in the building and was built in 1975. In New York City, apartments are under rent stabilization if they are in buildings with six or more units built between February 1, 1947, and December 31, 1973. Tenants in buildings built before February 1, 1947, who moved in after June 30, 1971, are also covered by rent stabilization32. Riverside Park Community does not qualify for rent stabilization. On the other hand, according to the US Department of Housing and Urban Development (HUD)33 this building is protected under section 236 of the National Housing Act34, thereby qualifying tenants for enhanced vouchers35 after the building exited the Mitchell‐Lama Program. It is important to note that this building did not participate in the J‐51 program, so it was not protected by additional rent stabilization as a result of renovations or improvements.36 In December of 2003, average monthly rent was approximately $703 per unit. Increasing this amount by the New York City Rent Guidelines Board's annual allowable rates, the estimated monthly rent for 2008 is $839 per unit37. According to the rental office, however, current average monthly rent is approximately $2,351 per unit, a difference of $1,512.

This model compares the rent currently collected from the tenants of Riverside Park Community to the projected rent needed to support the buyout price. Since 2003, tenants have seen a rent increase 180% greater than what the Rent Guidelines Board

32 http://www.dhcr.state.ny.us/ora/progs/oraprogs.htm#underrs 33 Active Section 236 Projects, http://www.hud.gov/offices/hsg/mfh/map/actloan/activesec236proj.cfm 34 The Section 236 program, as enacted in 1968, provides a subsidy to reduce mortgage interest payments. The maximum subsidy available to a project was set at the difference between the monthly payment for principal, interest, and mortgage insurance premium on the outstanding mortgage at the market rate of interest and the monthly payment that would be required under a mortgage bearing an interest rate of 1 percent. A basic rental charge that was deemed sufficient to meet operating expenses plus debt service expenses at the 1% rate of interest was determined for each unit. Every tenant is required to pay the basic rental charge or up to 30% of income, whichever is higher. Contract approvals for new projects were discontinued in January 1973, except for "bona fide" commitments outstanding at that time. In addition, contracts approved prior to termination of the Program could be amended. 35 Enhanced vouchers are also known as preservation vouchers or sticky vouchers. These section 8 vouchers are “sticky” because they stick with residents, who can move out and take the vouchers with them. http://www.nhtinc.org/policy/presglossary.asp 36 The J-51 Program is administered by the NYC Department of Housing Preservation and Development (HPD) to encourage the renovation of residential properties by granting partial tax exemption and abatement benefits. Benefits vary, depending on the location of the property and the extent and nature of the improvements. http://www.nyc.gov/html/dof/html/property/property_tax_reduc_j_51.shtml 37 http://www.housingnyc.com/html/guidelines/apt.html

42

has approved in similar buildings, yet the current average monthly rent of $2,351 covers the cost of the mortgage and expenses for the building and to achieve the assumed 13% cash on cash return on their investment. Current residents need to be earning an average of 132% of the Area Median Income in order to afford38 their units, a much higher wage than those allowed in the Mitchell‐Lama units before the buyout. This demonstrates the next transformation of Riverside Park Community in its continuous shift away from affordable housing for low‐income families to housing for upper‐middle‐income earners.

Robert Fulton Terrace This building is located at 59 East 169 St. Bronx, NY 10452. The block is 02610 and the lot is 0012. Robert Fulton Terrace has 320 previous Mitchell‐Lama affordable housing units in the building and was built in 1965 and therefore is rent stabilized. According to HUD this building is not protected under section 236 of the National Housing Act so tenants did not qualify for enhanced vouchers after the building exited the Mitchell‐Lama Program. This building also did not participate in the J‐51 program, so it was not protected by additional rent stabilization as a result of renovations or improvements.39 In December of 2003, average monthly rent was approximately $747 per unit. Increasing this amount by the New York City Rent Guidelines Board's annual allowable rates, the estimated monthly rent for 2008 is $891 per unit. According to the management company, however, the rent for a one‐bedroom unit is $950, and a two‐bedroom unit is $1250.

Since 2003, tenants have seen a rent increase 23% greater than what the Rent Guidelines Board has approved in similar buildings, yet the current average monthly rent of $1,100 still falls short of the $1,224 necessary for the buyer to cover the cost of the mortgage and expenses for the building and to achieve the assumed 16% cash on cash return on their investment. This 11% increase is expected within the next year if our market‐based assumptions are correct, which demonstrates the transformation of Robert Fulton Terrace from affordable housing for some of New York’s lowest‐income families earning 47% of Area Median Income to housing for those earning a moderately‐low 69% of the Area Median Income.

38 30% of income designated for rent 39 The J-51 Program is administered by the HPD to encourage the renovation of residential properties by granting partial tax exemption and abatement benefits. Benefits vary, depending on the location of the property and the extent and nature of the improvements. http://www.nyc.gov/html/dof/html/property/property_tax_reduc_j_51.shtml

43

Ocean Towers This building is located at 2401 Surf Ave., Brooklyn, NY 11224. The block is 07055 and the lot is 0013. Ocean Towers has 360 previous Mitchell‐Lama affordable housing units in the building. It was built in 1972 and therefore is rent stabilized. However, according to HUD this building was not protected under section 236 of the National Housing Act so tenants did not qualify for enhanced vouchers after the building exited the Mitchell‐Lama Program. Also, this building did not participate in J‐ 51 program, so it was not protected by additional rent stabilization as a result of renovations or improvements. In December of 2003, average monthly rent was approximately $1,005 per unit. Increasing this amount by the New York City Rent Guidelines Board's annual allowable rates, the estimated monthly rent for 2008 is $1,199 per unit. Current monthly rent is quoted as $1,150 for a studio apartment, $1,200 for a one‐bedroom, $1,425 for a two‐bedroom, continuing to increase up to $2,050 for a five‐bedroom unit40, for an average41 of $1,356 per unit.

