Downtown Brooklyn's Albee Square Mall

Testimony last updated December 8, 2008

Statement on the Proposed Financing of Albee Square Residential Development
Presented to the New York City Housing Development Corporation

Brad Lander & Paula Crespo
Pratt Center for Community Development
December 8, 2008

Thank you for the opportunity to present this statement regarding the proposed tax-exempt financing of the Albee Square residential development, proposed by Albee Residential Development LLC. We are long-time supporters of the New York City Housing Development Corporation. We appreciate your long-time practicing of prioritizing all-affordable, or mostly affordable, housing developments over 80/20 projects with scarce tax-exempt bonds. We have a number of concerns about the proposed financing, especially the extremely high, $1.9 million worth of tax-exempt bonds per low-income unit. This number is many times what we have seen you approve for past projects. We urge you to proceed with great caution, and not to approve this deal in its current form. In particular, we ask HDC:

• to continue to prefer more affordable housing projects over mostly-market-rate projects with scarce tax-exempt bonds;
• to establish a lower per-unit cap for mostly-market-rate developments;
• if you are going to consider such a high per-unit amount, to require that the developers include more than simply the minimum amount of affordable units required under the Internal Revenue Code, achieving at least 30% low-income affordability; and
• given the total insufficiency of the information provided, for a project with per-unit tax-exempt bond amounts far greater than you have generally approved in the past, to provide an opportunity for additional public review and comment on a much more sufficient level of detail before the HDC board votes.

Background
While this hearing is solely about the proposed tax-exempt bond financing for the project, we believe it is important to appreciate the context.

• History of poor public policy at Albee Square: Options at this site are currently limited because of poor public policy in the past. This was a City-owned site that presented a long-term opportunity to achieve public benefit. The City should have maintained a stronger set of rights as the property was subsequently sold and redeveloped. We should face up to the fact that public policy allowed one owner to net $100 million, by acquiring the lease for $25 million and selling it for $125 million, while adding no value to the property, instead leading to the displacement of many small businesses, with the resultant loss of many jobs and neighborhood services. If the City had not waived its oversight – initially, and again recently through an urban renewal approval with little opportunity for public comment – so much more would be possible. With even half of that $100 million available for public benefit, we could instead achieve deeply affordable housing, retail opportunities for a diverse range of small independent businesses, and a relocation fund for businesses who were displaced.
• Neglect of affordable housing in the Downtown Brooklyn Rezoning: In addition, HDC steps into this project inheriting the City's neglect of affordable housing when the Downtown Brooklyn rezoning was passed in 2004. Despite concerns raised by our organization and others, that rezoning did not include the City's new model for inclusionary zoning, relying instead on a very modest and outdate program, which at best generally achieves about 7% affordable units. As a result, very few of the many luxury developments built in Downtown Brooklyn during the recent boom as a result of the rezoning included any affordable housing. This is in contrast with both the earlier Hoyt Schermerhorn Urban Renewal Area, and with many of the Bloomberg Administration's more recent rezoning. As a result, it is important that the City do whatever it can to maximize the opportunity for affordable units at Albee Square.

Specific Concerns about Proposed Financing
It appears (from the very limited information provided) that Albee Residential Development LLC is proposing to use nearly $400 million in tax-exempt bonds to build 622 residential units, with 208 of them (25%) affordable to families earning no more than 60% of the area median income ($46,000 for a family of 4). We would like to register the following concerns:

• Violates HDC's practice of not using tax-exempt bonds for 80/20 projects: HDC has rightly sought to use its scarce tax-exempt bonds for projects that achieve more significant affordability. With the exception of the Liberty Bond program, the agency has generally not financed mostly-market-rate development with tax-exempt bonds, believing rightly that they should be targeted to projects that are more deeply affordable, and consistently finding creative ways of doing so.
• Extremely high ($1.9 million) tax-exempt bond allocation per low-income unit: The developers appear to be seeking $1.9 million in tax-exempt bonds per affordable housing unit. This is simply much too high. For comparison, the deals on HDC's “featured development” web-page appear to involve $150,000 to $400,000 worth of tax-exempt bonds per low-income unit. Even the Aspen, which appears to have involved $950,000 in tax-exempt bonds per low-income unit, is less than half per-unit of what is requested here – and that development also includes 30% middle-income units. The New York State HFA, which (unlike HDC) historically has used tax-exempt bond to finance 80/20 deals, last year set a cap at $1.7 million per low-income unit. At a minimum, we urge that you not undermine their cap.
• Total Inadequacy of Information Presented: While we appreciate being provided information in advance, what was given to us is inadequate and internally contradictory. We were provided simply one sheet of paper, a “back-of-the-envelope” analysis that is far short of what should be minimally required for a public hearing about $400 million in public resources. There is nothing on risk analysis (despite the assumption of a questionably high $63 per net square foot for market-rate rents), income limitations, construction costs, operating costs, etc. From this single page, it appears that the project would be financed entirely with debt, with no equity at all – which we believe cannot really be true. At a simple level, the public notice says there will be 810 rental units, but the single page analysis indicates 830. This is especially disturbing given that this project departs so far from past practice of using tax-exempt bonds for more deeply affordable projects, and because of the very high volume of public resources being sought.

We do want to identify two areas where we are open, in principle, to elements of this deal:

• 75/25 versus 80/20: The developers seem to be asking for permission to use the 75/25 model (25% of the units at or below 60% of AMI) rather than the 80/20 model (20% of the units at or below 50% o AMI). We are open to this option, which of course creates 5% additional affordable units, while bringing in more in low-income housing tax credits. However, we do not see why HDC would also consider giving more per unit in tax-exempt bonds ($1.9 million, versus $1.7 million) for slightly less-affordable units.
• Use of recycled tax-exempt bonds: It is also our understanding, although no details are provided, that HDC is proposing to use recycled bonds. We give great credit to HDC for its leadership in the new federal policy of recycling tax-exempt bonds (enabled under the Housing and Economic Recovery Act, HR 3221, passed in July 2008), to allow for substantial additional resources for low-income housing – especially for being the first in the nation to issue such bonds. We hope that this allows the agency to finance much more affordable housing than otherwise would have been possible, and we are open to the possibility that this new resource – especially during the current economic downturn – will enable HDC to finance projects that it would not otherwise have considered. Nonetheless, we would still urge the agency not abandon its priorities and preference for more deeply affordable projects. The bond issuance announced earlier this fall was for up to $160 million from 15 past projects. The proposed project here would use up all of those resources, and still need another $250 million. If you genuinely have no other projects that need resources, then perhaps the 208 affordable units proposed here are worth all the effort. However, we suspect that you were hoping for many more affordable units, in neighborhoods around the city, through the recycling effort.

Recommendations
We therefore urge you to proceed with great caution, and not to approve this deal in its current form. In particular, we ask HDC:

• to continue to prefer more affordable housing projects over 80/20s with scarce tax-exempt bonds;
• to establish a lower per-unit cap for mostly-market-rate developments;
• if you are going to consider such a high per-unit amount, to require that the developers include more than simply the minimum amount of affordable units required under the Internal Revenue Code, achieving at least 30% low-income affordability; and
• given the total insufficiency of the information provided, for a project with per-unit tax-exempt bond amounts far greater than you have generally approved in the past, to provide an opportunity for additional public review and comment on a much more sufficient level of detail before the HDC board votes.

Thank you for this opportunity to testify.