Empty in the Middle

Owners Opt Out of Mitchell-Lama for Market Rents

Set within the often illogical framework of New York City housing is a rare spot of common sense: the Mitchell-Lama program, a state plan whose simple goal is to provide middle-income tenants with affordable apartments and co-ops. Named for its two Albany sponsors, MacNeil Mitchell and Alfred Lama, the policy is steeped in reason: state government gave developers low-interest loans and tax breaks; in return, landlords agreed to keep prices affordable. The combination of reasonable rents in generally well-kept buildings offering services that many would consider amenities—like doormen, elevators, laundry facilities, and decent-sized rooms—makes Mitchell-Lama apartments one of the city's best values.

But in New York City real estate, reason has a short shelf life, and now Mitchell-Lama developments are in jeopardy. That's because when the program began decades ago, lawmakers gave owners the option, after 20 years, to prepay the remaining mortgage and "buy out" of Mitchell-Lama—in some cases allowing them to charge market-rate rents. Given the city's humming real estate market, several Mitchell-Lama owners whose buildings were constructed in the 1970s have decided that this is the right time to do just that.

In the last few months alone, Mitchell-Lama owners have informed city and state housing agencies that they intend to take 3067 of the city's 125,000 Mitchell-Lama units out of the program. Tenants who live in Mitchell-Lama buildings occupied before January 1, 1974, have some measure of protection because they become rent-stabilized after a buyout. But even that could mean higher rents, since some Mitchell-Lama buildings go for years with no increase. Far more pressed are tenants who live in buildings occupied after January 1, 1974, because their rents can automatically go to market levels once a buyout is complete.

Citywide, about 375,000 tenants live in Mitchell-Lama buildings, and the prospect of buyouts has rattled many, prompting Manhattan borough president C. Virginia Fields and state assemblyman Vito Lopez to hold a hearing on the matter on October 22.

One post–January 1, 1974 Mitchell-Lama development that is buying out is Ruppert-Yorkville Towers, two buildings that span Second to Third avenues near 90th Street. Tenant Anton Loew and his wife pay under $1400 a month (utilities included) for a two-bedroom apartment with a skyline view from the 15th floor—a deal he knows he could not replicate in his own neighborhood. "The fact is, they want to charge Fifth Avenue prices, and most people here simply can't afford it," says Loew. "We have social workers, plumbers, teachers living here. For me and most tenants, it would mean at least a doubling of our rents."

Ruppert-Yorkville owners in June notified the city's housing agency that they want out of the program, and the buyout is expected to be complete by December at the earliest. Robert Klehammer, vice president of RY Management, says the leases of current tenants will be honored, including those who recently re-signed, for up to three years; others expire imminently. When those leases end, Klehammer says, management will offer tenants "a substantial discount" over market-rate rents, but he would not say by how much.

Lila Dyas, who has lived in the development for 20 years and is president of the Ruppert-Yorkville Tenant Association, says promises of a discount "don't preclude their right to raise rents to market level....For many people, this is a huge hardship. This is a truly middle-income community here, with a lot of seniors and retirees on fixed income. They'll just have to move, but where?"

The Mitchell-Lama buyouts of the late 1980s slackened with the '90s recession, but now that trend is reversing. In April, the 427-unit Westgate on 97th Street between Columbus and Amsterdam avenues bought out, putting tenants under rent stabilization. Buyout plans are pending for the 168-unit Cooper Gramercy apartments at 23rd Street and Second Avenue in Manhattan, the 1269-unit Kew Gardens Hills in Queens, and the 373-unit co-op Rivercross on Roosevelt Island. Cooper Gramercy tenants face market rents; Kew Gardens Hills will become rent-stabilized. Co-op owners can sell their units at market rates.

Ruppert-Yorkville's Upper East Side location and its inventory of 1257 apartments make it something of a buyout benchmark. "This is the first building of a large size built after 1974 to go out, and it's in jeopardy of having a tremendous impact and erosion of the middle class," says Dyas.

Frank Braconi, executive director of the Citizens Housing and Planning Council, calls Mitchell-Lama "a backbone of the city's affordable housing stock, to say the least. It's created over 130,000 middle-income units in New York City, and there's been nothing close to it since." But while Mitchell-Lama is widely lauded as a crucial and successful component of affordable housing, it has also been scandalized as a sweet deal for some wealthy tenants.

Income guidelines require that tenants earn at least four times the annual rent or carrying charge, but allows those whose earnings increase to as much as $170,000 to remain in the program, provided they pay a rental surcharge. At Ruppert-Yorkville, for instance, Klehammer says about 30 percent of the tenants pay the surcharge; Loew says a tenant survey shows it's more like 5 percent.

"Let's say you have been renting an apartment for 15 years at 30 percent of its market value," says Al Walsh, an attorney who represents some Mitchell-Lama owners. "The law has always said that after 20 years, the landlord can charge you market rent, and when he does, it's going to hurt, whether you make $40,000 or $200,000. A lot of these folks have had a great deal for a long time, but now that's over."

Indeed, Mitchell-Lama apartments have long been a plum to hand out to the politically powerful or socially significant. A 1988 Newsday investigation found an array of highly paid, well-connected tenants, including one Mario Cuomo campaign attorney and a former housing authority member, living in oversized apartments in the Cooper Gramercy, for instance. Abuse, of course, is not limited to tenants. Earlier this year, the federal housing agency blocked a 24 percent rent increase for a Brooklyn Mitchell-Lama development after learning of irregularities by its owner, Herman Kraus. (Mitchell-Lama rent increases must be approved by city or state agencies, and the program's goal was to raise rents only so that landlords could realize a 6 percent return.)

"Generally, it's a well-run program, but are there problems? Hell, yes," says Bob Willos, cochair of the Mitchell-Lama Residents Coalition. "Of course there are people living in these buildings who shouldn't be; people who are too wealthy, or squatters, or someone's brother-in-law. Yeah, there's been corruption. But it's probably the best middle-income housing program in the United States because enough of it is doing what it's supposed to do."

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