Since 2003, tenants have seen a rent increase 13% greater than what the Rent Guidelines Board has approved in similar buildings, yet the current average monthly rent of $1,356 still falls short of the $1,454 necessary for the buyer to cover the cost of the mortgage and expenses for the building and to achieve the assumed 17% return on their investment. This 7% increase is expected within the next year if our market‐based assumptions are correct, which demonstrates a further transformation over time of Ocean Towers from affordable housing for low‐income families in New York to housing for middle‐income citizens, those earning 82% of the Area Median Income.

40 According to the Tenant Association President’s conversation with the building’s site manager on January 29, 2008. 41 Average Rent for Studio to Three-Bedroom apartments, even though some four- and five-bedroom units do exist

44

Undercliff House This building is located at 1655 Undercliff Ave., Bronx, NY 10453. The block is 02880 and the lot is 0115. Undercliff House has 124 previous Mitchell‐Lama affordable housing units in the building and was built in 1967 and is therefore rent stabilized. However, according to HUD this building is not protected under section 236 of the National Housing Act so tenants do not qualify for enhanced vouchers after the building moves out of the Mitchell‐Lama Program. This building also did not participate in J‐51 program, so it will not be protected by additional rent stabilization as a result of renovations or improvements. In 2001 tenants received a 17% rent increase, and in 2003 tenants received another 18% rent increase. According to the tenant association president, the building was bought out of the Mitchell‐Lama Program on December 11, 2007 and tenants are being told that an increase of 3% will happen for those who have signed a one‐year lease and a 5.75% increase for those who sign a two‐year lease, the standard allowed by the current Rent Guidelines Board42. In December of 2003, average monthly rent was approximately $772 per unit. Increasing this amount by the New York City Rent Guidelines Board's annual allowable rates, the estimated monthly rent for 2008 is $921 per unit. According to a tenant survey, current median rent without any subsidies is only approximately $894.

Since 2003, tenants have seen a rent increase 3% less than what the Rent Guidelines Board has approved in similar buildings, yet the current average monthly rent of $894 still falls short of the $1,168 necessary for the buyer to cover the cost of the mortgage and expenses for the building and to achieve the assumed 18% return on their investment. This 31% increase is expected within the next year if our market‐based assumptions are correct, which demonstrates the transformation of Undercliff House from affordable housing for some of New York’s lowest‐income families earning 49% of Area Median Income to housing for those earning 66% of the Area Median Income.

42 http://www.housingnyc.com/html/guidelines/orders/order39.html

45

Castleton Park, 185 St. Marks Place, Staten Island, NY

Year Built 1974 Block 00013 Lot 0008 # of Units 454

Standard Buyout 5 Year Flip Model (2013) Preservation Model Equity1 20% 20% 20% Debt1 80% 80% 80% Amortization (Lease Term)1 30 30 30 Interest Rate on Loan2 6.27% 6.27% 6.27% Debt Coverage Ratio1 1.20 1.20 1.20 Area Median Income (AMI)3 $71,300 $71,300 $71,300

Entire Building Per Unit Entire Building Per Unit Entire Building Per Unit Avg Monthly Rent Collected January 20064 $272,719 $601 $272,719 $601 $272,719 $601 % of AMI needed to afford unit 34% 34% 34%

Expected Current Rent5 $645 $705 $645 Household Income Required to afford unit $25,801

Assumed Purchase Price6 $30,000,000 $66,079 $36,624,216 $80,670 -68% $9,531,740 $20,995 Debt $24,000,000 $52,863 $29,299,373 $64,536 $7,625,392 $16,796

Annual Debt Payment $1,777,013 $3,914 $2,169,391 $4,778 $564,601 $1,244 Annual Operating Expenses7 and 8 $2,908,499 $6,406 $3,371,747 $7,427 $2,908,499 $6,406 Annual Taxes7, 8 and 10 $1,610,280 $3,547 $1,965,841 $4,330 $0 $0

Gross Rent Needed for 1.2 Debt Coverage $7,554,951 $16,641 $9,008,376 $19,842 $4,167,720 $9,180

Median Monthly Rent Currently Collected7 and 9 $347,310 $765 $402,627 $887 $347,310 $765 Avg Monthly Rent Needed for Debt Coverage $629,579 $1,387 $750,698 $1,654 $347,310 $765 Shortfall in Rents ($622) ($767) $0

% of AMI needed to afford unit after purchase 78% 93% 43% Household Income Required to afford unit $55,470 $66,141 $30,600

Current Outstanding Debt ? ? ? Proposed Purchase Price $30,000,000 $11,325,779 $3,361,079 Difference #VALUE! #VALUE! #VALUE!

