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Category ArchiveMayor Bill de Blasio

While Occupancy Skyrockets, NYC Hotel Players See Cause for Concern

Over the past several years, the unofficial motto of the New York City hotel market has been “If you build it, they will come.” The city has seen tens of thousands of new hotel rooms crop up across the city this decade, and there are tens of thousands more in the pipeline due to arrive in the coming years—but despite all that new supply, the rooms keep getting absorbed.

That’s undoubtedly good news for the hotel developers and operators who built those new rooms and plan on bringing more to the market in the near future. But a closer look at the statistics and conversations with hotel market participants reveal a more mixed view of the city’s hotel landscape—one that finds it attempting to strike a balance between the number of rooms sold and the prices being paid for those rooms, and bracing for a variety of headwinds that could make it hard to sustain future development.

The clear, undoubtedly positive story is that while the U.S. hotel industry has struggled recently—with declining tourism figures among the factors that have made it difficult to absorb the roughly 2 percent supply growth experienced nationally last year—New York City has shown little problem handling the 4 percent growth in its supply that it saw in 2017. As Jan Freitag, the senior vice president of lodging insights for data and analytics firm STR, put it, the city’s hotel market is experiencing a dynamic that “doesn’t make sense in any other market but does make sense in New York City.”

The average occupancy of New York hotels in 2017 stood at 86.7 percent, up 1.1 percent from the previous year—with the city now home to more than 119,000 hotel rooms across the five boroughs, according to STR. That 86.7 percent occupancy rate means that nearly nine out of 10 hotel rooms available in the city were sold out through the course of last year—a “stunning” figure given the added supply, Freitag said.

“What demonstrates the strength of the New York market is that all of those hotel rooms are being absorbed in the year that they open,” said Mark VanStekelenburg, a managing director in the hotels division at CBRE. “From an occupancy standpoint, the market is at or near its peak occupancy and is continuing to be, even while we’re experiencing 4 to 6 percent [annual] supply growth. We’ve never really seen something like that in the U.S.”

That should give confidence to the city’s hotel developers, given that room supply will only continue to grow in the next few years; STR tracks more than 22,000 new rooms presently in the city’s development pipeline, including nearly 12,000 that are presently under construction.

But while the city has shown an ability to absorb that kind of supply influx, the underlying economics of doing so—such as the daily rates those rooms are able to command and the revenues flowing into the pockets of hoteliers—are somewhat murkier.

Though hotel occupancy in New York has been on an upward trajectory, average daily rates have not; those slipped 1.4 percent to $255.54 in 2017, according to STR. Room rates in the city have continued to slide since peaking at more than $271 per night in 2014, as has the metric of revenue per available room (RevPAR), which has fallen 4.6 percent to $221.60 in that time.

Market observers attribute this inability to translate high occupancy rates to improved room rates and revenues to a number of factors. Some noted that most of the city’s new hotel rooms fall under the booming limited- or select-service category, where rates are on the lower end of the spectrum (such rooms comprise more than 6,000 of the nearly 12,000 rooms currently under construction in the city, per STR). Others cited the influence of Airbnb, which has forced hoteliers to re-evaluate the prices they ask of consumers who can now choose a cheaper, often more spacious lodging alternative.

Still, despite softening rates and the promise of even more supply to come, it’s not hard to find real estate players willing to bet on the hotel market’s continued viability.

“You can see from our commitment to the city hotel market that we’re still very bullish in our long-term view of hospitality investments,” Mitchell Hochberg, the president of the Lightstone Group, said.

Hochberg pointed to his development firm’s hotel projects around the city, such as its Moxy brand hotels in Times Square, NoMad and the East Village, as examples of Lightstone’s continued faith in the hotel sector. “New York is one of the strongest economies in the country, and it’s a global center for finance and media,” he said. “Although there’s been a supply increase in the last couple of years, the data indicates that demand has kept up with supply.”

1713 pod twin 026 While Occupancy Skyrockets, NYC Hotel Players See Cause for Concern
Guest room at the Pod Times Square Hotel. Photo: The Pod Hotels

But other hotel market players are far less convinced. Richard Born, the co-founder of BD Hotels and the hotelier behind boutique Manhattan brands such as the Mercer Hotel, the Greenwich Hotel, the Ludlow Hotel and the Jane Hotel, espoused his view that, “with some exceptions, by and large the hotel market in New York is terrible.”

He cited a combination of factors including the “erosion” of daily rates (which he attributed to the influx in room supply as well as Airbnb’s vast “shadow inventory”), higher property taxes and operating costs, and the increased influence of third-party booking websites like Expedia and Travelocity (which have brought more transparency and reduced hotels’ “pricing power” while also charging booking commissions that are an additional “line item” for operators).

“Any hotel operator operating today is making a fraction of their net operating income compared to what they were making 10 years ago,” Born said. He added that the operators best positioned to succeed in such a challenging market are the ones capable of differentiating themselves from the more malleable product of their competitors. “There’s a fungibility to the hotel market that makes pricing very difficult because everyone is looking at everyone else’s rates. But the exceptions are the hotels that are not fungible—the ones that are unique, designed and have something different to offer their customers.”

In addition to its higher-end boutique brands like the Mercer, Bowery, Ludlow and Maritime hotels—where rates are on the higher end of the pricing spectrum—BD Hotels has sought to differentiate itself from the landscape with projects like its Pod hotels, which have parlayed the micro-apartment trend into a concept the hotelier terms the “micro-hotel.” With four locations in New York and one in Washington, D.C., the Pod hotels offer nightly rooms of around 100 square feet but also come equipped with food-and-beverage concepts and boutique-minded aesthetics (such as the mural from Brooklyn artist JM Rizzi that adorns the elevator shaft at the recently opened Pod Times Square).

Born pointed to the Pod BK—the brand’s Williamsburg, Brooklyn location—as offering something specifically different from the new luxury hotels that have cropped up in that neighborhood in recent years, such as the Wythe Hotel and the William Vale. “We have a hotel that we don’t think is fungible, in a marketplace where all the hotels are four-star boutiques looking for high rates,” he said.

Hochberg cited a similar rationale behind Lightstone’s Moxy brand; the developer teamed up with Marriott International with the goal of “delivering an affordable product with a lifestyle component to it”—one that offers the sensibilities of a boutique product at a lower price point with smaller rooms and limited-service offerings.

“The industry has introduced many more products and choices for the consumer of the past few years,” Hochberg said. “There’s a whole variety of new genres and brands that are focusing more on the consumer and trying to understand what today’s consumer is looking for.”

Hoteliers may also receive a boost from the fact that, beyond this decade, the city’s hotel development pipeline is slated to slow down significantly, making it easier for the incoming supply to be absorbed and potentially driving up room rates again.

Multiple market observers and participants noted that the supply influx the city is now seeing is the result of plans initiated a few years ago, adding that a variety of factors—from risk-averse lenders shying away from financing new projects to regulatory pressures being placed on the hotel sector by the de Blasio administration—could slow future development significantly.

“When we go out to find financing, there are less people able to provide debt than there were before,” said Eastern Consolidated’s Adam Hakim, a managing director in the brokerage’s capital advisory division. “Lenders control supply and demand; when they give hotel developers money, people build hotels, and when they don’t, they can’t.”

Hakim’s colleague James Murad, a director at Eastern, described the hotel market as “one of the thinnest construction financing markets you can go out for” to procure funds, with lenders mindful about the sheer volume of new supply and how that may affect borrowers’ abilities to refinance in the future.

“That said,” Murad added, “for quality sponsors and the right product, there’s appetite.”

wythe guestroom 4 credit matthew williams While Occupancy Skyrockets, NYC Hotel Players See Cause for Concern
Guest room at the Wythe Hotel in Williamsburg. Photo: Matthew Williams

Jared Kelso, a senior managing director in  Cushman & Wakefield’s global hospitality group, echoed that sentiment. “The last 24 months have been very challenging to find construction financing [for hotels],” he said, attributing the slowdown to lenders being in a “checklist underwriting” mind frame in considering hotel market fundamentals.

