http://www.crainsnewyork.com/article/20170821/REAL_ESTATE/1708... ** Will print automatically! If it doesn't, click here. ** Residents are at one another's throats as once-affordable apartments built by Donald Trump's father soar in value Aaron Elstein Published: August 21, 2017 - 12:01 am Faina Shvadronova and her 8-year-old son, Jerry, emigrated from the Soviet Union to Brooklyn in 1979. She found work cracking eggs at a bakery and taking care of an elderly couple, while Jerry helped furnish their Borough Park apartment by scavenging for tables and chairs off the streets. A few years ago the breast cancer Shvadronova thought had gone into remission returned. She died at age 68 in February 2016. For all her struggles, Shvadronova managed to leave something substantial behind for Jerry: a two-bedroom co-op in Coney Island that she bought for about $30,000 in 1993. The apartment, in a complex called Trump Village, was built in 1964 by Donald Trump's father, Fred. It was the first project the young Donald worked on as a developer and the first property the family named for itself. Trump Village consists of seven 23-story towers housing 3,700 co-op and rental apartments close to the beach. To help pay for the $70 million project ($564 million in today's dollars), Fred Trump turned to a state and city program called Mitchell-Lama that granted him financial incentives in exchange for building affordable housing. The Trumps owned parts of Trump Village until 2003, when the family sold them and other outer-borough properties for $600 million four years after Fred died. In spite of the constraints imposed by Mitchell-Lama—landlord profits were capped, and residents were barred from selling their apartments for more than they paid—nearly 140,000 affordable units were built under the program between the late 1950s and the early 1980s. Demand far outstrips supply: Middle-class New Yorkers who qualify under the income requirements routinely have to wait years to get one. Shvadronova waited at least five years for hers, recalled Jerry, a librarian who is now 45 and has shortened his last name to Shvadron. "The apartment was my mother's great achievement," he said. To pass that achievement on to her son, Shvadron's mother placed ownership in a trust that named him the sole beneficiary. After her death he prepared to move into her apartment with his two daughters and his wife, a secretary at Coney Island Hospital. Something important had changed, however, since his mother bought the place: Trump Village was no longer the affordable-housing complex that Fred Trump had built. Much as Donald left behind his father's vision of 1 of 6 8/21/17, 6:31 AM http://www.crainsnewyork.com/article/20170821/REAL_ESTATE/1708... building apartments for teachers and police officers to focus on luxury condos, in 2007 Trump Village residents voted to leave the Mitchell-Lama program, which meant they were free to sell their apartments for whatever the market would bear. It also meant the apartment Shvadron inherited was worth serious money—$400,000, by his estimation. His good fortune didn't sit well with the Trump Village co-op board, which refused to let him move in without coughing up a hefty sum that would have made the apartment unaffordable. "Trump Village is defying my mother's very clear wishes," said Shvadron, who sued to get his apartment. The co-op fired back by suing him for libel after he criticized building management, the second such suit filed against one of its residents. The war inside Trump Village provides a vivid example of the fights taking place as more of New York's affordable housing is converted into market-rate apartments. In the past 20 years, owners of 38,000 Mitchell- Lama apartments, representing 28% of the program's housing, have left. That has depleted the city's affordable-housing supply and poses a formidable challenge to Mayor Bill de Blasio, who has promised to preserve or create 200,000 affordable units. As additional Mitchell-Lama apartments look to enter the market, more battles loom for control of these valuable properties. "Mitchell-Lama was one of the most successful affordable-housing programs ever," said Erica Buckley, a partner at law firm Nixon Peabody and former chief of the state attorney general's Real Estate Finance Bureau, where she reviewed the plans of buildings looking to exit the program. "As apartments leave, it has caused lots of complications." Trumpian salesmanship Fred Trump used the sort of puffery Donald would make famous when describing his newly built Trump Village. He called it a "miracle mile [of] luxury housing" featuring "a Taj Mahal of aesthetically appealing apartment houses [that would] combine