Cash Flow $1,259,158 $1,501,396 Cash on Cash Return 20.99% 20.50%

Original Purchase is $22,084,000 Price Difference from Standard Buyout with a 20% Internal Rate of Return 1Assumptions based upon industry standards 2New York City Rent Guidelines Board Housing NYC: Rents, Markets and Trends 2007 3FannieMae HUD Higher AMI Lookup 4Building specific data from the New York State Division of Housing and Community Renewal 2007 Annual Report Mitchell-Lama Housing Companies in New York State 52006 average monthly rent increased by the New York City Rent Guidelines Board's annual allowable rate 6UHAB proposed purchase price 7Adjusted for Inflation 3% per year 8Property Shark 9Sample of 33 Castelton Park Residents 46 10Assumptions that taxes are paid for a buyout and abated for a Preservation Model

Castelton Park, 185 St. Marks Place, Staten Island, NY Five Year Flip Model Worksheet

Per Unit Beginning Balance Interest Principal Ending Purchase Price $30,000,000 $66,079 $24,000,000 $1,504,800 ($272,213) $24,272,213 Units 454 $24,272,213 $1,521,868 ($255,146) $24,527,359 Annual Operating Expenses $3,371,747 $7,427 $24,527,359 $1,537,865 ($239,148) $24,766,507 Annual Taxes $1,965,841 $4,330 $24,766,507 $1,552,860 ($224,153) $24,990,661 NOI needed with no debt service $5,337,589 $11,757 $24,990,661 $1,566,914 ($210,099) $25,200,760 Debt Service $1,777,013 $3,914 NOI needed with debt service $7,114,602 $15,671

NOI needed with debt service coverage of 1.2 $8,537,523 1.2 Annual Depreciation Book Value Monthly Rent Needed $711,460 $1,567 Year 1 $1,090,909 $28,909,091 Year 2 $1,090,909 $27,818,182 Cash Flow $1,422,920 Year 3 $1,090,909 $26,727,273 Year 4 $1,090,909 $25,636,364 Year 5 $1,090,909 $24,545,455

Debt Assumptions 80% LTV Amort 30 Sale Price $36,624,216 Interest 6.27% Cap Rate 10% Debt Coverage Ratio 1.20 Annual Payment $1,777,013 Sale Price $36,624,216 $66,079 Tax Rate 35% Less Cost of Sale $1,098,726 3% Net Sale Price $35,525,490 Sale Assumption ROE Investment Net Less Book Value $24,545,455 Year 1 $924,898 ($6,000,000) ($5,075,102) Taxable Gain $10,980,035 Year 2 $924,898 $924,898 Capital Gains Tax $3,843,012 35% Year 3 $924,898 $924,898 Year 4 $924,898 $924,898 After Tax Proceeds $31,682,478 Year 5 $6,481,718 $6,481,718 Mortgage Balance $25,200,760 IRR 20% Net Cash from Sale $6,481,718

47

Narrative to Accompany Financial Model for Castelton Park

Introduction This building is located at 185 St. Marks Place, Staten Island, NY 10301. The block is 00013 and the lot is 0008. Castelton Park has 454 affordable housing units in the building and was built in 1974. In New York City, apartments are under rent stabilization if they are in buildings with six or more units built between February 1, 1947, and December 31, 1973. Tenants in buildings built before February 1, 1947, who moved in after June 30, 1971, are also covered by rent stabilization43. In addition, according to the US Department of Housing and Urban Development (HUD) this building is protected under Section 236 of the National Housing Act44, thereby qualifying tenants for enhanced vouchers45 after the building moves out of the Mitchell‐Lama Program. According to the tenant association leadership, there are roughly 139 Section 8 units in the building. It is important to note that this building did not participate in the J‐51 program, so it will not be protected by additional rent stabilization as a result of renovations or improvements46 after opting out of Mitchell‐Lama. There has not been a rent increase in this building since 2001. According to tenant association leadership, rent for a two bedroom without subsidies is approximately $870. In January of 2006, average monthly rent was approximately $601 per unit47. Increasing this amount by the New York City Rent Guidelines Board's annual allowable rates48, the estimated monthly rent for 2008 is $645 per unit. The current average from a sample of tenants is $765, a difference of 27%.

43 http://www.dhcr.state.ny.us/ora/progs/oraprogs.htm - underrs 44 The Section 236 program, as enacted in 1968, provides a subsidy to reduce mortgage interest payments. The maximum subsidy available to a project was set at the difference between the monthly payment for principal, interest, and mortgage insurance premium on the outstanding mortgage at the market rate of interest and the monthly payment that would be required under a mortgage bearing an interest rate of 1%. A basic rental charge that was deemed sufficient to meet operating expenses plus debt service expenses at the 1% rate of interest was determined for each unit. Every tenant is required to pay the basic rental charge or up to 30% of income, whichever is higher. Contract approvals for new projects were discontinued in January 1973, except for "bona fide" commitments outstanding at that time. In addition, contracts approved prior to termination of the Program could be amended. http://www.hud.gov/offices/hsg/mfh/map/actloan/activesec236proj.cfm 45 Enhanced vouchers are also known as preservation vouchers or sticky vouchers. These section 8 vouchers are “sticky” because they stick with residents, who can move out and take the vouchers with them. http://www.nhtinc.org/policy/presglossary.asp 46 The J-51 Program is administered by the NYC HPD to encourage the renovation of residential properties by granting partial tax exemption and abatement benefits. Benefits vary, depending on the location of the property and the extent and nature of the improvements. (http://www.nyc.gov/html/dof/html/property/property_tax_reduc_j_51.shtml). 47 Calculated from Building specific data from the NYS DHCR 2007 Annual Report Mitchell-Lama Housing Companies in New York State http://www.dhcr.state.ny.us/ohm/pubs/html/mlhcar07nyc.htm 48 http://www.housingnyc.com/html/guidelines/apt.html

48

Standard Buyout This model assumes that the building was bought for the assumed price of $30 Million, and that the buyer takes out a standard 30‐year amortizing loan with a 6.27% interest rate. To pay off this loan and to make the assumed cash on cash return of 21% from the investment, rents would need to be raised from an average of $765 per unit to $1,387. This 81% increase would change the required annual family income to afford the units from $30,600 to $55,470. The units would remain affordable49 for residents earning 78% of the Area Median Income or more.