But Kelso added that financing is still available to “sponsors with a long and proven track record” with debt funds and alternative lenders also stepping in to fill the void left by the more risk-averse banks. He also noted that the tightening of the financing market is “frustrating for developers but not a bad thing at large” given the impact it will have on restricting supply. “After 2018, the supply pipeline thins dramatically, and that will ultimately be a good thing for the [hotel market] at large.”

And then there are regulatory obstacles that market observers say will impede hotel development in the future. That includes the de Blasio administration’s proposal to limit projects in industrially zoned M1 manufacturing districts by requiring developers to obtain a special permit, as well as the extension of Local Law 50, which prohibits large hotels (150 keys or more) from converting more than a fifth of their rooms to residential units or other non-hotel uses without city approval.

Both measures are perceived by many observers as meant to preserve the interests of the influential hotel workers’ unions and potentially damage the city’s future hotel supply. In the case of the zoning proposal, it will make it harder for developers to find parcels to build on and likely subject those projects receiving a special permit to higher-cost union labor requirements; in the case of Local Law 50, its preservation of existing hotel rooms would dampen the need for new supply in the interest of preserving existing hotel jobs.

According to Hakim, some of the developers behind the current supply pipeline—such as prolific hotel builder Sam Chang of McSam Hotel Group, a client of Eastern’s—are operating on the “thesis that hotel values are going to go up significantly in the next few years. The inventory is going to stabilize, and once it stabilizes, the theory is that you won’t be able to build new ones.” (Chang did not return a request for comment.)

“Twenty-four months from today, in 2020, I think your pipeline of hotels is going to drop to pretty close to zero,” Hakim added. “From there, you’ll see an increase in [room] prices.” But he was also critical of the influence that the current regulatory environment has had on exacerbating this dynamic. “I believe markets should correct themselves properly; you have a lack of [financing], and that’s a correction you’re seeing. But public policy and zoning laws being arbitrarily changed—that’s not how it should work.”

The de Blasio administration, for its part, does not think the proposed zoning regulations will negatively impact the flow of new hotel projects in the city. “We don’t believe the proposed rules will hinder hotel development across the city, which remains strong,” a mayoral spokeswoman said in a statement. “But we do aim to prioritize manufacturing businesses in the zones specifically designated for manufacturing. While hotels have a lot of options for where they can open and operate, these industrial firms don’t.”

The impact of all these various influences could start making themselves felt sooner rather than later, sources said. C&W’s Kelso said that the brokerage believes New York City room rates could start ticking upward as soon as the fourth quarter of this year, while Hochberg said Lightstone projects RevPAR “to be flat to slightly increased in 2018.”

That would be good news for hotel operators in the city—and a testament to its voracious appetite for hotels. Despite all the new supply, the city’s churning economy and robust tourism sector seems to always make room for even more places where people can stay.

“It’s a cultural mecca for the world,” Born said. “Every 14-year-old lives on a handheld device, looking at all this and dreaming of coming to New York, whether you’re in Oklahoma or Bangladesh, to live, work, study and visit here. It’s always going to be a dynamic place for tourism—the issues are going to be the costs of operating and the supply. But we do live in the greatest tourism market in the U.S. and in the world.”

Source: commercial

Slow Season: NYC’s Investment Sales Brokers Are Optimistic Despite a Challenging 2017

Two thousand seventeen “was still good—it just wasn’t great.”

Those are the comforting words that Aaron Jungreis, the co-founder and president of brokerage Rosewood Realty Group, offered to Commercial Observer last week when asked about the state of the New York City investment sales market.

Yet one could be forgiven for considering that a rather optimistic assessment, given how the numbers depict a commercial property market that has experienced a significant downturn since the halcyon days of 2015.

Two years after eclipsing an all-time high of $80 billion, total commercial real estate investment sales in the city fell just shy of $35 billion in 2017, according to a recent Cushman & Wakefield report on the state of the New York City real estate market. Transaction volume (the total number of property sales across the city) fell more than 30 percent in that time, and perhaps most damningly—after nearly a decade of unrepentant property value appreciation in the wake of the Great Recession—the average price per square foot for Manhattan commercial real estate sales (excluding the blighted retail market) fell for the first time since 2010, to the tune of 5 percent.

Even the outer boroughs—which have emerged to an unprecedented extent as viable markets in their own right—saw a 17 percent decline in the number of properties sold and a 27 percent dip in dollar volume (albeit from a record high of $18.2 billion in 2016) to $13.3 billion, per the C&W report. And while property values in the boroughs continued to climb last year, Robert Knakal, C&W’s chairman of New York investment sales, warned of “contagion” from the slipping Manhattan market leaking into the property markets of Brooklyn, Queens and the Bronx.

Numbers aside, talk to the commercial real estate brokers who are taking the calls and making the deals, and they’ll virtually all agree that the market for New York City real estate simply isn’t anywhere near the frothy peak of a few years ago, when one could procure buyers galore for virtually any parcel or property that hit the market. But despite this slowdown, most investment sales brokers are trying to paint a more positive picture of a market in a state of correction—with property values and transactions still at relatively high levels historically and signs of strengthening conditions heading into, and during the early part of, 2018.

“It’s still a good market,” Jungreis said. “The fundamentals are still strong, and people still want to come to New York. I just think we’re so spoiled with the market having gone up and up. I’m really not that concerned.”

Jungreis and other brokers who are active in the multifamily investment sales market attributed lower deal and dollar volumes to headwinds that have hindered investor appetite for both rent-regulated and market-rate residential buildings, as well as development sites that would have proven attractive for ground-up residential projects in years past.

Rent-stabilized properties have long been considered among the safest investments in New York City real estate due to their high occupancy rates and embedded upside once units become deregulated and landlords are able to charge higher, market-rate rents. But thanks to the de Blasio administration, multiple sources said, a more stringent regulatory environment has made it increasingly difficult for landlords to realize that upside and has consequently dampened investor enthusiasm for the asset class.

“De Blasio has won; the perceived upside is locked, and [property] taxes are going up every year,” Marcus & Millichap’s Shaun Riney, one of the brokerage’s leading Brooklyn-focused investment sales brokers, said of the market for rent-stabilized multifamily properties. “To keep up with the Joneses, you have to vacate units. That’s the dilemma [investors] have—you have to believe people are going to leave [their units] unless you’re a long-term investor, and long-term investors aren’t the ones paying 20 times the rent roll [for buildings].”

Chad Sinsheimer, a senior director at Eastern Consolidated, echoed the sentiment—noting that prospective buyers have become “a lot more passive and cautious in buying stabilized properties” due to regulations that have made it harder for landlords to approach tenants about buyouts and “unlock that upside” at rent-stabilized properties. “With all these tenant harassment lawsuits and headlines, there’s a little bit of fear on behalf of these landlords now,” he said. “They don’t know how long they’re going to be stuck with these tenants.”

While describing rent-stabilized assets as “still the darling of the market,” Bestreich Realty Group Founder and President Derek Bestreich cited the “administrative burden” of landlords having to deal with “layers and layers of government bureaucracy overseeing everything you do.”

“For owners, it’s like you’re guilty until you’re proven innocent—it’s evolved into a ‘gotcha’ type of environment where owners are on the defense, even if they’re operating their buildings admirably. It puts a bad taste in investors’ mouths,” the investment sales broker said. “People want to be able to grow the value and make a return, and I think there’s less confidence in their ability to do that nowadays.”

Beyond heightened regulatory scrutiny, Bestreich pointed to shifting fundamentals that have meant “cap rates have gone up, prices have dropped and there’s less demand [from buyers] than there was in the past” for multifamily assets. “Five or six years ago, I’d have 100 buyers wanting to buy a rent-stabilized building, while today I’d have 20,” he said. “There’s far less demand, but still enough that prices haven’t come down a whole lot.”

