Community Developers Say City’s Housing Plan Leaves Them Behind

When the de Blasio administration last year sought bids to build a mixed-use affordable housing project on East 111th Street in East Harlem, at least four development teams led by not-for-profit entities answered the call. They brought decades of experience delivering housing for New Yorkers at the lowest rungs of the economic ladder—a clear priority that emerged from the neighborhood outreach sessions city officials held before seeking proposals. Over the last half of 2016, all 11 bidders answered questions and provided additional information, and some sat for finalist interviews, as the Department of Housing Preservation and Development moved toward a decision on a sensitive project in a neighborhood slated for a controversial rezoning.

In early February, HPD revealed the winner of the East 111th Street bid, which at 655 units was easily the largest affordable-housing deal announced so far this year. The agency picked a partnership between Jonathan Rose Companies and L&M Development Partners, two major for-profit developers. While some nonprofit entities will provide services on the site, no nonprofit—nor any entity with ties to the neighborhood—will have a hand in the development work itself.

Over the three decades since New York City began creating privately-operated affordable housing, there has always been tension between the not-for-profit and for-profit companies that build and operate such housing. That tension has reached troublingly high levels under Mayor Bill de Blasio.

In more than 20 interviews with not-for-profit and for-profit developers, housing financiers, advocates, academics and current and former city officials, City Limits heard a range of opinions on the reasons for the escalating dispute.

Not-for-profits say de Blasio’s HPD has strengthened a reliance on the for-profit sector that first took hold during the Bloomberg era—a focus that fails to recognize the value that not-for-profits bring to a housing deal or acknowledge the unique obstacles those firms face competing against for-profit companies.

For-profit builders and allies told us the claims of a reduction in not-for-profits’ role have been exaggerated and the tensions between the sectors overblown. They blamed the shift in who’s getting affordable-housing work on changes in the city economy outside HPD’s control and bad moves by some housing not-for-profits that gave that sector a black eye. Many were troubled by the public airing of this dispute, with one housing financier lamenting that a nuanced story had been reduced to a “toxic narrative” of virtue versus greed.

There’s little doubt, however, that the relevance of local not-for-profits in New York City’s affordable housing industry is threatened. That could have real consequences for what gets built under the mayor’s initiative and the political impact of the housing plan.

What the numbers say

Affordable housing is created not through a single initiative or even a suite of programs but by a mix of policy tools. There are tax breaks, like the defunct 421-a, that builders can claim if they develop income-targeted housing units. There are tools like de Blasio’s mandatory inclusionary housing policy, which compels developers who take advantage of a rezoning to include affordable apartments. For its part, HPD’s main policy tools include a menu of subsidy programs and a stock of city-owned land that it dispenses to affordable-housing developers.

There’s no comprehensive way to quantify how much of the de Blasio housing plan to date has been built by for-profit versus not-for-profit firms. Most indications are that non-profits play a considerable role, though for-profit firms generally dominate.

For instance, HPD profiles 34 housing projects on its website as being illustrative of its key programs: Only 10 of those appear to be led by nonprofits, encompassing just over a quarter of the units involved.

Separately, the 22 housing deals mentioned in HPD press releases so far this year involve 2600 units of housing: 200 of them are in projects led by nonprofits, while more than 1400 in deals where for-profits are clearly in the driver’s seat. Just under 900 units are in deals involving a partnership of both kinds of developers where the not-for-profit’s role is often unclear.

During the first three full years of the de Blasio administration, low-income housing tax credits worth $16 million supported 793 units secured by for-profit companies while $26 million went to support 1,395 units of housing where not-for-profits were the sponsors.

According to a City Limits analysis of deals listed on its website, the NYC Acquisition Fund—a joint venture of the city and foundation funders meant to equip not-for-profit and small private developers to buy developable land—distributed 52 percent of its funding to for-profits compared with 36 percent to not-for-profits over the 2014-2016 period. The balance went to hybrid deals.