5 Year Flip Model This model shows the rent increase that would occur if a developer purchases a building, renovates it, and resells it to another developer five years after making the purchase. It assumes that the developer makes a 20% internal rate of return on the sale in five years. In this “flip” that would occur during a 5‐year period beginning in 2008, rents would increase slowly with an additional significant increase after the resale in 2013. At that point, the average rent would need to be $1,654 per month, an 86% increase from the current rent, in order for a 21% cash on cash return to be possible for the second owner. To justify the rent increase, major capital improvements (MCI)50 would need to be made. The units would only be affordable for middle‐ income residents earning 93% of the Area median Income or more, instead of the lowest‐income New Yorkers which the building has housed for over 33 years.

Preservation Model This model calculates the price at which a buyer could purchase the property, but still keep it affordable by not increasing the rent. It assumes the buyer would take out the same standard loan as in the standard buyout model, but allows for tax abatements. The result is a purchase price of approximately $9.5 million, a 68% reduction from the $30 Million assumed purchase price. In order for the buyer to offer a competitive purchasing price for the property and afford building maintenance without a rent increase, integration of alternative subsidies, including lower interest loans, cross‐subsidization51 and government funding, is recommended.

49 30% of income designated for rent

50 Major Capital Improvements (MCI) are when owners make improvements or installations to a building. Subject to the rent stabilization or rent control laws, they may be permitted to adjust the rent based on the actual, verified cost of the improvement. http://www.dhcr.state.ny.us/ora/pubs/html/orafac24.htm

51 Cross subsidization is where certain units’ rent is relatively high, enabling other tenants to pay relatively low rents. www.investordictionary.com

49

Lakeview/East 106th Street, 1251 Fifth Avenue, New York, NY

Year Built 1974 Block 01612 Lot 0001 # of Units 446

Standard Buyout 5 Year Flip Model (2013) Preservation Model

Equity1 20% 20% 20% Debt1 80% 80% 80% Amortization (Lease Term)1 30 30 50 Interest Rate on Loan2 6.27% 6.27% 6.27% Debt Coverage Ratio1 1.20 1.20 1.20 Area Median Income (AMI)3 $71,300 $71,300 $71,300

Entire Building Per Unit Entire Building Per Unit Entire Building Per Unit Avg Monthly Rent Collected January 20065 $309,032 $693 $309,032 $693 $309,032 $693 % of AMI needed to afford unit 39% 39% 39%

Expected Current Rent6 $744 $959 $827 Household Income Required to afford unit $29,761 $38,341 $33,073

Assumed Purchase Price7 $48,500,000 $108,744 $53,238,115 $119,368 -99% $450,918 $1,011 Debt $38,800,000 $86,996 $42,590,492 $95,494 $360,735 $809

Annual Debt Payment $2,872,838 $6,441 $3,153,495 $7,071 $23,656 $53 Annual Operating Expenses8 and 9 $4,273,846 $9,583 $4,954,559 $11,109 $3,205,385 $7,187 Annual Taxes9 and 10 $2,603,286 $5,837 $2,857,609 $6,407 $0 $0

Gross Rent Needed for 1.2 Debt Coverage $11,699,964 $26,233 $13,158,795 $29,504 $3,874,848 $8,688

Avg Monthly Rent Currently Collected8 and 11 $724 $839 $724 Avg Monthly Rent Needed for Debt Coverage $974,997 $2,186 $1,096,566 $2,459 $322,904 $724 Shortfall in Rents ($1,462) ($1,619) $0

% of AMI needed to afford unit after purchase 123% 138% 41% Household Income Required to afford unit $87,444 $98,347 $28,960

Current Outstanding Debt ? ? ? Proposed Purchase Price $48,500,000 $53,238,115 $450,918 Difference #VALUE! #VALUE! #VALUE!

Cash Flow $1,949,994 $2,193,133 Cash on Cash Return 20.10% 20.60%

Original Purchase is $48,500,000 25% Reduction in Annual Operating Expenses with a 20% Internal Rate of Return Price Difference from Standard Buyout 1Assumptions based upon industry standards 2New York City Rent Guidelines Board Housing NYC: Rents, Markets and Trends 2007 3FannieMae HUD Higher AMI Lookup 4U.S. Department of Housing and Urban Development Estimated Median Family Incomes for FY 2002 5Building specific data from the New York State Division of Housing and Community Renewal 2007 Annual Report Mitchell-Lama Housing Companies in New York State 62003 average monthly rent increased by the New York City Rent Guidelines Board's annual allowable rate 7Property Shark Current Market Value 8Adjusted for Inflation 3% per year 9Property Shark 10Assumptions that taxes are paid for a buyout and abated for a Preservation Model 50 11According to building rental office

Lakeview/East 106th Street, 1251 Fifth Avenue, New York, NY Five Year Flip Model Worksheet