But like other brokers, Bestreich stressed that the market is still performing well overall despite having lost some steam. “We’re coming off a period where rents grew for so many years and interest rates dropped, and that combination led to really high property values,” he said. “Today, property values are still high; rents have dipped in a lot of areas from their peak, but there’s been such tremendous rent growth over the last seven years that, for rents to pull back 10 percent, I don’t find that to be an earth-shattering thing.”

Flat to falling rents are arguably the biggest issue facing the city’s market-rate rental properties—a condition exacerbated by the sheer number of free-market units that have arrived across the city in recent years, through developments like the swaths of luxury high-rise buildings that have cropped up in neighborhoods like Williamsburg and Downtown Brooklyn, in Brooklyn, and Long Island City, Queens.

As Jeffrey Levine, the chairman of Douglaston Development, told CO, the city is now experiencing a market-rate rental supply glut that was partially exacerbated by developers rushing to take advantage of the 421a tax abatement prior to its expiry in 2016.

“You had an abundance of product going into the ground, primarily in Downtown Brooklyn and Long Island City, and that product is now being delivered to the market and creating a real distortion in the marketplace,” Levine said. That dynamic, coupled with high construction costs and land prices that “have not yet fallen sufficiently,” has made it “very hard to pencil new [rental] development in the five boroughs,” he added—even with the new Affordable New York housing plan designed to replace 421a.

Landlords are now resorting to handing out tenant concessions, such as months’ worth of free rent periods, to attract renters to their buildings, further affecting investor appetite for market-rate properties as well as development sites that would house ground-up rental projects.

“There are a lot of amenitized buildings [on the market], and there are only so many young people who can pay $6,000 a month to split up a three-bedroom [apartment]. That’s why you’re seeing these concessions spike,” Sinsheimer said of the luxury rental space, noting that it’s not uncommon to see landlords dole out two to four months of free rent at some buildings, depending on the length of lease.

As such, developers are now targeting certain asset classes that are perhaps underserved in certain areas of the city. While the ultra-luxury residential condominium market’s recent travails have been well documented, brokers are finding strong demand for condo projects in outer-borough neighborhoods like Williamsburg and Long Island City—traditionally rental market strongholds with relatively low for-sale inventories, and areas where condos would sell at a price point more reasonable than that of, say, Billionaires’ Row in Midtown Manhattan.

Marcus & Millichap broker Jakub Nowak said that his team has seen an increase in land sales in Queens driven by “a surprising uptick in activity” from condo developers. “Any residential development site that my team is selling in Long Island City at the top level, the bidders are all condo developers,” Nowak added.

Bestreich, meanwhile, cited a similar trend in areas of Brooklyn: “Well-located development sites in Williamsburg, we can’t keep that stuff off the market,” he said, pointing to “seven to nine” parcels sold by his firm in the north Brooklyn neighborhood in the last several months that he said will virtually all become condo projects. “There’s so much concern over the L train shutting down, but condo developers are saying, ‘Let me buy something now, and when I’ve built it in two years, the L train won’t be an issue anymore.’ ”

Across other asset classes, the retail apocalypse has been highlighted ad nauseam, while the market for trophy office properties has also taken a hit in the wake of the record-breaking deals for Class A Manhattan properties seen in 2015 and 2016. On a recent conference call discussing Cushman & Wakefield’s 2017 real estate market statistics, Knakal noted that declining retail property values have made it difficult to find buyers for mixed-use properties with a retail component. His colleague Douglas Harmon—co-chair of C&W’s capital markets division and one of the city’s top brokers in the market for major trophy properties—pointed to a lack of such major deals in 2017 as a key contributing factor to the investment sales market’s declining dollar volumes.

But other asset classes, such as industrial properties, are booming to an unprecedented extent. Industrial assets are in enormous demand given the rise of the increasingly influential e-commerce sector and the relative scarcity of warehouse and manufacturing properties remaining in the five boroughs (particularly in more central, well-located areas with access to bridges and highways).

“Industrial has probably been the most exciting asset class in the past year and a half,” Eastern Consolidated Senior Director Andrew Sasson said. “There’s not a ton of industrial buildings in the city that have 25-foot-high ceilings and that are being kept for that use, or can be repositioned as distribution centers.”

Likewise, Marcus & Millichap’s Nowak noted that as “so much of the legacy industrial space in New York City has been repurposed in recent years”—usually either redeveloped as loft-like office and light manufacturing buildings targeting creatively minded tenants or razed to make way for new residential projects—the supply-constrained industrial market has “benefited tremendously.”

All things considered, investment sales market participants are now dealing with an altogether spottier market than they have in recent years. But overall sentiment is the market remains in a position of strength, with many noting a pickup in activity toward the end of 2017 and macroeconomic developments—particularly the passage of the Trump administration’s business-friendly tax reform bill—as reasons for optimism.

“In December of 2016, I was not enthusiastic about 2017,” said David Schechtman, a senior executive managing director at Meridian Investment Sales. “In December of 2017, I felt excited to get back to my desk on the 2nd or 3rd of January, and I haven’t been proven wrong.”

As Schechtman pointed out, the market may very well be getting its legs back as property owners come to terms with the correction that has taken place, and as the discrepancy between the prices that sellers seek and prospective buyers are willing to pay—commonly cited as another reason for the drop-off in investment sales—is reconciled.

“It’s a very difficult environment when, each day for several years, you’re reading as an owner that your property is worth more,” he said. “It takes time for an owner to recognize that they may be selling below the zenith. Not every deal is going to set a new benchmark—for many assets, the high-water mark has been hit—and as long as the seller is willing to receive below that, there will be a buyer.”

Source: commercial

On the Home Front: The Mayor and REBNY’s Unlikely Alliance on Affordable Housing

Anyone running for higher office in New York must invoke the three pillars of city governance to earn the job: One, plan to keep crime down; two, improve public school performance; and three, create more affordable housing. And a sitting mayor must administer concrete plans addressing them.

Moreover, he or she must do all three while avoiding any self-inflicted stumbles—or corruption inquiries—and your legacy is secure as a civic leader. 

A month into his second term, Mayor Bill de Blasio has overseen a steady 27-year dip in crime returning the city to levels comparable to the 1950s.

His most widely touted achievement has been a universal pre-K program that will improve the lives of New York’s youngsters for generations. More students are attending college than ever before. And academic achievement in public schools has slightly improved.

Housing has been more complicated.

Creating new housing is a goal that progressive politicians and the city’s profit-minded developers share.

“Housing is all about supply and demand,” said Real Estate Board of New York President John Banks. “We don’t have enough housing in New York, and we need to build more housing for all segments of the market—affordable, moderate and market rate.” 

New construction and property acquisitions are dependent on New York’s trillion-dollar real estate market, state and federal tax breaks and individual property owners. 

But mayors have many tools to spur development generally, and on parcels of city-owned land.

The late-Mayor Ed Koch is still celebrated for generating 100,000 units of affordable housing—a promise he made in his 1985 State of the City address and kept.

Former Mayor Michael Bloomberg used Koch’s plan as a model. By the end of his administration, the city created or saved 165,000 units of below-market housing.  

De Blasio has upped the game: When he took office in 2014, he set a goal to build and protect 200,000 affordable units by 2024, and the city invested $41 billion to make it happen. 

Thanks to a booming economy, tax revenues rose from 2012 to 2016, although they dipped slightly over the last year. 

Construction also surged early in the mayor’s first term with the city approving permits for 20,329 units in 2014, more than three times as many as in 2009. And permits continued to be issued at a frantic pace—an average of 19,826 each year from 2010 to 2017, according to records analyzed by REBNY. That’s a 14 percent decline from the previous decade’s annual average of 23,123 but 182 percent higher than the 1990s when the yearly average was 7,020 permits, the records show.

The renewal of a crucial tax break last April also likely spurred developers to build luxury projects with a portion of units reserved for lower- and middle-income residents.

The housing tax abatement, known as 421a, expired in January 2016 after state lawmakers failed to reach a deal with REBNY and the Building and Construction Trades Council of Greater New York over prevailing wages for construction workers. Negotiations over the measure took a year and a half before it was tucked into the state budget as “Affordable New York.”  