For its part, HPD denies that not-for-profits are being sidelined. “Not for profits are playing a really substantial role in the plan,” says Molly Park, the agency’s deputy commissioner for development. “If you look across the board across a range of projects … you see non-profit involvement in a host of different ways.”

Rafael Cestero, president and CEO of the Community Preservation Corporation, which finances affordable housing, agrees. “Quantitatively, I just don’t think they’re not playing an important role in the mayor’s housing plan,” Cestero, a former HPD commissioner, says. “They may not be playing the role they want to play. But it’s hard to argue with these numbers that they aren’t playing an important role.”

Numbers aren’t the full story, however. Cestero says CPC has done or is doing a total of 81 deals under de Blasio’s initiative—with 58 percent of them going to non-profits. He notes, however, that the projects not-for-profits are getting differ from those the for-profits do. Nonprofits are more likely to be doing rehabilitation, he says, than new construction. “Those projects are harder and more complicated. They’re certainly deep, deep mission projects in that some of the lowest-income New Yorkers live in those buildings. Conditions are difficult,” Cestero explains. “They’re not as high profile as a new-construction site.”

A shift in the recent past

When the city first began significant affordable housing development in the 1980s, nonprofits were, according to St. Nick’s Alliance housing director Frank Lang, just about “the only players on the block.” That began to change during the Giuliani years as more for-profit firms entered the industry.

By the time Mayor Bloomberg began deploying his first housing plan in 2003, “People at that point already were starting to feel like maybe affordable housing development was shifting away from being as supportive as it had been of nonprofits,” says one nonprofit developer who asked not to be named. “I honestly feel that trend has only accelerated under de Blasio—interestingly enough, given how he ran on a platform of being a mayor for one city.”

Nonprofit housing developers differ in how they characterize the change from Bloomberg to de Blasio. Some feel they’re getting worse treatment now. Others say it’s the continuity that’s frustrating.

Michelle Neugebauer, executive director of the Cypress Hills Local Development Corporation, says when de Blasio was elected, there were “great expectations that we’d be treated differently and that there’d be new production programs for nonprofits” but instead “It just seems like more of the same: We get the crumbs.”

Lang is quick to credit the city for other things it’s done to support low-income tenants, like funding legal services for people facing eviction. But he agrees that hoped-for changes have not arrived. “We have yet to see a change in the number of projects of quality and size that affordable housing developers get on city-owned property, any different than the previous administration,” he says. “I think this administration is challenged to meet its ambitious housing plan given the current economic and political situation in the United States and they rely predominantly on for-profit developers to implement their housing plan and get their numbers.”

That focus on hitting the mayor’s numerical target of building or preserving 200,000 units over 10 years stacks the deck against not-for-profit developers in a few different ways, leaders of community development corporations (or CDCs) say.

When HPD seeks proposals for developing city land, it often sets thresholds for the experience and financial heft bidders must bring to the table. Some thresholds all but exclude the vast majority of nonprofit developers. Take the bid recently open for the Dinsmore-Chestnut site in East New York: It requires the developer to have built a 150-unit building in the last seven years, a relatively short lookback.

“You have to have resources to be able to do a project. You have to be able to sign a guarantee and demonstrate your ability to get a bank loan and all of these issues where you need to have some balance sheet,” HPD’s Park explains of thresholds in general.

But CDC leaders believe the criteria are often arbitrary.

Nonprofit developers also say the HPD vetting process has become much more onerous, requiring the submission of detailed supplemental material that is expensive for all developers to produce, but harder for not-for-profits that have less wiggle room in their budgets. Ismene Speliotis, the executive director of MHANY Management Inc., says her organization has expended $200,000 to submit bids to HPD. “There very well might be nonprofits that can’t do that,” she says.

Not-for-profits also say the development fees in the projects they take on don’t take into account the true costs of taking on difficult projects and serving lower incomes. “You end up deferring most of your fee. And what happens with a deferred fee is it is it often gets reduced and isn’t earned in full,” says Michelle de la Uz, executive director of the Fifth Avenue Committee and a member of the City Planning Commission. (HPD says it stages the payment of the development fee in a strategic manner on all projects to be sure the deals stay in the black.)

