Cadman Towers Is First Mitchell-Lama Co-op to Convert to an HDFC

It's official. Under a strategy known as Article 2 to Article 11, the 421-unit Cadman Towers co-op in Brooklyn Heights has become the first in New York City to exit the affordable Mitchell-Lama program and convert to a Housing Development Fund Corporation (HDFC) co-op.

The complex and controversial deal is designed to keep the co-op both affordable and financially solvent through a 99-year regulatory agreement with the city. Under that agreement, existing shareholders who sell their apartments will do so at prices pegged as affordable to households earning 80% of the area median income, equivalent to about $100,000 in income for a family of two. Exiting shareholders will be required to give 50% of their profits back to Cadman Towers to cover building needs and to pay down existing debt. The transfer fee on subsequent sales of the unit will be 3%. Based on current turnover rates, the fees are expected to generate $1 million a year for the co-op, whose 50-year-old buildings require major maintenance work. 

"Cadman Towers has a lot of capital needs," says Erica Buckley, a partner at the law firm Nixon Peabody who helped develop the Article 2 to Article 11 program when she was working in the state attorney general's office in 2013. "Article 2 to Article 11 helps meet the needs of an aging property while ensuring that it will continue to be permanently affordable." Buckley worked on the conversion deal at Cadman Towers, though the co-op is represented by the law firm Norris McLaughlin.

(The hybrid moniker "Article 2 to Article 11" comes from the fact that Mitchell-Lama co-ops are governed by Article 2 of the Private Housing Finance Law, while HDFC co-ops are governed by Article 11 of the same law.)

In August 2023, after the board convened numerous informational meetings, 77% of the shareholders at Cadman Towers voted in favor of exiting the Mitchell-Lama program in favor of HDFC.

The move has its critics. Writing in Habitat earlier this year, Adele Niederman, president of Cooperators United for Mitchell-Lama, derided the conversion plan as "privatization lite." By leaving the not-for-profit Mitchell-Lama program, she wrote, shareholders stand to reap "six-figure windfall profits" when selling their apartments. She contended that Article 2 to Article 11 is "untested, unsound, destructive and unnecessary. All it achieves is the unjust enrichment of current shareholders at public expense. It should be immediately discontinued."

Buckley counters that Article 2 to Article 11 is "the antithesis to privatization," She adds: "It's super-exciting for me personally that I got to work on this policy to maintain affordable home ownership. It's not for every co-op, but it's a tool that should be in the tool box."

Toba Potosky, president of the co-op board at Cadman Towers, was an ardent proponent of the conversion. “Starting with a seemingly simple goal of preserving our existing affordable housing, we quickly realized the immense coordination required for this conversion,” he says. “Despite numerous challenges, the outcome proved worth every bit of the effort."