resort living with city life," according to Gwenda Blair's book The Trumps: Three Generations That Built an Empire. In reality, the apartments didn't come with air conditioning, and the buildings resembled many of the austere public-housing blocks rising up at the time. An architect whose firm designed Trump Village acknowledged as much. "The aesthetics of that job were not great," he said. Trump Village was built under a program designed to address a problem in 1950s New York that sounds familiar today: lack of affordable housing for a surging population. In an effort to ease the shortage, in 1955 state lawmakers MacNeil Mitchell and Alfred Lama sponsored the Limited Profit Housing Companies Act, which offered low-interest loans and property-tax reductions to developers who agreed to build housing where their annual return would be capped at 6% for 50 years. Few developers were interested, so a few years later the law was amended to say Mitchell-Lama properties could be rented or sold for whatever the market would bear after 35 years. It was subsequently lowered to 20 years if the mortgage was paid off. The last tweak made affordable-housing development sufficiently attractive, especially for developers who built large complexes to help offset the small profit margins. Investors in Mitchell-Lama projects included Bob Dylan, once part owner of an apartment building in Rockaway, Queens. (That's right, the author of the song that begins, "Dear landlord / Please don't put a price on my soul" was once a New York landlord.) 2 of 6 8/21/17, 6:31 AM http://www.crainsnewyork.com/article/20170821/REAL_ESTATE/1708... In all, developers built 66,000 Mitchell-Lama rental units and 69,000 co-ops before the program petered out and the Reagan tax-reform package of 1986 marked its death knell. The new law discouraged investors in rental properties from using "passive losses," such as depreciation costs, to offset wages or other sources of "active income." As a result, "people with high active incomes were no longer motivated to invest in real estate as a tax shelter," said Tom Waters, a housing-policy analyst at the Community Service Society, a research nonprofit. Since 1990 half of Mitchell-Lama rentals have left the program, according to Waters' research, as landlords who waited decades to charge market-rate rents began to do so. Last decade Mayor Michael Bloomberg began offering owners millions' worth of incentives to keep apartments in the program, and de Blasio and Gov. Andrew Cuomo have done the same. Most co-ops have so far elected to remain in the program because their property taxes would soar if they left. Property-tax bills jumped to $8 million a year from $1.6 million after residents at Southbridge Tower in lower Manhattan narrowly voted to exit Mitchell-Lama in 2014, resulting in steep monthly maintenance increases for tenants, Manhattan Borough President Gail Brewer testified at a City Council hearing last year. Even so, soaring housing prices are intensifying pressure on co-ops to leave Mitchell- Lama so residents can sell their apartments for big sums. Buckley wrote in a Law360 article last year that of the 20 co-ops eligible to leave, two have had exit plans approved by the attorney general's office, and at least five others were considering it. One of the first co-ops to take the plunge was Trump Village. No entry It didn't take Shvadron long to realize he wouldn't be able to move into his mother's apartment without a fight. He visited the place two weeks after she died, only to find it blocked off by packing tape. "It looked as if a crime had been committed inside," he said. Trump Village management wrongly told him his trust documents had been shredded, and before moving in he had to pay a $100,000 transfer fee. Such fees, also known as flip taxes, are commonly levied by co-ops when residents sell their apartments. But Shvadron understood that, under the building's bylaws, children inheriting apartments from parents were exempt from flip taxes. Residents had insisted such language be included when they voted to leave Mitchell-Lama. "Without the clause carving out children from flip taxes, I don't think people would have voted for conversion," said Allan Grody, a Wall Street executive whose parents moved into Trump Village around 1968 and whose mother lived there until she died in 2013 at age 100. Grody shared a copy of the bylaws that reads, "Bequests by stockholders and bona fide gifts by stockholders to members of their immediate family are exempt from the transfer fee." Trump Village attorney Dean Roberts asserts that apartments are not exempt from flip taxes if they're transferred to a trust before being passed to an individual.