Summary of the Affordable Housing Forum on the City’s Selective Vesting Process under Local Law 37 of l996
Joseph Muriana, the President of UNHP, called the meeting to order and introduced the panel: Sarah Stevenson and Brian Kavenagh of NYU Law school; Ted Weinstein of HPD, Bill Frey of the Enterprise Foudnation.
Sarah Stevenson and Brian Kavenagh presented the results of their study of Local Law 37:
The students presented background information on Local Law 37 and the plans for the City’s implementation of the program as of December l997. The law represents a major shift in City policy. The city is determined to never take title as the City of New York. Local Law 37 allows the City to engineer the transfer of the title of the buildings from the current owner to a pre-determined third party.
They determined that the potential legal challenges to the taking should be overcome as long as the City treats owners of similar properties in the same manner. They reviewed the process of the taking in Tax Section 10 in the South Bronx. Once the judgment is signed by a judge, there is an 8 month process initiated. The first four months, the city must allow an owner to pay their taxes; during the next four months, the city must complete the transfer of the buildings to third parties.
The students raised a number of issues and suggested a number of recommendations to the program:
a) amend the law to lengthen the 8 month time frame;
b) use intermediate means to take control of the building after the four month mandatory redemption period; consider use of 7A Administrators;
c) develop as much information about the buildings as possible through use of the City’s code enforcement inspectors;
d) develop a common work scope for types of buildings;
e) develop standard loan documents;
f) offer 30 year tax relief;
g) restructure rents in vacant apartments and in occupied apartments in which tenants can afford to pay rent increases;
h) maintain flexible equity requirements to allow non-profits to participate as third parties;
i) maximize use of 1% loan money from the City to hold down rents.
Ted Weinstein of HPD explained that the Local Law 37 is part of the City’s anti-abandonment program. The program has three aspects: the tax lien sales, where city liens are sold to a trust; the new In Rem process as part of Local Law 37; and new outreach to buildings that were in difficult situations.
The new In Rem process is being implemented in Tax Section 10 in the South Bronx. The taking includes properties previously identified in the Department of Finance’s In Rem listings 40-41 and 42. Tax Section 10 is a pilot; it was selected because it was felt that there was a manageable number of properties that would be taken in the vesting. There were initially 174 properties on the initial list. There are 91 still included in the current judgment as it has been submitted to the court for a judge’s signature. 42 of the properties are occupied buildings; 25 of those are over 4 units. 22 properties are vacant structures; 8 of those are vacant structures over 4. 27 properties are vacant lots.
The papers are waiting for the judge’s signature. As soon as the judge signs the order, the 4 month mandatory redemption period begins. An owner who comes in redeem their building will have to put at least 50% of the total open city charge down to enter an In Rem agreement. After the four month mandatory redemption period is concluded, the City cannot make an agreement with the old owner. The City has another 4 months to transfer the title to a third party. If the transfer does not take place in the second 4 months, the process has to start all over again.
As part of the new law, the City has to identify the ultimate third party recipient of the deed. The City must submit the names of the new third party owners to the City Council. The City Council has 45 days in which the Council can act to reject a specific third party.
The City is currently preparing a Request for Qualifications for the list of third party transferees. He urged anyone interested to apply to the RFQ when it is issued since the City will probably use the list for future vestings.
The City is anticipating grouping the buildings that are taken and matching them with qualified third party transferees. The City is estimating that the renovation cost per occupied unit will be $25,000.
The city is actively discussing utilizing an intermediary/holding company to take ownership prior to being transferred to the ultimate third party owner.
The City has targeted $30 million for the program.
William Frey was introduced. He noted that the key to the vesting taking place successfully and with minimum discomfort for tenants in occupied buildings is to secure operations quickly. Transferring ownership and lining up renovation money cannot happen in the tight time frame identified in the legislation. One way to address that is to transfer the property to a holding company with enough working capital money to maintain the occupied buildings and give the tenants a sense that there will be improvements in the building in the near future.
He also noted that the City will probably be looking at ways to use existing programs like the 8A loan program and the PLP program other existing programs for small buildings to work with the housing that is taken.
He felt strongly that there is a role for both non-profits, for-profits and joint ventures between both.
He also indicated that there are ways to be creative about finding the necessary equity to allow non-profits to meet any potential equity requirement.
Questions and Answers:
Q. Will occupied buildings have the option of going into TIL or if HDFC’s already, will there be an option to enter those buildings into TIL?
A. No since the buildings will not be city owned. At this moment, HPD believes that there are 5 HDFC buildings in the vesting. A non-profit can apply and propose doing something themselves with the building to involve the tenants.
Q. How will the City Council be involved in the decision making process on third party transferees?
A. The City Council will have 45 days in which they could affirmatively reject an entity that has been identified as the third party for a building or set of buildings in the vesting.
Q. Does the third party have the right to reject buildings that might be included in a package for which they have been selected?
A. The City will try to match the third parties with packages that they can handle.
Q. Will the RFQ include questions about the groups’ interest or capacity to handle different types of buildings and rehabilitation?
A. The City anticipates that such a question will be included.
Q. Will there be a condition on the transfer to ensure that the building is put into and maintained in good condition? Can the city take the building away if the work is not done or the conditions not met?
A. There would be language in the loan agreements that would require that work be done.
Q. Is there a plan for dealing with existing tenants in 1-4 family buildings?
A. HPD is trying to identify owner-occupied buildings and is trying to do outreach to those buildings.
Q. Has there been an estimate of building renovation costs yet?
A. The HPD Division of Architecture has been out to most of the buildings. The average cost of rehabilitation in an occupied building is $25,000 per apt. and $70,000 in a vacant building.
Q. Have the buildings been clustered and what is the range of units in each cluster?
A. The final list of buildings cannot be determined until the 4 month mandatory redemption period ends.
Q. Can a group recommend a cluster to the City?
A. Ted Weinstein said he would inquire.
Q. Is there any procedure to deal with rents rolls that may be questionably legal due to non-filings or otherwise with DHCR?
A. It is anticipated that the City will use its rent re-structuring authority as part of the renovation loan. The City might consider implementing the restructuring earlier than is currently done in the PLP program.
Q. Will the rents be raised on occupied apartments?
A. That would have to be reviewed on a case by case basis. Without Section 8,there is a need to determine other ways to deal with the financial needs of the buildings.
Q. Will there be a restraint against third parties that may manage buildings for the holding company and will there be an asset cap on applicants for the RFQ similar to the NEP program?
A. The intent of the City is to get the ultimate third parties identified as quickly as possible and if a holding company is used to have the third party assume management prior to the actual transfer of title to them.
Q. How frequently will these vestings take place?
A. The intent is to keep moving to new areas on a regular basis. The amended law allows the City to take areas smaller than a tax section.
Q. How will operations be subsidized during the period prior to renovation; will ERP funds be used?
A. The City intends to develop a separate source of funds to use as a working capital fund.
Joseph Muriana thanked the audience and panelists for a very informative morning. It was announced that UNHP will be sponsoring a second forum on "Filling the Gap" in affordable housing development on Friday, May 8th at Fordham’s Lincoln Center Campus.