The city has become less willing to use tax-exempt bonds to fund smaller projects, sources say. “The city decided that bigger is better,” Speliotis says. “They used to finance bond projects that were 50 to 100 units. Now the city would say, ‘[100 units is] a little small for a bond deal.'” Banks, meanwhile, are imposing liquidity and balance-sheet demands that make it harder for not-for-profits to borrow money to develop, she says.

To be sure, the city’s tight-fisted approach affects for-profit firms, too. But some for-profit firms are contractor/developers, meaning they don’t just rely on HPD’s development fee, but can generate income off the HPD subsidy for the construction of the project. For that reason and others, some for-profits have flexibility to plug a gap if subsidies fall short. Nonprofits, however, often can’t divert money from other areas of operation—like tenant services and advocacy—to shore up their housing work. If anything, not-for-profits might hope to use development fees to support other services they provide, not vice versa.

Size matters

There’s no mystery why the city is structuring and vetting deals in a way that squeezes smaller players: It has limited financial resources, very little public land to use and a big target—120,000 preserved units and 80,000 new ones over 10 years—to hit.

“I think that with the magnitude of housing need, everybody tries to do as much as they can with what they have,” says Lisa Gomez, the chief operating officer of L+M Development Partners. “I think that bond [capacity] is tight. State resources are tight. Uncertainty at the federal level has impacted tax credit pricing. So yeah, I think they are trying to get the most bang for their buck.”

During the Koch, Dinkins and Giuliani era, the city had lots of land it had acquired through tax foreclosure. That’s not the case anymore—a change that has fundamentally altered affordable housing finance in the city.

The scarcity of land means HPD wants to build denser on each site, which makes for bigger and more complex projects. Those kind of deals require specialized experience that many CDCs lack. More important, they require developers to take on heavy financial risks that some nonprofits can’t bear.

These are sore points for local non-profits. CDC leaders say their limited financial resources reflect the work they’ve done in the past on smaller, more complicated projects—like rehab jobs on deeply troubled buildings with tenants in occupancy—that generated little excess income, and that many for-profits were unable or unwilling to do. And they argue that the skills needed to pull off those tricky (if less lucrative) projects ought to count for something when bigger developments come up for bid.

“It seems like there’s a — I don’t want to call it a myth — a self-fulfilling prophecy from the mayor’s side of the administration that the nonprofit CDCs can’t do the work, can’t build,” says Brooklyn Councilman Antonio Reynoso. “In spreading that rumor, you put those CDCs at a disadvantage to build new and to maintain their mission work.” In other words, a CDC can’t get new larger development deals paying decent fees today, it can’t build the assets or develop the expertise that will make it more competitive tomorrow.

Partnerships: plusses, and problems

Sometimes for-profits team up with not-for-profits to do an HPD deal. These arrangements can be mutually beneficial: The for-profit brings money and development chops while the not-for-profit might contribute a sense of what the community needs or skills managing a building. Sometimes the not-for-profit gets a share of the development fee but often, sources say, that organization wants and gets something else out of the deal: a new facility, for instance, or just valuable experience that they can parlay into future work.

Take JASA, which is partnering with a for-profit firm on a recently announced HPD project. With a mission to “sustain and enrich the lives of the aging in NY so they can remain in the community with dignity and autonomy,” the agency has nearly 10,000 applicants on waiting lists, some waiting over 10 years before they are contacted for a possible apartment. JASA won’t be part of actually developing that new project in the Bronx, but it will “provide property management services for over 100 low and very low income elderly residents,” and provide an on-site social worker, the organization tells City Limits.

But the financial disparities between for-profit developers and not-for-profit players can sometimes be an obstacle to reaching a deal that either side finds equitable. When the scope of a project means large financial risks, developers must bring a large balance sheet to the table and be willing to offer guarantees. The firms obviously want to be compensated for that risk with a large share of project revenue and development fees. That can make a not-for-profit partner a participant in name only, and it means that big deals and large fees come and go without putting the a CDC any closer to building the asset base it needs to snag the big ones themselves.