Developers have been waiting for the abatement’s renewal, causing a slight lag in development projects, Banks said.

“We have every expectation the new Affordable New York program will return us to the time frame of the past decade of 20,000 units per year in production,” Banks said.

160801 aerial view1 On the Home Front: The Mayor and REBNYs Unlikely Alliance on Affordable Housing
Rendering of the Bedford Union Armory redevelopment in Crown Heights. Photo: BFC Partners

The de Blasio administration was able to finance 87,557 affordable homes over the last four years, including 24,536 units in 2017 alone, according to an announcement from the mayor this week. As of July 2017, the Bronx had seen the most affordable preservation and development, with 24,014 units between 2014 and 2017. Manhattan had the second-highest amount over that period with 23,862 units, followed by Brooklyn (21,494), Queens (6,226) and Staten Island (2,055), records show.

Affordable housing developers have embraced the mayor’s housing efforts.

“The mayor doubled down and they put a lot of resources, human and financial into the plan. They seem to be doing very well and on track,” said L+M Development Partners CEO Ron Moelis. “The mayor has done a good job reigning in costs to make programs more efficient.”

But de Blasio has had difficulty selling his plan to the very constituents he hopes will live in these units.

City Hall wanted to rezone 15 neighborhoods in his first term. Only three—East New York, Brooklyn, Far Rockaway, Queens and East Harlem—passed the City Council and one was withdrawn entirely. 

The East Harlem hearings were incredibly contentious; activists chanted, “East Harlem is not for sale!” and disrupted a council meeting, arguing the rezoning would allow luxury development that would price out longtime residents. 

Other large redevelopment projects on the mayor’s agenda, such as the Bedford Armory site in Crown Heights, Brooklyn or Sunnyside Yards in western Queens, have been significantly altered or delayed in the wake of community opposition. 

And public housing residents blasted his proposal to build private housing on open space in their complexes, concerned the plan would create “two cities”—a backhanded reference to de Blasio’s campaign promises to reduce income inequality. 

Such criticism is steeped in “NIMBYism”—“Not In My Backyard”—where residents want more affordable housing, just not in their own neighborhoods, Banks said.

“It is understandable that people would try to protect their communities, but you can’t ask for more housing and prevent the production of housing because of concerns about density and fear of gentrification,” he said. “They don’t like tall buildings, but the de Blasio administration recognizes, in order to meet prices demand, he has to upzone and have more density.”

Developers must continue to provide housing units at a range of incomes, Banks asserted, even if some of the units at the moderate end stay on the market longer because they are the units paying for most of the project.

“In order for building to be economically viable, you have to get a certain amount of rent and you need that upper income level to make the building financially viable,” he said. “Otherwise, it throws the financing off.”

Housing advocates say their primary concern has less to do with density than with affordability. 

“The plan should focus more on targeting the limited resources the city has on housing that’s affordable to the very low-income households in the city— that’s 50 percent of area median income and below,” said Oksana Mironova, a housing policy analyst at Community Service Society of New York, which is a nonprofit that fights poverty. “That’s where the greatest rent burdens are, and that’s the demographic of people suffering the most amount of displacement as a result of everything happening in the city.”

Jonathan Westin, the executive director of New York Communities for Change, a housing and workforce advocacy group, attributed a surge in homeless New Yorkers—up 39 percent over the past year—to a lack of housing options for the city’s poorest residents. About 60,000 New Yorkers, including 40,000 families with children, are currently living in city shelters.

“In order to make a dent in the homeless numbers, they need to build and preserve housing for people on the verge of homelessness—working families with, in some cases, minimum-wage jobs,” he said. “The mayor’s housing program isn’t meeting their needs.”

Instead that plan largely follows the Bloomberg blueprint of rezoning swaths of neighborhoods and working with private sector developers to build new housing, Westin said.

“The rezonings serve to accelerate gentrification in some ways worse than what Bloomberg [did],” he said. “They’re going into neighborhoods and gentrifying them, and that leads to more displacement. It’s disrupting the community and pushing out families.”

8311752360 1b55d0bf90 o On the Home Front: The Mayor and REBNYs Unlikely Alliance on Affordable Housing
Construction work at Sunnyside Yards in western Queens. Photo: Patrick Cashin/Metropolitan Transportation Authority

The city’s booming economy has allowed the mayor to revise his housing projections upward. In October, the de Blasio administration pledged to construct and preserve 300,000 units by 2026.

“We’ve kept our promises to New Yorkers, and now it’s time to go farther and faster,” de Blasio said at an Oct. 24, 2017, press conference. “Like Mayor Koch before us, we are building an engine that will keep families in safe, decent and affordable homes for decades to come. We will keep this a city for seniors, veterans, working families and the middle class.”

But that engine may stall thanks to factors beyond the mayor’s control.

The city’s economy may be slowing down as both private sector job growth and tax revenues over the past year have not kept pace with previous years since 2012. Meanwhile, construction costs and property values continue to rise, making it more expensive for the city to finance new housing projects. 

Real estate industry leaders have been clamoring for the revision of the scaffold law, which makes property owners and contractors liable for injuries on the job. But any reform faces an uphill battle in the legislature.

“New York is the only state in the nation whose law continues to dramatically increase the cost of general liability insurance,” said Banks. “Unless we do something about the Scaffold Law, we’ll remain at a competitive disadvantage to other states.” 

The federal tax overhaul will likely benefit real estate investors, and the plan kept subsidies for private activity bonds that pay for large development projects, but the long-term effect of the tax plan on the market remains unclear.

And the Trump administration itself is a wild card that could cut federal spending on affordable housing and development programs, eliminate a visa program that enabled investment in development projects, or simply shut the government down repeatedly. 

City Hall officials acknowledge the uncertainty of the tax plan and budget cuts on their housing plans. 

“We have been actively working to form coalitions with national affordable housing advocacy groups and other cities and states to fight threats and elevate the importance of housing, which isn’t just a crisis in New York City,” said de Blasio spokeswoman Melissa Grace.

Whether the mayor ultimately succeeds at keeping the city affordable may hinge more on the city’s ability to preserve large tracts of housing than create new units.

“The real threat to affordability is the naturally occurring moderately priced rent-stabilized multifamily buildings in weaker parts of strong markets and strong parts of weaker markets,” said Community Preservation Corporation Vice President Robert Riggs, a housing lender who works with nonprofit developers. “There’s a lot of new construction in these neighborhoods, but it does not compare to the amount of units that are just there.”

Preservation takes up about 60 percent of the mayor’s 300,000-unit plan, a City Hall spokeswoman said. And two-thirds of the 77,000 affordable units were existing homes the city financed and kept under rent regulation.

City housing officials have been scouring properties in emerging residential markets, such as Crown Heights and Bushwick, both in Brooklyn, and Washington Heights, to keep residents in their homes. 

The prices of units in those markets across the city will continue to rise as property values increase if the city doesn’t get there first, housing lenders say.

“They’re small buildings, no inclusionary component, not happening with tax credits,” Riggs said. “It’s going to be building by building with owners getting comfortable with the city’s housing program.”

Update: This story has been edited from the print version to reflect more current data on the de Blasio administration’s financing of affordable housing.

Source: commercial

Labor vs Lobbyists: A Look at the ‘Campaign to Stop REBNY Bullies’

The emails first began circulating last summer and intensified during the fall as the November elections approached. They were scathing in their criticism of the top industry body in New York real estate, labeling the organization as a “plague” on New York City and calling its leaders “a bunch of billionaire bullies and racketeers.”

One featured more than 30 political candidates running for various city offices—including mayor, public advocate, comptroller, borough president and City Council—holding up signs saying to “beware” of the “real estate bullies” in question. Others spread the word of public protests at City Hall and echoed calls for the state to investigate Mayor Bill de Blasio and his administration for operating pay-to-play schemes benefitting developers.

