City Offers a $250 Million Carrot for Mitchell-Lamas

Since its inception in the 1950s, the Mitchell-Lama program has produced more than 100,000 units of affordable housing in New York. Galloping real estate values, especially in New York City, have lately proven too powerful a temptation for many Mitchell-Lama co-op shareholders and landlords. As a result, since 1989 nearly 20,000 of the city-supervised units have opted to leave the program and go to market-rate sales. The city’s goal is to create 300,000 affordable apartments by the year 2026, an effort that is thwarted every time a Mitchell-Lama votes to privatize. 

“The lure of raising rents to profit from the city’s real-estate boom, or of selling once-affordable co-op units for market-rate prices is an ever-present threat to this critical portfolio,” says Mayor Bill de Blasio. To counter that threat, de Blasio offered Mitchell-Lama residents a very fat carrot on the eve of his successful bid for re-election last November: an infusion of $250 million to help Mitchell-Lama co-ops refinance their underlying mortgages, make capital repairs, and secure property tax exemptions – provided they agree to remain in the program for at least 20 years.

“The new Mitchell-Lama Reinvestment Program (MLRP) builds on years of City efforts to protect our existing affordable housing stock,” says Richard Froehlich, chief operating officer and general counsel at the Housing Development Corporation (HDC), which helps finance affordable housing. 

But there are sizable hurdles. “One reason it may not work for a co-op is the underwriting guidelines,” says attorney Erica Buckley, a partner at Nixon Peabody and former chief of the Real Estate Finance Bureau in the state Attorney General’s office. “For instance, co-ops will have to meet the loan-to-value ratio for debt coverage. Also we have one client who has already refinanced [their underlying mortgage].” 

Attorney Karol Robinson, a shareholder at Anderson Kill who specializes in Mitchell-Lamas, adds that there are other concerns. “Some co-ops are not interested, and one of the reasons is because they’re concerned about the commitment of 20 years or more to stay in the program,” she says. “On the other hand, there is most decidedly a need. Where building systems have reached the end of their useful lives – roofs, boilers, facades, windows – funding is needed. Those buildings should reach out to the HDC and their sister organization, the department of Housing Preservation and Development.” (HPD is responsible for carrying out the city’s affordable-housing initiative.) 

(Click here to see the eligibility guidelines for the Mitchell-Lama Reinvestment Program.)

Buckley is aware that the fight to preserve affordable housing in this city is uphill all the way. Yet she sees room for optimism. “There are only 100 remaining Mitchell-Lama complexes,” she says. “That’s 45,000 homes. Two-thirds of those are co-ops. They are all facing the pressure of privatization. The incentives the city has to offer have to be really, really good. I think this new investment program does seem comprehensive.” 

HDC’s Froehlich is encouraged by the early signs. “We are currently working to finance much-needed repairs and extend home ownership and rental opportunities under the new program,” he says. “We can now offer better terms to buildings which had refinanced with us, say, back in 2004 or 2005, and extend their debt to allow them to borrow more so they can do more repair work. We have financed over 30 Mitchell-Lamas before this new program came along under the Mayor’s housing plan. So far, with the new program, we have 18 projects in our pipeline. We are helping them through the process, and we are expecting to finance more projects. I think we’re doing well.”