Annual Report 2010Annual Report 2010

Preservation Partnership: Preserving and protecting 20,139 units of public housing

Early in the spring of 2010 HDC closed its biggest transaction ever, authorizing in one fell swoop the issuance of $475 million in bonds, the proceeds of which are helping to preserve 20,000 affordable homes, and enable the New York City Housing Authority (NYCHA) to cut its structural operating deficit by up to $75 million.

“In a single action, the New York City Housing Development Corporation has authorized the issuance of bonds the proceeds of which will help to preserve 20,000 affordable homes. While it is remarkable in scale, this is the sort of transaction that the Housing Development Corporation was designed to do: create and preserve affordable housing for the residents of the City of New York, and strengthen the City’s communities.” Said New York City Housing Development Corporation President Marc Jahr.

Ironically, this huge deal arose thanks to a policy decision New York City and State leaders made half a century ago to fill a void left by federal programs that provided housing construction subsidy only for projects open to house the poorest of the poor. As men and women who served in the Second World War poured back into cities in the 1950s, the

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demand for housing skyrocketed. Converting nearby farmland into massive suburban developments became a national passion; a construction boom in cities by private industry also flourished.

Yet, the need for more affordable housing continued to grow in New York City. There were few real options. The notably competitive New York private sector real estate market did not accommodate the need for long-term affordable housing or public housing. As New York City boomed as an industrial town and City services and government grew, the demand for affordable housing for the City’s teachers, police officers and factory workers was urgent—the City needed to provide a solution, and asked the State for help.

Thus, between 1948 and 1971, New York State and New York City took the plunge and financed the creation of 21 new housing developments in Manhattan, Brooklyn, the Bronx, and Staten Island with 20,000 homes for working-class New Yorkers. NYCHA shouldered the responsibility of owning managing and maintaining the buildings. Of their 334 housing developments, these 21 received no federal funds, although they were operated and maintained as public housing. Dedicated City and State operating subsidies gradually were eliminated beginning in 1995,

creating a serious budget crisis for NYCHA— which had to stretch the federal funds it receives for the other 313 public housing developments to cover the needs of 20,000 unsupported units. Managing this irreplaceable, aging, affordable housing stock was taking a toll, in effect diluting NYCHA’s capacity to repair, renovate and maintain all of its public housing units.

Over the years, the economic demographic of the populations in these apartment buildings changed: many of the families who live in these State-and- City created buildings were low- or very low-income and received Section 8 rental assistance. That means that at that point in their history, beginning in the 1970s and 1980s, these buildings could qualify for federal assistance, but because this particular housing stock was State- and City-owned, these buildings weren’t eligible to receive any federal funding. NYCHA was relying on City and State subsidies to support the operation of the 21 developments – the rent rolls certainly couldn’t cover the costs. When in the late 1990s the State was obliged to cut its own subsidies. Ten years later this had created an alarming deficit of more than a billion dollars.

In the spring of 2010, that changed. A chance to qualify NYCHA’s unfunded units for federal subsidy came in the form of a one-time opportunity through the federal American

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Recovery and Reinvestment Act of 2009 (ARRA) more familiarly known as the Stimulus Bill. HDC raced the clock to beat the March 17, 2010 deadline, putting together a complex deal that would meet the criteria that required the properties to be sold to a third party—in this case, an entity formed and controlled by NYCHA—thus creating “new” public housing. The sale needed State Senate and Assembly approval and a sign-off from HUD to qualify the 21 NYCHA developments for federal subsidies. As a result of the transaction, NYCHA will receive more than $700 million in public and private funding, the majority of which will go to capital improvements that began as soon as the deal was closed. The sale will also enable HUD to include the buildings in a federal subsidy program that will deliver $65-$75 million every year for ongoing maintenance.

President of the Citywide Council of Presidents of NYCHA Residents Reginald Bowman applauded the deal: “On behalf of NYCHA’s residents and on behalf of the Citywide Council of Presidents, I extend our full and enthusiastic support of this transaction, with its assurance that the families we represent remain as public housing residents. We have been assured that we will not be displaced and all the rights and protections that we have received as public housing residents will continue.”

The transaction is one of the largest tax credit bond deals in the nation’s history and remarkable in scale. This is the sort of deal that HDC was designed to do: create and preserve affordable housing for the residents of the City of New York, and strengthen the City’s communities. The HDC bonds—both tax-exempt and taxable—will finance the acquisition and rehabilitation of the units. The bonds, which will be issued over the next three years, will be backed by credit support from Citi Community Capital. In all, the transaction will generate more than $700 million for the 21 developments— including $108 million in federal stimulus funds that until now couldn’t be used for work on these properties and another $42 million in State modernization funds. The bond deal closed on March 15th—just in time.

Qualifying these 21 projects for federal assistance is cutting NYCHA’s deficit by up to $70 million per year, allowing for the substantial improvement of building standards and conditions, and providing for the long-term preservation of the units as affordable public housing. The scope of the rehabilitation work includes brick and remedial structure work, façade concrete repair, roof and elevator replacement, front and rear entrance door replacement, asbestos abatement and heating upgrade. At the time, NYCHA Chairman John Rhea said: “Residents’ long term quality of

life will be improved as dedicated funding and subsidies will result in improvements in building standards and conditions, as well as service enhancements. NYCHA understands and values the strong partnerships with our colleagues at City Hall, HUD, State government, as well as the New York City Housing Development Corporation and the Department of Housing Preservation and Development, its labor unions and residents. Working together, we’re enabling New York City to qualify for substantial, permanent increase in federal funding for public housing.”

All 21 developments will remain public housing and residents will retain all of their rights and protections as public housing residents. NYCHA’s existing federal developments would also benefit as less of its federal public housing subsidy will have to be diverted to support units that receive no federal money, or other funds. The 21 developments are: Bay View, Boulevard, Bushwick, Independence, Linden, Marlboro and Williams Plaza in Brooklyn; Baychester, Castle Hill, Marble Hill, Murphy and Saint Mary’s Park in the Bronx, 344 East 28th Street, Amsterdam Addition, Chelsea, Drew-Hamilton, Manhattanville, Rutgers, Samuel and Wise Towers in Manhattan; and Stapleton in Staten Island.

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