They were, and continue to be, the work of the Campaign to Stop REBNY Bullies, a protest initiative laying a wide variety of issues—from the city’s affordable housing shortage and homeless crisis to the displacement of small businesses and the influx of construction worker fatalities in recent years—squarely at the feet of the Real Estate Board of New York.

The campaign is led by Ray Rogers, a 73-year-old labor activist and organizer renowned in labor circles for his anti-corporate initiatives against the likes of Coca-Cola and textile manufacturer J.P. Stevens & Co. (the latter was dramatized in the Academy Award-winning 1979 film Norma Rae). Having made a career challenging the perceived greed of corporate entities and political institutions—often working on behalf of and alongside labor unions—Rogers and his organization Corporate Campaign have now set their sights on REBNY.

“My objective is to greatly diminish the political power of REBNY and to make REBNY something that you would not recognize today,” Rogers told Commercial Observer. “What REBNY should be in the business of is working with the vast majority of their membership, which is real estate agents and brokers, to help them buy and rent and sell properties. They should not have their dirty hands and their dirty money in politics, trying to undermine labor protections for construction workers and undermine every kind of rent control and rent stabilization.”

Upon launching last May, the Campaign to Stop REBNY Bullies produced and released a five-minute animated film entitled “Bullies,” which screened at the annual Workers Unite Film Festival. The animated short blames REBNY-backed policies for exacerbating high commercial rents that price out small businesses and for fostering unsafe working conditions on construction sites (in addition to drawing a curious, if unclear, connection between REBNY and real estate industry investment in the tobacco industry).

In the months since, the campaign has staged and participated in a handful of protests around the city designed to criticize the real estate industry’s influence over New York politics and public policy, and sought to get its message out by lobbying the support of dozens of political candidates vying for city positions—many of whom appeared in the aforementioned photos on email blasts and the campaign’s site, holding up signs labeling REBNY as “bullies.”

And this week, the campaign will stage its highest-profile protest to date outside of REBNY’s 122nd Annual Banquet at the New York Hilton Midtown—an occasion that will see U.S. Senate Minority Leader Chuck Schumer receive an award honoring his public service. Rogers announced the protest with an open letter to Schumer voicing “displeasure” at the senator’s acceptance of the award—citing REBNY’s support of the Independent Democratic Conference (IDC), a group of eight Democratic New York state senators who align themselves with senate Republicans, enabling the GOP “to maintain control of the New York State Senate particularly as it relates to the interests of the heavyweights in the real estate industry,” the letter says.

photo by stoprebnybullies org 3 Labor vs Lobbyists: A Look at the Campaign to Stop REBNY Bullies
Labor activist Ray Rogers hands out literature at a Campaign to Stop REBNY Bullies protest last year. Photo: Campaign to Stop REBNY Bullies

REBNY discounts Rogers’ efforts as a union-backed initiative that’s part and parcel of the building trades unions’ ongoing battle for relevance in a construction sector that’s increasingly veering in the favor of nonunion contractors. In particular, the trade association pointed to Metallic Lathers and Reinforcing Ironworkers Local 46 as the driving force behind the Campaign to Stop REBNY Bullies and as Rogers’ primary financial backers.

“We respect Local 46’s right to free expression,” a REBNY spokesman said in a statement. “We wish them well as they seek to more effectively market their services to address the needs of a 21st century construction site.”

Rogers acknowledged that Local 46 supports the Campaign to Stop REBNY Bullies but disputed the notion that any union had hired him with the express goal of lodging an anti-REBNY smear campaign. Rather, he said his interest in the real estate industry group dated back several years and was initially motivated by the issue of construction safety and hazardous working conditions on construction sites. He added that he had had conversations with numerous union leaders about the prospect of taking a stand against REBNY, only for those parties to eventually back out.

“I tried to get [other] labor unions involved but couldn’t get anyone to really do it with me,” Rogers said. “There are a lot of labor leaders out there that have shown great fear, but the labor union was not built because people were scared to fight. Labor leaders have got to start realizing that [unions were] built on activism and courage. I’m so sick of hearing about how ‘REBNY is destroying us’—well, you have an opportunity to turn the tables.” (Local 46 did not return multiple requests for comment.)

While the matter of organized labor plays an undoubtedly significant role in the Campaign to Stop REBNY Bullies’ platform (among the campaign’s goals is for at least 90 percent of New York City construction workers to be working under union contracts), the initiative has gained support from political candidates and social justice advocates passionate about issues ranging from the future viability of the city’s small businesses to the influence that corporate-backed industry groups like REBNY have over the political system.

“I’m not anti-real estate; real estate is important to New York City. But, I do believe REBNY wields tremendous clout over our political system, and I don’t think any one entity should have that,” Sal Albanese, the former city councilman who challenged Mayor de Blasio in last year’s Democratic mayoral primary (and ran in the general election as the Reform Party candidate), told CO.

Albanese described REBNY has having “disproportionately outsized influence over our politics” at the city and state level, citing the role that real estate interests had in the corruption trials of former state politicians Sheldon Silver and Dean Skelos.

“These guys have deep pockets, and they know how to manipulate the political process to their benefit—our campaign finance laws make that possible,” he said. “Chuck Schumer isn’t alone; Bill de Blasio, a so-called progressive, is in the pocket of big real estate. There’s no single entity in the city or state of New York that wields more influence.”

sal albanese d mayor Labor vs Lobbyists: A Look at the Campaign to Stop REBNY Bullies
Sal Albanese is among the New York City political candidates to have supported the Campaign to Stop REBNY Bullies. Photo: Campaign to Stop REBNY Bullies

Albanese also criticized the industry group for its role in stunting the progress of the controversial Small Business Jobs Survival Act (SBJSA), which would make it easier for commercial tenants to renew their leases while hindering landlords’ abilities to raise rents at their own discretion. REBNY President John Banks has labeled the proposed law “unconstitutional.”

That issue, in particular, has drawn support for the Campaign to Stop REBNY Bullies from activists like Marni Halasa, who unsuccessfully challenged new City Council Speaker Corey Johnson for his seat representing the Third District on Manhattan’s West Side. Halasa said Rogers’ campaign “highlights an important issue that the average layperson is unaware of: how big real estate actively works against the public.”

“I think Ray has really galvanized small business activists from all over the city to come together, and that’s often difficult,” she noted, pointing to the issue of “hyper-gentrification” that negatively impacts neighborhoods and small businesses as the primary reason she supports the campaign. “A bill that would provide small business owners with leasehold rights and the right to renew their leases—if that can get not just a public hearing but support and passage—would be huge. But does REBNY want that? I’m sure they don’t.”

Albanese agreed that passage of the SBJSA would be “one of the barometers” of the campaign’s success—“If they could pass significant legislation that REBNY opposes, that would be a major win for [Rogers] and the movement,” he said—as would campaign finance reform “that would limit [REBNY’s] influence.”

Albanese—who along with Halasa is among the candidates who had their picture taken holding Stop REBNY Bullies slogans—also contested the notion that Rogers is merely doing the unions’ bidding under the guise of a collectivist, anti-corporate campaign. “Ray Rogers is not somebody you can put up to anything,” he said. “He’s got a history of being an activist and an organizer around the country, and he takes on causes because he believes in them.”

Of course, Rogers’ campaign still has a long way to go in terms of getting anywhere near the traction it would need to attain its lofty goals; the “Bullies” animated short has only just over 1,000 views on YouTube, and sources with knowledge of REBNY’s thinking told CO that the organization has been far from intimidated by the relatively tepid turnout at some of the campaign’s protests to date.

Rogers himself is under no illusions about the task that he has set for himself and the work that lies ahead should he wish to realize his campaign’s goals.

“I say to people all the time that, when you confront powerful institutions, you cannot expect to gain any meaningful concessions or justice unless you’re backed by a significant force or power yourself—it’s not just one demonstration after another,” he noted. “I need to raise money, just like political leaders. We’re taking on the most powerful industry—the most powerful lobby and institution—in the state.”

Source: commercial

Loft Landing: Inside the Mayor-Backed Fight to Protect the City’s Artists Lofts

Just shy of two weeks before Election Day and with victory a foregone conclusion, Mayor Bill de Blasio turned his attention to the future of the artists of New York City.