One not-for-profit developer, for instance, brought land and tax credits to a recent housing deal but still was forced to bring in a for-profit partner to guarantee the credits. The price of that partner’s participation? Forty-percent ownership in the project.

Bill Wilkins, who as director of industrial development at the Local Development Corporation of East New York is involved in a recently announced partnership with a for-profit firm, says the industry will evolve so that not-for-profits get a stake that equates to the real—if less tangible—value they bring to the table. “As CBOs become more astute and negotiate more deals, I think the equity in the deal is starting to become more reflective of that value,” he says.

Either way, HPD has no interest in trying to set ground rules for partnerships. “It would be inappropriate and, frankly, a little bit condescending to try to dictate the terms of the partnerships,” Park says. “The nonprofits are, we certainly hope, fully functional organizations that can act in their own self interest.”

HPD used to do more in not-for-profits’ interests. The agency at one time ran set-aside programs that catered only to not-for-profit developers, but those no longer exist; the agency says it had to change its approach to reflect the scarcity of land. Under de Blasio, HPD has shown a willingness to earmark some projects for minority- and women-led businesses, but not for not-for-profits. HPD says some of its program rules are aimed at helping not-for-profits, but CDCs don’t see those as effective or sufficient.

“Unless HPD starts awarding some big projects to nonprofits or at least reconfigure the scoring system to value our strengths more (so we’re in the running at least), we are never going to earn the bigger developer’s fees that will enable us to have the financial strength to compete,” Neugebauer says. “We’re starved. It’s slim pickings these days. It makes it very, very tough to do our job.”

The case for not-for-profits

But HPD’s job is to house people, not to make sure the not-for-profit housing industry thrives, some say. “Remember, New York City is in a housing crisis. The priority is to address the crisis as quickly and efficiently as possible,” says Jolie Milstein, president and CEO of the New York State Association for Affordable Housing, which has both non- and for-profit members but is considered the trade association for the latter.

Not-for-profits argue, however, that efficiency is not the only important attribute of a successful housing program. Building housing for the people who need it most, and doing so in a way that makes neighborhoods work better for the people who live there—those are important, too. And what looks efficient now might appear different in a few decades when the owners of affordable housing built today will decide whether to let it go market-rate, sell it off or keep it permanently affordable. CDCs argue their missions equip them to be better advocates for the right kind of affordable housing that their for-profit counterparts.

“The locally based group is going to be more sensitive to local concerns like the size of apartments, rent levels, security, community space, et cetera,” says John Reilly, the executive director at Fordham-Bedford Housing Corporation. “These are all things that a community-based developer is going to be more conscious of and less willing to walk away from when budget discussions start.”

CDCs tend to push for affordable housing targeted to the income levels that cater to their neighborhoods. Because of peculiarities in how federal housing funding is structured—as well as local decisions about how to orient de Blasio’s housing plan—much affordable housing is unaffordable to the typical resident of the neighborhood where it’s built. Local not-for-profits often push for housing targeted to incomes as low as possible.

Not-for-profits also argue that they are more likely to keep developments permanently affordable. While some HPD subsidies legally require permanent affordability, others only maintain income restrictions for, say, 15 or 20 years. At that point, there are incentives to stay in the program—but there will also be the option to go market-rate. Mission-based not-for-profits generally must keep their properties affordable. “We’re never going to take our project out of affordability,” says Neugebauer. “I don’t understand why that’s not valued more.”

As a result of their ties to the community, CDCs have credibility in the very neighborhoods where de Blasio wants to build housing and to rezone. That could be a valuable political asset to a mayor who has faced resistance on many of his land-use plans, much of it from low-income people of color who should be part of the mayor’s base. The lack of attention to the politics of this issue puzzles many non-profit developers and their allies.

