A New Tool for Mitchell-Lama Co-ops to Remain Affordable

(Toba Potosky is president of the co-op board at Brooklyn's Cadman Towers. This is an edited version of an article he wrote recently for The New York Post.)

This past Aug. 31, shareholders at Cadman Towers, an affordable Mitchell-Lama co-op in Brooklyn, voted overwhelmingly to exit the well-known program. But unlike previous properties that left Mitchell-Lama to become private, market-rate co-ops, Cadman Towers took a radically different approach.

Rather than going private, our residents signed a new 99-year commitment to remain affordable under a little-known affordable housing initiative called Article 2 to 11. Established in 2013, the program is designed to restore financial stability and preserve affordability for aging Mitchell-Lamas at no additional cost to the city, the state or existing residents.

Cadman Towers currently has six loans totaling more than $60 million, $18 million of which it has been carrying since 1977. All this debt recently forced a 43% monthly maintenance increase on residents, many of whom are retired city workers and teachers whose pensions or salaries cannot keep up with the cost of maintaining these old properties.

In 2013, Cadman Towers was approached by the city's department of Housing Preservation and Development (HPD) and invited to participate in a new initiative. Recognizing the coming storm, HPD presented a plan to blend aspects of Mitchell-Lama (Article 2 of the New York Private Housing Finance Law) with another affordable housing program, Housing Development Funding Corporation-HDFC (Article 11) — hence the new name "Article 2 to 11." Over the next few years, a plan materialized between city agencies, city lenders, legal experts, the state Attorney General’s Real Estate Finance Bureau and Cadman Towers residents that bundled the most cost-effective elements of Article 2 and Article 11.

Here’s how it works: Article 2 to 11 departs from the antiquated apartment pricing from the 1960s and resets apartment prices for new applicants at 80% of the area median income — $79,000 for an individual up to $165,000 for a family of four — considered the sweet spot of affordability for city workers. It imposes a 50% flip tax on an apartment’s first sale (3% thereafter). The city holds that tax money in a reserve account to finance large repair projects or pay down debt. In addition, the city will cover the down payment and closing costs for applicants who qualify for the Home First program. The debt is forgiven if they live in their apartment for 10 years.

Based on an average 3% annual turnover rate, Article 2 to 11 is expected to generate $1 million annually for Cadman Towers’ 421 units. For larger Mitchell-Lamas, such as Co-op City in the Bronx, it could mean $10 million — at no cost to the city, the state or current residents.

Article 2 to 11 was not a simple decision and required some 80 town hall and cooperator workshop meetings to get it approved. Although some co-op members were vocally opposed, 77% of shareholders voted yes to support Article 2 to 11. 

Hopefully, this is just the beginning for other Mitchell-Lama buildings across New York City seeking to preserve their affordability.

(Editor's note: Erica Buckley, now the practice leader for co-ops and condos at the law firm Nixon Peabody, was working in the state Attorney General's office in 2013 when Article 2 to 11 was formulated. She tells Habitat: "Any Mitchell-Lama that has outstanding debt and structural needs should look at Article 2 to 11. They should reach out to their supervising agency, either Housing Preservation and Development or the Division of Housing and Community Renewal. I helped put the program in place in 2013, and Cadman Towers is the first to take advantage of it. I think it's a viable alternative to privatization. It allows co-ops to remain affordable.)