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by Robert Chira As reported in The Main Street WIRE (February 19), the City Council dropped a "bombshell" on owners of Mitchell-Lama housing - a 50-year extension in tax abatements for keeping their buildings in the housing program. But some owners, who had been facing increased City real-estate taxes as their original 30-year exemptions were nearing expiration, have already filed a notice of intent to withdraw from Mitchell-Lama, including the owners of Westview and Eastwood. Owners who complete a withdrawal process of about a year are freed from State rent regulation. Eastwood tenants eligible for Federal Section 8 assistance are protected, but for all others, rents can be raised to what the unregulated free market will bear. The City Council's action was an effort to arrest a growing crisis brought on by departures from Mitchell-Lama. In 2003 alone, 43 buildings were pulled out of the program, according to a recent study made by NYU's Furman Center for Real Estate and Urban Policy (www.law.nyu.edu/realestatecenter). These withdrawals and the risk of even more of them led to the truly extraordinary decision by the City Council - to forgo substantial real-estate tax revenues in an attempt to protect existing tenants from draconian rent increases. In terms of its effect on the Island's four Mitchell-Lama buildings, the Council's action may cause the owners of Eastwood, Island House, and Westview to reconsider their plans to withdraw. These owners have to reexamine the fundamental issue: . Should they continue the process of withdrawing from the system, pay off their outstanding State mortgage, incur real estate taxes, and hope to recover those extra costs plus earn greater profits through higher rents than the 6% profit allowed under Mitchell Lama? . Or should they stay in the system, continue to pay off the low-cost State mortgage, accept the substantial benefits of real estate tax abatements, and remain content with a 6% profit? If they withdraw, another question arises: Whether to continue rentals, or to sell units - either to current tenants (possibly at reduced insider prices) or in the open market. In the current very speculative housing market for rentals, coops and condominiums, the extension of tax abatements may not stop the Island's owners from leaving the system. The current "feverish" market (which some compare to the "dot-com bubble") has encouraged owners to believe profits will be greater outside Mitchell-Lama than within it. Tenant Options To protect themselves from much higher rentals, and retain rights to remain as tenants or to become owners, tenants in Island House and Westview, and those not receiving federal subsidies in Eastwood, must try to find a way to stop or alter the owner's withdrawal plans, or find some leverage to negotiate a deal with the owners that restrains price increases in renewal leases or allows the tenants to purchase their units at favorable discounts. To obtain mortgages from private sources when leaving Mitchell-Lama, the partnership that owns Island House and Westview is very likely to need extensions of the ground leases for their buildings. Eastwood's owner apparently seeks to withdraw from the system without an extension of the current ground lease.) That's a decision for the RIOC Board to make as the lessor of the ground leases. Tenants could mount a campaign to pressure the State to use its power over ground leases to ensure that withdrawal of Westview and Island House from Mitchell-Lama will not lead to massive disruptions. Other courses - pressuring Albany to amend the Rent Stabilization Law or require a longer stay in the Mitchell-Lama program - are difficult to achieve and pose significant legal obstancles. Lawmakers know that any modification of owners' rights under Mitchell-Lama would very likely generate a significant legal challenge. Rivercross Rivercross is owned by its resident shareholders. Under Mitchell-Lama, they cannot profit from a resale. A committee of residents has been studying ways to withdraw from the system, a course that would mean giving up tax abatements and getting a private mortgage to replace the State mortgage. To obtain a mortgage from a private lender, Rivercross also must obtain an extension of its ground lease. The specifics of a withdrawal plan must be presented to the tenant-shareholders, and approval will require a two-thirds vote. Apartment prices in the new Southtown condominium building create additional support for those who want to obtain market values for their Rivercross units, while the City Council's 50-year extension of tax abatements is likely to persuade others that the building should stay in the system. Southtown Influence At the new Southtown condominium, sales personnel say sales are brisk, and offering prices have been going up in a series of amendments to the offering plan. The ninth and tenth price amendments have just been filed, but the eighth continues to list many of the same apartments for sale and the developer hasn't provided sales figures, so it's not clear how strong the market is for the units at the prices being offered. Outcomes If the process of Mitchell-Lama withdrawals continues to unfold and the condominium units are sold at the current asking prices, many questions arise: . How will the new condominium owners and higher-income tenants (or unit owners) affect the Island community? . Will this result in new restaurants and shops that cater to a more affluent clientele? . Will it help restore and invigorate the current shops and fill up empty storefronts? . Will Southtown become a separate community, with its high wall across the existing Main Street? . Will Riverwalk have its own shops, restaurants and amenities that cater mainly to its residents? . Will many of the new owners in Riverwalk be corporations and governments, with a revolving door of short-term occupants? Or will families move in to put down roots in the Island community? One certain effect of the new condominium's residents is that both the Tram and subway will be more crowded at rush hours. Other effects are uncertain, but one trend is clear: Riverwalk residents will be more affluent, on average, than the Island's current population. The upscale drift will be underscored as Eastwood apartments gradually go market-rate as present occupants leave, and underscored further if the Island's Mitchell-Lama buildings complete withdrawals that leave apartments renting or selling at higher prices.
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