The mayor hunched his body into a creaky freight elevator inside 475 Kent Avenue—a South Williamsburg former factory home to scores of painters, sculptors and photographers—rode up to a ninth-floor studio and announced the city would change how it regulates loft spaces.

De Blasio has never lived in a loft himself, but his wife is a poet and both speak frequently about the vital contributions that the city’s artists have made in shaping New York’s identity.

“This is about making sure the people who make New York City great can afford to live here. We don’t want to lose one of the most essential parts of New York City,” de Blasio said at an Oct. 25 press conference, standing in front of a sign that read “Keeping Lofts Affordable” inside a studio at 475 Kent Avenue.

At the press conference, de Blasio revealed three ways he wants the city to modify how it follows the Loft Law, a state law that gives rental protections to prevent landlords from raising rents willy-nilly on about 10,000 tenants living in formerly industrial loft units. Per the mayor’s proposal, the city would make tenants prove their loft space is their primary residence; allow all occupants of a loft, including family members, to apply for legal protection; and keep units under rent-regulation even if a tenant takes a buyout.

The mayor blamed the Bloomberg administration for inadvertently reducing the number of rent-regulated lofts by 30 percent in the last 15 years.

“The sad reality is we lost those protections not by accident,” he said. “It was a series of choices made at the state level and made by the previous mayoral administration that really favored the private sector over the needs of tenants.” 

And he declared that artists deserved to live in the warehouse spaces they inhabit while lambasting landlords for pricing them out of their neighborhoods.

“We have to make it harder for landlords to take buildings market rate,” de Blasio continued. “Once a loft is out of rent-regulation forget it; it’s never going to be affordable again. We’re fighting for every single loft.”

The next day, a couple who runs Williamsburg dance studio Cave 12 at 58 Grand Street—about half a mile north of where the mayor stood at 475 Kent Avenue—saw their legalization application rejected by the state legislature-enacted New York City Loft Board, which regulates conversions of industrial spaces to residential ones. Board members argued that the basement-level arts space lacked external windows because it had a retractable steel gate that rolled down in front of a wall with windows.

Ximena Garnica, a choreographer and one of the Cave tenants for more than two decades, called the reasoning “absurd.” She removed the gate and is currently appealing the decision.

“How is it possible that this hyper-technicality could undermine the original intention of the law? Our space has windows,” Garnica told Commercial Observer. “Everybody who sees a picture of the building says, ‘What? I don’t understand.’ Just because of the windows, we’re ineligible for coverage?”

The challenges that artists face to live and work in an affordable part of the city have become almost insurmountable.

Owners continue to scour rapidly gentrifying neighborhoods for workaday warehouses they can gut and redevelop for wealthier tenants. And the pressures of New York’s rising cost of living has caused many artists to move upstate, out west or abroad in search of an affordable community.

New Yorkers who live in large commercial warehouses have since 1982 been able to petition the city to legalize their apartments, bring them up to code and become rent-regulated tenants (although the original law was mostly limited to buildings around Soho). A 2010 revision brought thousands of outerborough tenants under the law’s auspices, though the law limited protections to those in three of the city’s 16 industrial zones—in the Brooklyn neighborhoods of Greenpoint and Williamsburg and in Long Island City, Queens—and added a number of exemptions including a requirement for windows to face the street or a yard.

But the political tide steadily rising against artists may be turning.

City Hall has engaged with artist activists over regulations after activists asked the mayor in mid-November, after the election, to revise his proposed Loft Board recommendations. 

Forcing tenants to prove that their loft has been their primary residence in order to receive coverage is an onerous burden, advocates have argued since 2009. Instead, they want the city to clarify what constitutes an incompatible use for residential living, such as having a working factory in the building, and consider a new building code just for live-work spaces.

“Our buildings are live-work buildings, not apartment spaces, and you cannot apply the same type of building code to a brand new apartment building,” said 475 Kent Avenue tenant activist Eve Sussman, who hosted the mayor for his October press conference at her studio. “All of these code issues cause snarl ups and cause [New York City Department of Buildings] plan examiners to reject plans to codify and legalize live-work space.”

Others want the Loft Board to stop ruling on new cases until the city revises its regulations.

“It’s like trying to change a tire while driving a car,” Garnica said. 

Tenant leaders and advocates met with City Hall officials two weeks ago to discuss what regulatory changes they would like the Loft Board to make, and sources told CO that the Loft Board has tabled discussions on the recommendations until the mayor submits new ones. A de Blasio spokeswoman said conversations with tenant advocates are “ongoing.”

As city bureaucrats and tenants haggle over enforcement, state lawmakers will try to make an even wider swath of loft buildings legal.

The Democratic-controlled Assembly passed a bill in June removing some of the limitations in the 2010 law, but it never got out of the Republican-controlled Senate Rules Committee. Democratic lawmakers had tried to make a deal linking the Loft Law revision to a Republican-friendly bill, but nothing materialized.

“The Senate doesn’t pass any tenant legislation unless they get something for landlords. They weren’t interested in a bill giving tenants more protections than they already had,” said Assemblyman Joe Lentol, who is pushing for a Loft Law revision. “If anyone thinks anything will get enacted on the merits, they should know better when it comes to tenant protections. That’s sad but it’s true.”

But the Senate may not be in Republican hands three months from now.

Gov. Andrew Cuomo and Democratic leaders have been working to reunify a group of eight breakaway Democratic senators, who caucus with Republicans, with the mainline conference. With another rogue senator, Brooklyn’s Simcha Felder, they could effectively wrest control of the upper chamber from the GOP and determine what legislation reaches the floor.

In the meantime, Senate Republicans say that the Loft Law remains “under consideration” as they await de Blasio’s 2018 legislative agenda.

“We’re willing to look at what he gives us,” said Senate Housing Committee Director Lorrie Pizzola. “We’re glad to work with him and all the sides in the process to see what we can do on the Loft Law or other housing initiatives.”

Tenants are cautiously hopeful that the law will be revised in a way that protects new artists and keeps others in their current spaces.

“We have an equal shot at both and it’s just about tenants staying vigilant in Albany and with the mayor’s office,” Sussman said. “But we can’t take a year to decide these things. We need to figure it out in the next couple months. Otherwise people could lose their homes.”


Source: commercial

Armory Conflict: Is the Mayor Willing to Kill a Development Over Subsidies?

Controversy over the Bedford Union Armory has roiled the working class, largely West Indian and African American community of Crown Heights, Brooklyn for the past three years. It’s a classic gentrification tale: public land, a historic building, developers wracked by scandal, a historically black community overwhelmed by tenant harassment, rising rents, thousands of new white arrivals and a city government intent on keeping its ambitious affordable housing plan on track.

Developer BFC Partners has filed plans to redevelop the armory, which occupies much of the block between Bedford Avenue, Rogers Avenue, Union Street and President Street, into a mix of rentals, condominiums, office space for nonprofits and a recreational center. If the City Council approves the plan (and last week it sailed through a City Planning Commission vote by 11 to 1), the housing portion will include 330 rentals, half of which would rent for below-market rates, and 60 condos, 12 of which would set aside for low- and middle-income households. Thirty percent of the rentals would be “permanently affordable,” as required by the city’s Mandatory Inclusionary Housing policy, which  demands that developers building on rezoned land reserve at least a quarter of their units as affordable. The rest of the apartments, 165 rentals and 48 condos, would be market rate.

In some ways, the project is a referendum on Mayor Bill de Blasio’s housing plan, which recently expanded to a goal of building and preserving 300,000 homes by 2026 (up from an original target of 200,000 units by 2024). It highlights the drawbacks of leaning on for-profit developers to produce affordable housing, particularly in communities of color that have grown to view large real estate companies as agents of gentrification and displacement.