Per Unit Beginning Balance Interest Principal Ending Purchase Price $48,500,000 $108,744 $38,800,000 $2,432,760 $440,078 $38,359,922 Units 446 $38,359,922 $2,405,167 $467,671 $37,892,250 Annual Operating Expenses $4,954,559 $11,109 $37,892,250 $2,375,844 $496,994 $37,395,256 Annual Taxes $2,857,609 $6,407 $37,395,256 $2,344,683 $528,156 $36,867,100 NOI needed with no debt service $7,812,168 $17,516 $36,867,100 $2,311,567 $561,271 $36,305,829 Debt Service $2,872,838 $6,441 NOI needed with debt service $10,685,006 $23,957

NOI needed with debt service coverage of 1.2 $12,822,008 1.2 Annual Depreciation Book Value Monthly Rent Needed $1,068,501 $2,396 Year 1 $1,763,636 $46,736,364 Year 2 $1,763,636 $44,972,727 Cash Flow $2,137,001 Year 3 $1,763,636 $43,209,091 Year 4 $1,763,636 $41,445,455 Year 5 $1,763,636 $39,681,818

Debt Assumptions 80% LTV Amort 30 Sale Price $53,238,115 Interest 6.27% Cap Rate 10% Debt Coverage Ratio 1.20 Annual Payment ($2,872,838) Sale Price $53,238,115 $119,368 Tax Rate 35% Less Cost of Sale $1,597,143 3% Net Sale Price $51,640,972 Sale Assumption ROE Investment Net Less Book Value $39,681,818 Year 1 $1,389,051 ($9,700,000) ($8,310,949) Taxable Gain $11,959,153 Year 2 $1,389,051 $1,389,051 Capital Gains Tax $4,185,704 35% Year 3 $1,389,051 $1,389,051 Year 4 $1,389,051 $1,389,051 After Tax Proceeds $47,455,268 Year 5 $11,149,439 $11,149,439 Mortgage Balance $36,305,829 IRR 20% Net Cash from Sale $11,149,439

51

Narrative to Accompany Financial Model for Lakeview/106th Street

Introduction This building is located at 1251 Fifth Avenue, New York, NY 10029. The block is 01612 and the lot is 0001. Lakeview has 446 affordable housing units in the building and was built in 1976. In New York City, apartments are under rent stabilization if they are in buildings with six or more units built between February 1, 1947, and December 31, 1973. Tenants in buildings built before February 1, 1947, who moved in after June 30, 1971, are also covered by rent stabilization52. Upon exiting the Mitchell‐ Lama Program, tenants’ rents will not be stabilized. However, according to the US Department of Housing and Urban Development (HUD) this building is protected under section 236 of the National Housing Act53, thereby qualifying tenants for enhanced vouchers54 to help cover rent increases after the building moves out of the Mitchell‐Lama Program. This building did not participate in the J‐51 program, so it will not be protected by additional rent stabilization as a result of renovations or improvements.55 Average rent in January 2006 was approximately $69356. Increasing that number by the New York City Rent Guidelines Board’s annual rate57, the expected rent for 2008 is $744. According to the rental office, current monthly rent for a one‐bedroom apartment is $625 and a two‐bedroom is $823, almost the same as the expected $744.

52 http://www.dhcr.state.ny.us/ora/progs/oraprogs.htm - underrs 53 The Section 236 program, as enacted in 1968, provides a subsidy to reduce mortgage interest payments. The maximum subsidy available to a project was set at the difference between the monthly payment for principal, interest, and mortgage insurance premium on the outstanding mortgage at the market rate of interest and the monthly payment that would be required under a mortgage bearing an interest rate of 1%. A basic rental charge that was deemed sufficient to meet operating expenses plus debt service expenses at the 1% rate of interest was determined for each unit. Every tenant is required to pay the basic rental charge or up to 30% of income, whichever is higher. Contract approvals for new projects were discontinued in January 1973, except for "bona fide" commitments outstanding at that time. In addition, contracts approved prior to termination of the Program could be amended. http://www.hud.gov/offices/hsg/mfh/map/actloan/activesec236proj.cfm 54 Enhanced vouchers are also known as preservation vouchers or sticky vouchers. These section 8 vouchers are “sticky” because they stick with residents, who can move out and take the vouchers with them. http://www.nhtinc.org/policy/presglossary.asp 55 The J-51 Program is administered by the NYC HPD to encourage the renovation of residential properties by granting partial tax exemption and abatement benefits. Benefits vary, depending on the location of the property and the extent and nature of the improvements. http://www.nyc.gov/html/dof/html/property/property_tax_reduc_j_51.shtml 56 Calculated from building specific data from the NYS DHCR 2007 Annual Report Mitchell-Lama Housing Companies in New York State 57 http://www.housingnyc.com/html/guidelines/apt.html

52

Standard Buyout This model assumes that the building was bought for its current market value of $48.5 Million, and that the buyer takes out a standard 30‐year amortizing loan with a 6.27% interest rate. To pay off this loan and to make the assumed cash on cash return of 20% from the investment, rents would need to be raised 202% from an average of $724 per unit to $2,186. Vouchers will not be sufficient to subsidize this rent increase within this period of time58. Therefore, a rent increase of this amount could only be substantiated if there are Major Capital Improvements (MCI)59 made to the building or through conversion to condominiums. The required annual family income to afford60 the units would jump from $28,960 to $87,444, a shift from housing for some of New York’s lowest‐income families to housing for upper‐middle class citizens.

