On December 1, 2006, Disque D. Deane, chairman of Starrett City Associates, announced the sale of Spring Creek Towers — better known as Starrett City, a 140-acre apartment complex on Jamaica Bay in Brooklyn. Starrett City is the largest federally subsidized rental complex in the country, comprising 46 towers, 5,881 apartments, and 14,000 residents, as well as schools, churches, synagogues, a shopping center, a post office, and a power plant.
The complex was built in the mid-1970s by a limited-profit housing corporation under the state’s Mitchell-Lama program to provide subsidized housing for moderate-income workers. Today about 90% of the tenants receive direct federal rent subsidies or other types of government assistance from the city and state.
At the end of 2006, real estate executives predicted that bids for Starrett City could be over a billion dollars. Initial plans were to have the complex sold by March of 2007. At the time that Starrett City Associates put the complex up for sale, there was a great concern that the new owners would leave the Mitchell-Lama program, thus increasing the rents for many of the tenants. Other critics worried that a new owner would develop vast amounts of the vacant land. Several elected officials, including then-Governor Eliot Spitzer (D), worked to reassure residents that units would remain affordable despite the sale.
On February 8, 2007, Clipper Equity L.L.C., a partnership of David Bistricer and Sam Levinson, outbid eight rivals and agreed to pay $1.3 billion dollars for the complex ($221,000 per apartment). The federal Department of Housing and Urban Development (HUD) and the state were able to reject or approve sale plans. New York State is involved primarily because it holds Starrett City’s $234.4 million interest-free mortgage.
Some city officials, including Mayor Bloomberg and various Members of Congress, expressed concerns that Clipper was not only an inexperienced landlord but also would leave the Mitchell-Lama program, effectively raise rents for tenants. In February 2007, Senator Charles Schumer (D) called for a re-bid for Starrett City to address concerns that the federal government was excluded from the negotiations and that the bid was set too high to attract certain bids.
In March 2007, HUD rejected the proposed $1.3 billion sale of Starrett City to Clipper Equities, arguing that Clipper failed to supply adequate financial information or a plan for how the complex would remain “a viable community for New Yorkers of modest means.”
Shortly after Clipper Equities’ first proposal was blocked by HUD, a second proposal to buy Starrett City was rejected by the New York State Department of Housing and Urban Development, despite gathering some influential support. Many opponents of the plan, including Senator Schumer, believed that the high selling price for the housing complex would force the new owners to raise rents, cut services, and develop vacant lands to make up the costs.
After attempts to sell Starrett City were blocked, the owners of Starrett City decided in August of 2007 to take steps towards withdrawing from the Mitchell-Lama program. Under the Mitchell-Lama program, owners can leave the program after 20 years. If an owner decides to leave the program, they are required to begin paying full property taxes and must also repay their no-interest mortgage ($234.4 million).
Many officials, including City Council Speaker Christine Quinn (D-3rd District), have urged state officials to reject the bid to leave the Mitchell-Lama program. Citing concerns about the lack of affordable housing, critics believe that the housing complex should remain an option for below-market renters. An agreement to this effect was made in June of 2008 between city, state and federal officials and the owners of Starrett City.
The agreement reached will ensure that rents remain affordable regardless of who owns the property. As part of the agreement, city officials have committed to helping the new owners rezone some plots to allow for ground floor retail, and the state agreed to provide relief to the owners on interest payments owed. A new round of bidding for the development opened up shortly after the deal was reached.
In the second round of bidding for the housing complex, eight bids were submitted. The owners then narrowed down the bids and asked a few selected groups to resubmit more detailed plans by the end of September. While four bids were initially chosen to move forward, HUD disqualified two of the bids shortly before they were due because of concerns with “the financial and managerial capacity and the experience necessary to own and operate Starrett City.”
Local and state officials agreed with the HUD’s decision to disqualify the bids from NHP Foundation and the Greater Allen Development Corporation. The remaining two bids were from Westbrook Partners (who teamed up with Citigroup Inc., the New York City Central Labor Council, Phipps Houses, Provient Resources and the Metropolitan Council on Jewish Poverty) and the Cogsville Group (who partnered with the Housing Partnership Development Corporation, the Clarett Group and the Christian Cultural Center). The bids were expected to be between $600 and $800 million, down from $1.3 billion last year.
After initial review of the bids, Starrett City Associates eliminated one of the two bids. In February 2009, months after the bids were submitted, Starrett City Associates announced that the housing complex was no longer for sale. Some speculate that the bidder’s price of $700 million was too low.
In April 2009, it was announced that Starrett City Associates was in discussion with federal, state and local officials to allow the owners to refinance the complex for $500 million (80% of the value). Under this agreement, Starrett City Associates will pay off a $235 million mortgage while still profiting $200 million. The agreement would require that $40 million be used for structural and infrastructure improvements. Having such an agreement would allow the facility to remain in the Mitchell-Lama Program, keeping rents affordable.
On July 29, 2009, Governor Paterson (D) signed the agreement into legislation, hereby preserving Starrett City as affordable housing for another 30 years.