Local activists have railed against the housing part of the armory development plan. While the proposal calls for 165 below-market rentals, only 67 of those apartments, or 20 percent, would be affordable to a typical family in Crown Heights. With the median household income in the neighborhood hovering around $41,425, the city would have to kick in a lot more money for the entire development to rent at rates that locals could afford. And the mayor’s office has refused to subsidize the armory’s housing, despite nearly two years of emotionally charged public meetings and protests.

Housing organizers charge that the city’s deal with BFC is a “gentrification plan.” It will bring housing that, by and large, only newcomers can afford. (A BFC spokesman said the company declined to comment. But the developer has said before that it is building as much affordable housing as it can without city subsidy.)

“On public land, we should ensure that we are building 100 percent affordable,” said Jonathan Westin, the director of activist group New York Communities for Change (NYCC). “The city and the administration are following a different philosophy, one that’s more of a gentrification plan, that hands over luxury housing units to developers like BFC.”

Emily Goldstein, a campaign organizer at the Association for Neighborhood Housing and Development, argued that building mostly middle-income housing on a large, publicly owned site would be a “missed opportunity.”

“There’s only so much public land in the city,” she said. “And public land creates opportunity to try creative solutions, to do deep affordability that a private developer may not want to try. [The city] can only do so much cajoling [with private owners]. They have control over public land. Then why not do the things that are hardest to do?”

Local activists have also lobbied for the city to transfer the land into a community land trust, a move that would help maintain long-term affordability through legal restrictions and ensure that a group of local stakeholders control the property. Ideally, the property would be developed and operated by a nonprofit developer, Goldstein said.

bedford president armory jeh Armory Conflict: Is the Mayor Willing to Kill a Development Over Subsidies?
The Bedford Union Armory at 1555 Bedford Avenue. Photo: Wikimedia Commons

A city spokesman shot back that affordable housing groups shouldn’t keep trying to shut down mixed-income projects in favor of an entirely subsidized generation of housing. The mayor’s original housing plan has budgeted for roughly 12,000 new units of affordable housing—out of a projected 80,000 total—to be created through the Mandatory Inclusionary Housing policy. (The mayor’s office didn’t provide estimates for the number of inclusionary units expected under the expanded 300,000-unit plan, which expects to produce 40,000 additional new construction apartments by 2026.) The city considers inclusionary units “free” because it does not subsidize them, but those developers often seek other kinds of state and federal tax incentives, as well as city ones like 421a (since named Affordable New York Housing Program).

However, the rest of the armory plan will bring benefits that southern Crown Heights has long craved. The armory’s soaring, arched drill hall will become a 68,000-square-foot public recreation center with a pool, basketball courts, turf fields and community space for meetings. The head house along Bedford Avenue, which was once classrooms, offices and a firing range, will be renovated into 40,700 square feet of office space for nonprofits and community groups. BFC plans to preserve the historic brick exterior of the head house, while demolishing the former stables on President Street to make way for new condos.

The armory has also sparked heated electoral debates. Councilwoman Laurie Cumbo, who has represented the area since 2014, has been pushing for city funding to make the whole project affordable to families earning 50 or 60 percent of the city’s Area Median Income, which works out to $48,960 for a family of three. Although she officially came out against the development in May, she waited a year and a half to take a strong position on the armory, leaving her vulnerable to criticism that she supported it. Cumbo recently defeated a tough primary challenger named Ede Fox, who built much of her campaign around accusing Cumbo of “flip-flopping” on the armory.

Ultimately, Cumbo will cast the deciding vote on whether the redevelopment of the armory lives or dies. BFC is seeking a rezoning in order to build a 13-story residential tower next to the armory, and Cumbo has the power to kill the project when it reaches the City Council for a vote in the last step of the public review process. The councilwoman wasn’t available to comment, but her spokeswoman said she still opposes the project and intends to vote it down.

In his formal recommendation issued in September, Brooklyn Borough President Eric Adams came out in favor of scrapping the condos and building 100 percent affordable housing on the site. He pushed for replacing the market-rate condos and rentals with high-income affordable units, which would likely go to families earning between $85,900 and $141,735 (100 to 165 percent AMI, based on a three-person household). The condos were supposed to pay for a third of the $31 million construction cost for the recreation center, and the market-rate rentals were expected to fund a portion of the facility’s operating costs. Slashing those units would create a significant funding gap, which could be closed by getting rid of the pool, the sports center’s most expensive piece, according to Adams. He also recommended setting aside 20 percent of the rentals to house the homeless, a move that could be funded by the city’s new Our Space program.

The Art Nouveau armory at 1555 Bedford Avenue was originally built in 1903 for the Troop C Cavalry unit, a National Guard outfit organized in 1895 to fight in the Spanish-American War. The National Guard used the building as a drill hall for decades, but in recent years, the property has been rented out mostly for film shoots and Hasidic weddings. The military left the facility in 2011, and the city took control of it in 2013.

Later that year, the New York City Economic Development Corporation issued a request for proposals for the 138,000-square-foot structure. The RFP didn’t mention housing at all. But it did require a project that will serve the community, generate cash flow for at least the next decade and preserve the character of the existing building.

A handful of developers submitted proposals, including Triangle Equities, Steiner NYC, RBH Group and a partnership between Jonathan Rose Companies and Poko Partners, according to documents obtained through a Freedom of Information Law request. All of the bids included housing and community space. But each team came armed with its own ideas for retail and commercial portions of the complex. Steiner pitched a Brooklyn outpost for the artsy, Berlin-based Michelberger Hotel with a performing arts space and greenhouse. RBH proposed a WeWork, an aeroponic (soilless) farm and an Eataly, as well as public gardens and a farmer’s market. Triangle floated a grocery store, a New York Sports Club and an Alamo Drafthouse Cinema.

However, the winning plan came from BFC Partners, Slate Property Group and then-Knicks player Carmelo Anthony’s Melo Enterprises. In March 2014, as part of the RFP process, BFC sent a letter to EDC outlining the future ownership structure of the armory development. BFC would own 50 percent of the complex, Slate would control 40.1 percent, and Melo Enterprises would own 9.9 percent.

In June 2015, the developers signed a contract, known in development-speak as a term sheet, with EDC. They agreed not to take any city subsidies or financing for the housing portion of the project, except in the form of tax-exempt bonds. The only municipal cash mentioned in the early documents released by EDC is $1 million dollars set aside from the Brooklyn borough president’s office, an amount originally earmarked for the armory by Marty Markowitz when he held the post. But to fund the construction of the recreation center, the developers intend to apply for roughly $6.5 million in state funding and $3 million in city discretionary funding, according to a financial document from BFC dated September 2016.

Without additional money from the city, BFC can only build 50 percent affordable housing. The market-rate rentals and condos are necessary to subsidize the below-market rentals and the recreation center, BFC’s John Valladares argued at a public meeting in February. Financial documents back that up: The condos, for example, are expected to net nearly $42 million. But after $38 million in development costs and $2.5 million in broker’s fees are subtracted from the equation, only $737,000 is left. Similarly, the rental building will generate roughly $8.2 million annually, but once operating costs, real estate taxes and debt service are subtracted, it will generate roughly $800,000 a year.

And now, BFC has less capital to draw on than when it first won the contract for the armory. Both of its original development partners dropped out of the project last year. In the spring of 2016, Slate got caught up in a scandal involving Rivington House, a Lower East Side nursing home it acquired just as the previous owner convinced the city to lift a deed restriction on the property. After de Blasio announced that he would take a “very hard look” at Slate’s involvement in the armory, the developer backed out of the project in August 2016.

At the same time, community activists sharply criticized Anthony for his financial stake in the armory in an open letter published by the New York Daily News. “This development is not good for Crown Heights, and it’s not good for Brooklyn,” wrote Bertha Lewis, the head of the Black Institute. “Your name should not be associated with such a terrible deal for New Yorkers…As it stands, the Bedford Armory development will further exacerbate the gentrification of Crown Heights.”

Anthony, who had planned to help fund the recreation center, jumped ship in September 2016. This March, BFC replaced its former equity partners by bringing in a nonprofit developer, the Local Community Development Corporation of Crown Heights.