5 Year Flip Model This model shows the rent increase that would occur if a developer purchases a building, renovates it, and resells it to another developer five years after making the purchase. It assumes that the developer receives a 20% internal rate of return on the sale over five years. In this “flip” that would occur during a 5‐year period beginning in 2008, rents would increase slowly initially, then significantly increase after the resale in 2013. At that point, the average rent would need to be $2,459 per month, a 240% increase from the current rent, in order for a 21% cash on cash return to be possible for the second owner. Residents will not be able to afford such an increase and enhanced vouchers will not pay for it either. To justify the price, the building would need Major Capital Improvements and immediate conversion to market rate rentals or be converted to condominiums.

Preservation Model This model calculates the price at which a buyer could purchase the property and not increasing the rent. It assumes the buyer would take out the same standard loan as in the standard buyout model, but allows for tax abatements and assumes a 25% reduction in the operating expenses. The result is a purchase price of approximately $450,000, a 99% reduction from the $48.5 Million market price. In order to be competitive in purchasing the property and afford building maintenance without a rent increase, major alternative subsidies, including cross subsidization61 within the building, lower interest loans and government grants, would need to be utilized.

58 HUD must approve all rent increases in eligible Section 8 developments through an application process and will not cover more than the voucher payment standard, the maximum monthly housing assistance payment for the family. http://www.nyc.gov/html/nycha/html/section8/voucher_payment.shtml 59 Major Capital Improvements (MCI) are when owners make improvements or installations to a building. Subject to the rent stabilization or rent control laws, they may be permitted to adjust the rent based on the actual, verified cost of the improvement. http://www.dhcr.state.ny.us/ora/pubs/html/orafac24.htm 60 30% of income designated for rent 61 Cross subsidization is where certain units’ rent is relatively high, enabling other tenants to pay relatively low rents. www.investordictionary.com

53

General Sedgwick, 1520 Sedgwick, Bronx, NY

Year Built 1969 Block 02880 Lot 0017 # of Units 101

Standard Buyout 5 Year Flip Model (2013) Preservation Model

Equity1 20% 20% 20% Debt1 80% 80% 80% Amortization (Lease Term)1 30 30 50 Interest Rate on Loan2 6.27% 6.27% 6.27% Debt Coverage Ratio1 1.20 1.20 1.20 Area Median Income (AMI)3 $71,300 $71,300 $71,300

Entire Building Per Unit Entire Building Per Unit Entire Building Per Unit Avg Monthly Rent Collected January 20064 $114,103 $1,130 $114,103 $1,130 $114,103 $1,130 % of AMI needed to afford unit 63% 63% 63%

Expected Current Rent5 $1,213 $1,326 $1,213 Household Income Required to afford unit $48,523 $53,023 $48,523 Proposed Purchase Price9 $9,000,000 $89,109 $10,758,254 $106,517 -63% $3,366,607 $33,333 Debt $7,200,000 $71,287 $8,606,603 $85,214 $2,693,285 $26,666

Annual Debt Payment $533,104 $5,278 $637,252 $6,309 $176,615 $1,749 Annual Operating Expenses6 and 7 $1,328,380 $13,152 $1,539,957 $15,247 $996,285 $9,864 Annual Taxes5, 6 and 10 $483,084 $4,783 $577,460 $5,717 $0 $0

Gross Rent Needed for 1.2 Debt Coverage $2,813,482 $27,856 $3,305,603 $32,729 $1,407,480 $13,935

Avg Monthly Rent Currently Collected6 and 7 $117,290 $1,161 $135,971 $1,346 $117,290 $1,161 Avg Monthly Rent Needed for Debt Coverage $234,457 $2,321 $275,467 $2,727 $117,290 $1,161 Shortfall in Rents ($117,167) ($1,160) ($139,496) ($1,381) ($0)

% of AMI needed to afford unit after purchase 130% 153% 65% Household Income Required to afford unit $92,854 $109,096 $46,451

Current Outstanding Debt8 ($5,000,000) ($5,000,000) ($5,000,000) Proposed Purchase Price $9,000,000 $10,758,254 $3,366,607 Difference $4,000,000 $5,758,254 ($1,633,393)

Cash Flow $468,914 $550,934 Cash on Cash Return 26.05% 25.61%

Original Purchase is $9,000,000 25% Reduction in Annual Operating Expenses with a 20% Internal Rate of Return Price Difference from Standard Buyout 1Assumptions based upon industry standards 2New York City Rent Guidelines Board Housing NYC: Rents, Markets and Trends 2007 3FannieMae HUD Higher AMI Lookup 4Building specific data from the New York State Division of Housing and Community Renewal 2007 Annual Report Mitchell-Lama Housing Companies in New York State 52006 average monthly rent increased by the New York City Rent Guidelines Board's annual allowable rate 61520 Sedgwick Associates Financial Statement & Supplementary Information 2006 7Adjusted for Inflation 3% per year 8According to the Urban Homesteading Assistance Board 9Proposed purchase price for property 54 10Assumptions that taxes are paid for a buyout and abated for a Preservation Model

General Sedgwick, 1520 Sedgwick, Bronx, NY Five Year Flip Model Worksheet

Per Unit Beginning Balance Interest Principal Ending Purchase Price $9,000,000 $89,109 $7,200,000 $451,440 $81,664 $7,118,336 Units 101 $7,118,336 $446,320 $86,784 $7,031,552 Annual Operating Expenses $1,539,957 $15,247 $7,031,552 $440,878 $92,226 $6,939,326 Annual Taxes $577,460 $5,717 $6,939,326 $435,096 $98,008 $6,841,318 NOI needed with no debt service $2,117,417 $20,965 $6,841,318 $428,951 $104,153 $6,737,164 Debt Service $533,104 $5,278 NOI needed with debt service $2,650,521 $26,243

