by Briana Warsing
Last Friday, Westview residents found red herrings outside their doors.
By Tuesday night, the Westview Task Force was saying that the red herring had a foul odor about it.
"Red herring" is common parlance for the thick book containing a proposed cooperative offering plan – in this case, the structural outline that is intended to take the building out of New York State’s Mitchell-Lama program and into private ownership by both tenants and landlord. Relied upon in the red herring is the Westview House Affordability Plan, titled "A Plan for Preservation of Affordable Housing and Withdrawal From the Mitchell-Lama Program." The Affordability Plan regulates pricing, and seeks to preserve Westview as affordable for both current and future tenants; it has yet to receive the requisite governmental approvals.
Though long-awaited, and though anticipated by a notice from the Westview Task Force two days earlier, the red herring was a bit of a surprise for tenants, some of whom have bemoaned a lack of prior communication about the nature of the plan.
And the Westview Task Force distributed a letter to tenants Tuesday night saying that the red herring should not have been distributed – charging the owners with bypassing negotiations in sending the red herring to the New York State Department of Law, which passes on the legality and correctness of such offering plans.
In a Friday, May 1 letter to David Hirschorn, the owners’ representative, the Task Force asked that he return to negotiations to resolve differences. At The WIRE’s press deadline, that’s where things stood.
Westview is still in the Mitchell-Lama system. Residents of Island House, where privatization has passed to the last stage (after the final-plan “black book”), received its red herring in a different sequence – after first having secured acceptance of its Affordability Plan, and then having left the Mitchell-Lama program.
If the terms described in the red herring survive through the entire process, current tenants will be able to buy their apartments at about $226 per square foot. Westview one-bedroom apartments range from 803 square feet to 872 square feet. Selling prices are based on share count (at $204.60 per share) rather than square footage. This means that smaller apartments will be somewhat under the $226/sqft cost, while larger apartments will be above that baseline number. (In the red herring, Westview’s per-square-foot prices are 25% higher than the Island House cost of $180/sqft.)
The average number of shares for a Westview one-bedroom (using 595 Main Street, apartment 312, currently vacant) is 825. The insider-offering price for apartment 312 is $177,041. If apartment 312 were sold, pursuant to the Affordability Plan, to a non-tenant (an outsider buying in), the asking price would be $588 per share, or $485,119, almost three times the insider cost. Monthly maintenance on that unit is listed as $883.42.
If the black book follows this red herring, tenants will have 90 days to decide whether to buy or stay as rental tenants. After that, the opportunity will go away. (At Island House, there was a short last-minute extension of the offering period, but Westview tenants can’t count on that happening in their case.)
For the plan to become effective, 15% of tenants (55 apartments of the total 361) must accept the offer and buy in.
Not All Affordable
The plan provides for the owners to have 127 apartments (35%) to sell or rent to outsiders at market-rate prices. At present, 38 apartments are vacant and likely to be included in the market-rate offerings, but the plan empowers the owners to choose the apartments to be added to create the total of 127. The red herring explains that it is “unlikely the Sponsor will elect to sell occupied apartments until they are vacated,” but does not specify which apartments those will be or how they will be selected. (The owners of Island House offered a buy-out to secure additional apartments.)
Insiders who buy will be able to sell their units after one year of ownership at double the purchase price – $409 per share (about $452 per square foot). Each succeeding year, the permissible sale price will increase 7.5% (in the second year, to $440 per share).
This means that a two-bedroom, two-bathroom, 1,376-square-foot, 1,665-share unit purchased at $357,404 can be sold for $714,808 after one year, or for $768,418.60 after two years.
But a flip tax will be imposed on sales. For the first two years, it will be 60% of gross profit. For the next six years, the flip tax will go down 5% each year to 30%. Then it will drop 2% each year until it reaches a final 20% in year 13.
Residents will be allowed to stay on as rental tenants, with controls on rent increases. The Affordability Plan imposes limitations on the rents that can be charged. The rent calculation starts with a 2009 DHCR Rent Order and is based on income, following guidelines published by the New York City Rent Guidelines Board. Lease succession of those apartments will not be permitted. They may go to the market-rate pool once the leaseholder is no longer in residence if the owners have not yet accumulated their 127 apartments; otherwise, it will be sold at the affordable price.
Market-rate apartments won’t be subject to affordability restrictions, and owners who purchase at market prices will pay no flip taxes.
Thus far, some residents say they feel that the red herring contains a good offer. They understand that comparable Manhattan apartment prices in buildings with doorkeeper, indoor pool, health club, and playroom cost far more than the most expensive Westview apartment. (Incidentally, 595 Main Street’s apartment 1204 is that most expensive Westview apartment. It is a 1,595-square foot three-bedroom, two-bathroom unit with a 269-square foot terrace. The listed insider price is $481,547.)
Other residents appear to agree with the Task Force that something better should be possible. A small sampling of residents polled by The WIRE agree that it will be difficult to go from paying $1,800 a month in rent, to (for example) a $3,400 maintenance-plus-mortgage bill, with the X factor being likely submetering of electricity in a drafty building. Additionally, the red herring requires a minimum of 10% down, which is $48,154.70 for apartment 1204, plus a two-month-maintenance contribution to the apartment corporation’s capital fund. These apartments are being sold as-is, so there is some intra-building grumbling about the owners ignoring current maintenance requests, and instead waiting for conversion so that maintenance and repairs will be at shareholder expense instead of the owners’s responsibility.