Given that the project doesn’t have a large financial cushion, real estate experts said that the city cannot ask the developers to pour more money into construction or operations.

“When you want to do an affordable housing project with a [for-profit] developer, you have to see what the developer can stand,” said Stewart Sterk, the director of the Center for Real Estate Law & Policy at the Cardozo School of Law. “If you ask for too much, the developer can always do other things with its money. And if it won’t get a return on its investment, it will go elsewhere. The city is never in a good position to evaluate the developer’s risk in the project. The city knows that if it asks too much of a developer, the project will fold.”

Nevertheless, community groups continue to pressure the administration and city politicians into subsidizing the armory. Last week, protesters from New York Communities for Change and the Crown Heights Tenant Union pushed their way into a City Planning meeting about the armory plan.

As the City Planning Commission green-lighted the proposal, neighborhood City Council candidate Jabari Brisport and Joel Feingold, a founding member of the tenant union, were arrested and hauled away in handcuffs. Brisport and NYCC hosted another protest a few days later where they blocked Broadway in front of City Hall, demanding that Laurie Cumbo “Kill the deal, not tweak the deal.”


Source: commercial

Brooklyn’s Broadway Junction Sees Signals to Press Forward

Broadway Junction is at a critical juncture.

The diamond-shaped area in Brooklyn at the intersection of five different neighborhoods, four different subway lines and a Long Island Rail Road station, will undergo dramatic changes once City Hall moves a city agency to the locale.

The area was rezoned in 2016. Now, the city is investing $267 million in capital improvements for parts of Ocean Hill and East New York, and the city Economic Development Corporation is putting out a bid for a new Human Resources Administration office next month. (Sources at the EDC said they don’t expect the city to make a decision for another nine to 12 months after that.)

Developer Jonas Rudofsky put in a bid for the city site and hopes to lure the HRA to a 15-story project he wants to build on Atlantic Avenue. Rudofsky is also preparing to open a medical complex at 101 Pennsylvania Avenue, makign it one of the few medical buildings in the area. It will be a glassy seven-story high rise on the site of the former East New York Savings Bank with 121,000 square feet and 153 parking spaces.

“I think there’s significant demand, and transportation access is excellent,” Rudofsky said. “The community is much maligned, even though there’s nice housing stock in the city that would complement high rise buildings.”

It may take another decade, and maybe even longer than that, but change is coming to Broadway Junction, which touches Bushwick, Ocean Hill, Brownsville, Cypress Hills and East New York.

A number of developers are bullish about Broadway Junction, but few want to take the first step.

“If I won the lottery tomorrow, I would use all the money to buy land in that neighborhood,” said Timothy King, the managing partner of CPEX Real Estate. “There’s very little around it. That’s almost a benefit because it gives the city and developers a blank palette to paint on and an impetus to jump-start the neighborhood.”

The major commercial corridors in the area—Atlantic Avenue, Broadway, Fulton Street, Eastern Parkway and Jamaica Avenue—have few retail shops and banks. There are only a handful of grocery stores, although a C-Town is coming to Eastern Parkway and Saratoga Avenue in Ocean Hill, next summer. 

There are barely any restaurants around the Broadway Junction subway station (home to the A, C, J and L lines) except Paphos Diner on Fulton Street, several takeout Chinese spots on Rockaway Avenue and a smattering of Popeye’s and McDonald’s fast-food franchises.

Those looking for department stores have to take the train to Woodhaven or Downtown Brooklyn or a bus to Spring Creek, a southeastern part of East New York that sits on Jamaica Bay.

But Broadway Junction’s multiple transit options and wide avenues could eventually attract commercial developers looking to add office space and retail sites.

The area directly south of Broadway Junction in East New York is a thriving industrial zone—one of the last large swaths of land in the city zoned for manufacturing that is home to 250 businesses and 3,000 jobs. (It’s also the biggest of the neighborhoods affected by the rezoning.)

“It reminds me of Long Island City [in Queens] 15 years ago,” King said. “It was essentially a backwater industrial area. Once you reach a critical mass of office and residential development it transforms into a full-time family-friendly neighborhood.”

Mayor Bill de Blasio, who campaigned on a platform of reducing inequality, has zeroed in on East New York and Ocean Hill as part of his citywide plan to build new affordable housing. 

In 2015, he proposed rezoning 190 blocks of Ocean Hill and northern East New York near Broadway Junction to foster more commercial office space, add 6,000 new apartments and invest $16.7 million in infrastructure upgrades for East New York’s industrial zone. 

The City Council passed the rezoning in April 2016 over the objections of East New York community leaders who wanted greater levels of affordability in residential projects.

Despite all this promise, there has been little activity in Broadway Junction since the rezoning passed.

Commercial property sales in East Brooklyn fell 35 percent from 2015 to 2016. There were 167 such sales in East Brooklyn totaling $294 million last year, down from 102 sales for $449 million in 2015, according to a 2016 report by TerraCRG. In the first half of this year, there were only 85 sales totaling $106 million, according to the brokerage.

Still, some industry leaders see the Broadway Junction and think of Downtown Brooklyn’s transformation.

“I’m very excited about the commercial prospects of East New York,” said Tucker Reed, a principal at Totem and the former head of the Downtown Brooklyn Partnership. “You have one of the best transit hubs in the city, you have smart land use policy, you have buildings of an interesting character, and you have vacant land and underutilized buildings. That’s kind of a rare proposition so close to transit.”

Reed predicts many of the back office operations for government, finance, insurance and real estate, which have called Downtown Brooklyn and Lower Manhattan home, could look for lower-priced alternatives further east when those spaces exist.

“Broadway Junction to me is the logical place for the commercial market to anchor itself there,” Reed added. “Generally people in real estate like to be followers and want to see how markets are tested. Then capital and investment flows once one or two projects prove their feasibility.”

“The rezoning will spark development especially with the new jobs, good roads and transit,” said Jonathan Berman, an investment sales director at Ariel Property Advisors. “It won’t be a high-class neighborhood, but it could be a middle-class neighborhood.”

And it’s certainly not to say that nothing is happening in real estate.

Phipps Houses is constructing a 15-story affordable housing complex at 33-01 Atlantic Avenue in East New York, which will contain 403 units and 21,000 square feet of retail space on the ground floor. 

B&B Urban filed plans this summer to build a 10-story building with 100 below-market rate units at 315 Linwood Street in Cypress Hills with 3,660 square feet of commercial space.

Few could have imagined that process occurring through some parts of Brooklyn in the past three decades.

Bushwick was the site of some of the city’s worst arson following the 1977 blackout.

“I watched as the neighborhood literally burnt to the ground,” King said. “Today Bushwick is considered one of the most desirable neighborhoods in the borough. That will happen in East New York as well…It is inevitable over time that you would see the same changes occurring there as have throughout the rest of the borough.”

Not everybody is nearly as excited about the idea of major development coming to the area and the mayor’s plans.

“That rezoning was a removal plan for the people who live here,” said Brother Paul Muhammad of the Coalition for Community Advancement. “There was never a significant investment into the people who live here, who have systematically gone through destabilization.”

More than one-third of families who live in the rezoned areas earn below 30 percent of the area median income, and activists believe a good percent of residents would not be able to afford to stay in East New York and Ocean Hill. City Comptroller Scott Stringer estimated that as many as 50,000 people would face a risk of displacement, in his December 2015 analysis of the rezoning plan.

East Brooklyn activist Tony Herbert predicts that many of his neighbors would leave New York entirely if housing prices rose.

“Where could they go? You can’t afford to live in the rest of the city,” Hebert said. “They’d have to find some type of new income, be put in a shelter or move out of the city.”

And there are the normal worries about, in TerraCRG’s Michael Hernandez’s words, the fact that it’s still a “pretty untested market.” He added, “It’s going to take time. These anchor tenants or even smaller tenants need to see something before they can make a push, and there’s nothing of size that gives them a vision to be there. There are a lot of vacant lots but nothing has been developed yet.”


Source: commercial

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