NOI needed with debt service coverage of 1.2 $3,180,625 $0.00 1.20 Annual Depreciation Book Value Monthly Rent Needed $265,052 $2,624 Year 1 $327,273 $8,672,727 Year 2 $327,273 $8,345,455 Cash Flow $530,104 Year 3 $327,273 $8,018,182 Year 4 $327,273 $7,690,909 Year 5 $327,273 $7,363,636

Debt Assumptions 80% LTV Amort 30 Sale Price $10,758,254 Interest 6.27% Cap Rate 11% Debt Coverage Ratio 1.20 Annual Payment ($533,104.03) Sale Price $10,758,254 $106,517 Tax Rate 35% Less Cost of Sale $322,748 3% Net Sale Price $10,435,506 Sale Assumption ROE Investment Net Less Book Value $7,363,636 Year 1 $172,284 ($1,800,000) ($1,627,716) Taxable Gain $3,071,870 Year 2 $172,284 $172,284 Capital Gains Tax $1,075,154 35% Year 3 $172,284 $172,284 Year 4 $172,284 $172,284 After Tax Proceeds $9,360,352 Year 5 $2,623,187 $2,623,187 Mortgage Balance $6,737,164 IRR 20% Net Cash from Sale $2,623,187

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Narrative to Accompany Financial Model for General Sedgwick

Introduction This building is located at 1520 Sedgwick Ave., Bronx, NY 10453. The block is 02880 and the lot is 0017. Sedgwick has 101 affordable housing units in the building and was built in 1969. In New York City, apartments are under rent stabilization if they are in buildings of six or more units built between February 1, 1947, and December 31, 1973. Tenants in buildings built before February 1, 1947, who moved in after June 30, 1971, are also covered by rent stabilization62. However, according to the US Department of Housing and Urban Development (HUD) this building is not protected under section 236 of the National Housing Act63 so tenants do not qualify for enhanced vouchers64 after the building exits the Mitchell‐Lama Program. According to the tenants, roughly 52% (52 units) of the units in the building receive Section 8 rent subsidies. This building did not participate in the J‐51 program, so it will not be protected by additional rent stabilization as a result of renovations or improvements.65 All rent increases in this building thus far have been based on income levels. Average monthly rent in January 2006 was $1,13066 and is currently approximately $1,16167.

Standard Buyout This model assumes that the building was bought for $9 Million, and that the buyer takes out a standard 30‐year amortizing loan with a 6.27% interest rate. To pay off this loan and to make the assumed cash on cash return of 26% from the investment,

62 http://www.dhcr.state.ny.us/ora/progs/oraprogs.htm - underrs 63 The Section 236 program, as enacted in 1968, provides a subsidy to reduce mortgage interest payments. The maximum subsidy available to a project was set at the difference between the monthly payment for principal, interest, and mortgage insurance premium on the outstanding mortgage at the market rate of interest and the monthly payment that would be required under a mortgage bearing an interest rate of 1%. A basic rental charge that was deemed sufficient to meet operating expenses plus debt service expenses at the 1% rate of interest was determined for each unit. Every tenant is required to pay the basic rental charge or up to 30% of income, whichever is higher. Contract approvals for new projects were discontinued in January 1973, except for "bona fide" commitments outstanding at that time. In addition, contracts approved prior to termination of the Program could be amended. http://www.hud.gov/offices/hsg/mfh/map/actloan/activesec236proj.cfm 64 Enhanced vouchers are also known as preservation vouchers or sticky vouchers. These section 8 vouchers are “sticky” because they stick with residents, who can move out and take the vouchers with them. http://www.nhtinc.org/policy/presglossary.asp 65 The J-51 Program is administered by the NYC HPD to encourage the renovation of residential properties by granting partial tax exemption and abatement benefits. Benefits vary, depending on the location of the property and the extent and nature of the improvements. (http://www.nyc.gov/html/dof/html/property/property_tax_reduc_j_51.shtml). 66 Calculated from Building specific data from the NYS DHCR 2007 Annual Report Mitchell-Lama Housing Companies in New York State http://www.dhcr.state.ny.us/ohm/pubs/html/mlhcar07hpd.htm 67 1520 Sedgwick Associates Financial Statement & Supplementary Information 2006

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rents would need to be raised from an average of $1,161 per unit to $2,321. Vouchers will not be sufficient to subsidize this rent increase within this period of time.68 This increase would change the required annual family income to afford69 the units from $46,451 to $92,854, a 100% increase, which could only be substantiated if there are Major Capital Improvements70 (MCI) made to the building or if a decision to convert the units to condominiums was made.

5 Year Flip Model This model shows the rent increase that would occur if a developer purchases a building, renovates it, and resells it to another developer five years after making the purchase. It assumes that the developer desires to make a 20% internal rate of return on the sale after five years. In this “flip” that would occur during a five‐year period beginning in 2008; rents would increase slowly initially, then significantly increase after the resale in 2013. At that point, the average rent would need to be $2,727 per month, a 135% increase from the current rent, in order for a 26% cash on cash return to be possible for the second owner. Therefore, this model requires immediate Major Capital Improvements and a switch to market rate rental units or conversion to condominiums.