Some for-profit developers reject the notion that not-for-profits deserve special treatment. “I resent the notion that I’m not responsive to community needs,” says one such developer, who notes that some nonprofits have sold off their affordable housing and that others have mismanaged their properties to the point that the city, sometimes with a for-profit company as its agent, had to step in to stabilize the portfolio. In some cases, he says, a not-for-profit owner was too reluctant to do evictions of tenants who skipped paying rent, undermining a building’s finances.

“For-profit affordable housing developers are just as committed to long-term affordability as not-for-profits and also face steep odds,” says Milstein. “There are good not-for-profits and bad not-for-profits. You have to look at each one individually.”

CDC leaders would be the first to admit that their industry is far from perfect. “It doesn’t help when nonprofits do a bad job,” Speliotis says. Not-for-profits draw distinctions between colleagues who are effective and who aren’t, and between neighborhood not-for-profits and the giant Phipps Houses—a not-for-profit with hefty enough financial muscle that it can compete with major for-profit developers. (Phipps declined to comment for this article.)

No CDC leader City Limits spoke to wanted to push for-profits out of the mayor’s plan entirely. Their argument is merely that not-for-profits bring something to the table that is as important as the number of units produced.

“It’s all about value,” says Lang. “If you value local control, if you value nonprofits’ public purpose ownership, then you would have greater emphasis on that. If you value expediency and the construction of the most units then there is no advantage to the nonprofits.”

Complaints about disrespect

De Blasio has never been an enemy of for-profit developers; his plan to remake 421-a, the enormously expensive and not especially effective affordable-housing tax break, gained the backing of the Real Estate Board of New York. His deputy mayor for development, Alicia Glen, appears to have made little effort to connect with the non-profit sector. City Limits obtained her appointments calendar for the first 30 months de Blasio was in office and it reveals dozens of meetings with big-time developers, including those active in the affordable sector, versus a far smaller number of contacts with the non-profit development crowd. Nonprofit developers describe deep frustration at trying to get meetings with the mayor’s first HPD commissioner, Vicki Been. The sit-downs were hard to arrange, these developers say, and did little good when they occurred. (Through a spokeswoman, Been declined to comment.)

Benjamin Dulchin, the executive director of the Association for Neighborhoods and Housing Development, a trade organization for not-for-profit housing developers, acknowledges that the days of the Koch plan, when not-for-profits were natural leaders, are gone. Land is scarce. Prices are high. What bothers him is that not-for-profits are losing out even when it’s the city—not the market—that’s picking the winner.

“There is a lot of city-owned land where the most important developments are happening and there’s no question of the cost of land or the alacrity of the financing sources,” Dulchin says. “It is just the city’s decision and yet overwhelmingly they are deciding that the developers will be for for-profit.”

The for-profit side harbors its resentments, too. A few told City Limits they felt some housing advocates crossed a line by singling out Ron Moelis of L+M Development for harsh, personal criticism. Others worry the divisions will undermine the entire affordable housing industry. At a time when the city’s housing community could be battling against devastating federal budget cuts, “I worry the fight has become nonprofit versus for-profit and that is tearing this really strong industry that has grown up in New York City, kind of tearing it apart,” says Cestero.

A clear victim of not-for-profits’ increasing feeling of alienation is de Blasio. What should have been a natural constituency is now deeply suspicious of the mayor, and because of the lack of mutual trust, he’s missed out on valuable feedback from the grassroots. “When you’ve severed your relationship with the good not-for-profits who can tell you what’s happening, there is not a dialogue there,” says a former city housing official. “They should be your canary in the coal mine. When they’re not there anymore, you don’t have anybody to talk to.”

Some CDCs might be past the point of caring whether City Hall wants to listen. “I hear people say things like, ‘We feel like, why bother? Why go through the expense and the time and the effort to go through something if HPD isn’t going to care?,'” says the not-for-profit housing developer. “People are very frustrated and are sort of ready to give up.”

Changing tactics

Late last month HPD announced that funding to build nine new buildings and 182 units of housing on five small clusters would go to nonprofits including St. Nick’s Alliance, Bed-Stuy Restoration, East Brooklyn Congregations, Ridgewood Bushwick Senior Citizens Council and Asian Americans for Equality, Inc. Welcome as that deal was, on its own it is too small to change the skew of the mayor’s housing plan toward for-profit firms.