Preservation Model This model calculates the price at which a buyer could purchase the property, but still keep it affordable by not increasing the rent. It assumes the buyer would take out the same standard loan as in the standard buyout model, but allows for tax abatements and assumes a 25% reduction in the operating expenses. The result is a purchase price of approximately $3.4 Million, a 63% reduction from the $9 Million asking price. The building currently carries about $5 Million of debt71, which the purchase amount of $3.4 Million does not cover, meaning that debt forgiveness is necessary in order for any payment to be made towards the acquisition of the building using this model. In order for the buyer to offer a competitive purchasing price for the property and afford building maintenance without a rent increase, alternative subsidies beyond tax abatement such as lower interest loans and government grants would also need to be utilized.

68 HUD must approve all rent increases in eligible Section 8 developments through an application process and will not cover more than the voucher payment standard, the maximum monthly housing assistance payment for the family. http://www.nyc.gov/html/nycha/html/section8/voucher_payment.shtml 69 30% of income designated for rent 70 Major Capital Improvements (MCI) are when owners make improvements or installations to a building. Subject to the rent stabilization or rent control laws, they may be permitted to adjust the rent based on the actual, verified cost of the improvement. http://www.dhcr.state.ny.us/ora/pubs/html/orafac24.htm 71 According to the Urban Homesteading Assistance Board

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Appendix J: Tenant Association Contacts and Meeting Dates

Tenant Association Date of Call/ Meeting Accomplishments and Contact Castleton Park January 17, 2008 Met with association leadership to discuss situation in Sharon Valentin and Judy 10:00am the building Montanez January 22, 2008 Attended general membership meeting, survey was administered and 37 were collected Undercliff House A few conference calls and general Survey was administered and collected from 14 Horace Orton tenant meeting January 29, 2008 tenants General Sedgwick Attended press conf. Jan. 16, 2008 Survey questions were asked regarding rent amounts Gloria Robinson January 24 general tenant meeting specifically

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Appendix K: Resident Survey

I am a graduate student at The New School. We are doing a research project about how to preserve affordable housing in New York City. We would appreciate you taking the time to answer the questions below. We are trying to understand how rent amounts go up when a building owner leaves the affordable housing program. Please be assured, we do not need your name unless you would like to provide it and if so it will be kept confidential.

After you complete this survey, please return it to your Tenant Association President and I will be picking them up next week. If you have any questions, concerns or information you would like me to know about your experience living in affordable housing, please feel free to contact me. My email address is [email protected] and my cell phone is (443) 994‐9109.

Thank you, Heather

How long have you lived in your building? ______

What rent did you pay in the following years: 2002 $______2003 $______2004 $______2005 $______2006 $______

What is your rent now? ______

Do you receive any government subsidies to help you pay your rent? YES NO

If so, please circle all the ones you receive:

Section 8 Vouchers other than Section 8 Others? ______

Do you have any additional comments to share with me about your experience living in your building?

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REFERENCES

“1986 Annual Report, Mitchell‐Lama Housing Companies in New York State, Based Upon Certified Financial Statements for 1985.” New York State Division of Housing and Community Renewal. 1986.

“1996 Annual Report, Mitchell‐Lama Housing Companies in New York State, Based Upon Certified Financial Statements for 1995.” New York State Division of Housing and Community Renewal. July 1996.

“2003 Annual Report, Mitchell‐Lama Housing Companies in New York State, Based Upon Certified Financial Statements for 2002.” New York State Division of Housing and Community Renewal. February 11, 2004.

“2004 Annual Report, Mitchell‐Lama Housing Companies in New York State, Based Upon Certified Financial Statements for 2003.” New York State Division of Housing and Community Renewal. March 15, 2005.

“2007 Annual Report, Mitchell‐Lama Housing Companies in New York State, Based Upon Certified Financial Statements for 2006.” New York State Division of Housing and Community Renewal. January 15, 2008.

“2007 Housing Supply Report.” NYC Rent Guidelines Board. June 5, 2007.

“2007 HUD Area Median Incomes.” Fannie Mae

“Affordable No More: An Update,” Office of the New York City Comptroller, Office of Policy Management. May 25, 2006.

Automated City Register Information System, Office of the City Register

“Changes to the Rent Stabilized Housing Stock in New York City in 2006.” NYC Rent Guidelines Board. June 5, 2007.

Housing NYC: Rents, Markets, and Trends 1997. NYC Rent Guidelines Board.

Housing NYC: Rents, Markets, and Trends 1998. NYC Rent Guidelines Board.

Housing NYC: Rents, Markets, and Trends 1999. NYC Rent Guidelines Board.

Housing NYC: Rents, Markets, and Trends 2000. NYC Rent Guidelines Board.

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Housing NYC: Rents, Markets, and Trends 2001. NYC Rent Guidelines Board.

Housing NYC: Rents, Markets, and Trends 2002. NYC Rent Guidelines Board.

Housing NYC: Rents, Markets, and Trends 2003. NYC Rent Guidelines Board.

Housing NYC: Rents, Markets, and Trends 2004. NYC Rent Guidelines Board.

Housing NYC: Rents, Markets, and Trends 2005. NYC Rent Guidelines Board.

Housing NYC: Rents, Markets, and Trends 2006. NYC Rent Guidelines Board.

Housing NYC: Rents, Markets, and Trends 2007. NYC Rent Guidelines Board.

“NYC HPD Mitchell‐Lama Housing.” .

“Priciest, Cheapest US Rental Markets,” by Melinda Fulmer. .

Property Shark

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