But bigger change might be coming. Describing the current conversation between not-for-profits and for-profits as “toxic,” the housing financier credits new HPD Commissioner Maria Torres-Springer with “trying to change the narrative on this.” Cestero agrees: “I think the city is doing and is going to be doing more to bring the not-for-profit community to the table when they’re thinking about new programs, new policies, and the kind of goals they want to achieve on a particular RFP and a particular program.” HPD tells City Limits it is looking to streamline its bidding process to be less taxing for not-for-profits.

An early test of whether the city is willing to give not-for-profits a role in truly transformative projects will come when the city releases its request for expressions of interest for the Greenpoint Hospital site in Brooklyn, where St. Nick’s is positioned as a deeply rooted local player.

Not-for-profits, meanwhile, are innovating on their own. One example is JOENYC, a new real-estate investment trust that combines the assets of CDCs to create a larger player capable of financing bigger deals. Marc Jahr, a former Housing Development Corporation president who helped create JOE (which stands for Joint Operating Entity) says it emerged from discussions among nonprofit housing financiers four years ago. “We were growing concerned about the increasing marginalization of nonprofits and CDCs,” Jahr says. “Under Bloomberg, deals became much more driven by who can acquire land and nonprofits are at a disadvantage in that process.”

Members of JOE hand over ownership of their properties in exchange for seats on JOE’s board and a share of the cash flow from deals the entity makes. It’s already put money into two deals involving more than 500 units of housing. “I think JOE is not a defensive strategy,” Jahr says. “It’s an ambitious project to change the paradigm of affordable housing in New York.”

One plan is for JOE to team up with not-for-profits who might otherwise have needed a for-profit partner on an HPD deal. The not-for-profit “will get a larger split of the development fee and other revenues,” says Peter Madden, JOE’s executive director. What’s more, with JOE as the partner, “You could end up with a materially different project,” meaning longer and deeper affordability, Madden says.

JOE, whose creation HPD has supported, could also look to acquire land for housing development and will allow CDCs to share best practices so they can build skills in areas where, at the moment at least, for-profits have an advantage.

Let’s talk about that target

On one crucial point, not-for-profit developers and their for-profit counterparts agree: If it is simply a matter of building 80,000 units of housing and preserving another 120,000 as quickly and cheaply as possible, then big-scale, for-profit developers are the tool the city needs—all else being equal.

But sometimes—often—all else isn’t equal. Even some for-profit players acknowledge that the relationship between local not-for-profit developers and the neighborhoods they serve is simply different than their own.

So the question becomes whether and how the mayor’s 200,000-unit goal should really matter. After all, an arbitrary amount of real-estate doesn’t necessarily deliver the more equitable and inclusive city the mayor was elected to seek. Mayor Koch vowed his Ten-Year Plan would generate 250,000 units—but that plan is judged to have been an enormous success despite the fact that the city fell at least tens of thousands of units short of the target. Bloomberg, on the other hand, reached his target of 165,000 units over 11 years, but the city felt substantially less affordable when he was done. That’s not to say all those apartments didn’t make a difference in many lives but, for a host of reasons, simply tallying up “affordable housing” doesn’t necessarily change the dynamic in a neighborhood for the better.

If the hunt for “200K” is preventing long-standing local organizations from playing a real role in recreating their neighborhoods, then “your short term goals are getting in the way of your longer-term goals,” Reynoso says. “When we’re thinking of a sustainable city, that’s not how we’ll get there.”

The rising tension between not-for-profit and for-profit affordable developers is just one reason why it feels like crunch time for de Blasio’s approach to fighting inequality by creating housing. Several of the mayor’s neighborhood rezonings are coming up for land-use consideration. The impact of Draconian federal budget cuts will soon become clearer. A municipal election later this year will determine whether de Blasio gets to see out the bulk of his plan, and what kind of mandate he can claim to implement it.

As the not-for-profit developer puts it, “It’s going to be an interesting year.”