Once Derelict, Now Desirable

Once Derelict, Now Desirable

Phil Mansfield for The New York Times

MORE DEMAND
Buildings like this one, at 1809 Seventh Avenue, at 111th Street, have been kept afloat by people with modest incomes.
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New York Times
July 24, 2005
Once Derelict, Now Desirable
By PATRICK O'GILFOIL HEALY

GRACE ADAMS and her family have seen the worst days of 870 Riverside Drive.

They moved in after the landlord absconded in the mid-1970's, leaving the city to foreclose on the building for unpaid taxes. They endured corrupt managers and broken pipes. They stuck around when rape suspects were arrested nearby, and when the police shot a gun-wielding man a few doors down.

Ms. Adams was there in 1983, when the tenants organized themselves, began managing the building and, with help from the city, converted it from derelict property into a co-op for low-income homeowners. They paid $250 per apartment and managed it modestly.

Now 73 years old, Ms. Adams is witnessing 870 Riverside's latest protean twist. To her astonishment, the modest co-op building, near the corner of 160th Street, has become a hot property.

The city's churning real estate market has surged into 870 Riverside and hundreds of other low-income co-ops called Housing Development Fund Corporation buildings. Scattered through Harlem, Washington Heights, Brooklyn and the Bronx, they were abandoned by landlords, seized by the city, then renovated and converted into co-ops for low-income tenants.

For years, the apartments sold for less than $7,500, always to people who made modest incomes, and they were largely overlooked by real estate brokers. But now that these neighborhoods are in big demand, the apartments are drawing buyers who can slide in under the co-op income caps but who have significant assets because they are middle-class retirees, or young people getting help from their families. Because of the demand for these apartments, firms like Halstead Property and the Corcoran Group are listing them for $250,000, $400,000 or as much as $950,000.

From one perspective, every boat is lifted. Buyers can snap up spacious apartments for below-market prices. Sellers who endured hard years in the buildings can get their reward - cash out to retire or send their children to college. Through flip taxes, or fees paid when an apartment is sold, the buildings get a slice of the rising sales prices to pay for paint jobs, roof repairs or new boilers.

But housing advocates and some longtime residents recoil at those arguments. They say that Housing Development Fund buildings are supposed to be immune from the fluctuations of the real estate market, with its bidding wars, bubble talk and $800,000 asking prices.

Because co-op sales are not public records, there are no statistics that describe how prices have changed over the years. But brokers who sell these apartments and housing advocates familiar with the neighborhoods agree that prices have ballooned in the last few years.

Even at their current prices, Housing Development Fund Corporation apartments, usually called H.D.F.C.'s, are some of the last bargains in New York City.

Ron Ferdinand, a broker for Halstead, received 2,191 phone messages after listing a H.D.F.C. apartment for $100,000 last May. The calls came from as far away as Germany and Italy, Mr. Ferdinand said.

At 870 Riverside, an 1,800-square-foot four-bedroom apartment with French doors and sunny views is on the market for $599,000. "Best deal in Manhattan," declares the broker, Prudential Douglas Elliman, in its online listing. A two-bedroom in the building, also listed by Elliman, is priced at $650,000.

The monthly maintenance is about 40 cents a square foot, or $712 for the four-bedroom and $576 for the two-bedroom.

But with bargains come hassles. In nearly every housing corporation building, catches and caveats are buried in the bylaws, and no two buildings share the same rules and restrictions.

Some have high flip taxes, with the sellers having to remit a portion of their profits to the co-op board. Some flip taxes are constant; others diminish the longer a resident has lived in the building. Some buildings even prohibit reselling an apartment for two to five years.

Many of the buildings carry income restrictions. Some are set against the city's median income, at 80 percent, 120 percent or 150 percent of median. Others are calculated by a formula multiplying maintenance costs by resale costs and other factors.

The limitations weed out many prospective owners. At 870 Riverside, a single buyer must earn less than $52,725 to meet the limits. A two-person family - either a couple or a parent and child - can earn up to $60,300. The limit for a family of four is $75,375.

It is difficult, however, for people who earn those salaries to afford the apartments. An annual salary of $50,000 is more than twice the average individual's yearly income in New York, but not nearly enough to get a mortgage on a $600,000 apartment, brokers say.

"The bank is not going to loan much," said Susan Skinner, one of two Elliman brokers selling the four-bedroom at 870 Riverside. "What these apartments are designed for are people who have a moderate income but a lot of cash on hand. It's very difficult to find a buyer."

So which buyers can meet the demands of a bank and the limits of a building? Recent retirees. People who have just sold a home. Anyone who's inherited money recently. Students with wealthy parents. Self-employed buyers whose income varies year to year. "If someone has a trust fund, and they don't have a big income, that's great," said Holly Price, an agent selling a housing corporation co-op in Ditmas Park, Brooklyn, for $325,000. "That would be perfect because it's so easy."

The income caps apply only to new buyers, meaning that owners can remain in their apartment if their incomes rise past the restrictions.

Soaring prices and trust-fund buyers were unthinkable prospects 30 years ago, when the city and state set up the regulations and funds that would help convert 1,200 seized and foreclosed buildings into housing corporation co-ops. The conversions allowed the city to jettison hundreds of seized and foreclosed buildings while offering low-cost homes to low- and moderate-income tenants.

Many had decayed for decades and were infested with insects or drug dealers. Elevators didn't work. The boilers broke, the halls needed painting and the apartments needed new interiors. In one building, a tenant froze to death one winter night after his radiator broke.

Different buildings were converted under different sets of rules and timetables, but the basic formula was this: tenants of a city-owned building attended management classes and bought their property for a pittance. The city or state contributed tax credits and money for renovation.

"The vision was, we got to build housing for people in the neighborhood who have fought to stay and who deserve an opportunity for ownership," said Bill Perkins, a City Council member who represents parts of Harlem and has worked with housing corporation buildings for years.

And then, stasis. Years passed in buildings without any apartments turning over. The owners clung to their co-ops. Few outside brokers or buyers showed an interest. Even when a tenant died or stopped paying maintenance, the boards were loath to foreclose and sell vacant apartments, housing advocates said.

In the past few years, however, as Harlem became saturated with bargain hunters, boards discovered the value of their buildings. Apartments became available as aging owners died or retired, and the broader Manhattan real estate market discovered housing corporation buildings. Values started to soar.

"It's not a secret anymore," said Ann Henderson, associate director of the Urban Homesteading Assistance Board, a nonprofit advocate for affordable housing. "We're trying to hold onto the scarce little affordable housing resources we have left, while the vultures are descending. We're fighting a losing battle."

Of course, not all of the 25,000 housing corporation units in the city are being flipped, and many are selling for $150,000 or $250,000.

"You can't find that price anyplace" for a regular co-op, said Anthony Stancil, who is buying a housing development co-op on 156th Street.

For $200,000, Catherine Ventura, a freelance writer, and her husband, a freelance television journalist, bought a studio and a one-bedroom apartment on the top floor of a housing corporation building on Manhattan Avenue at 123rd Street. The couple, who have a 6-year-old son, own an apartment in Hudson Heights but had wanted to move farther south, and Ms. Ventura said she pounced when she saw an online listing.

The building had stained glass, tin ceilings, marble hallways and income restrictions of about $70,000. Ms. Ventura's family met them, so they signed contracts and were approved by the board. They bought the co-ops in cash, and must live there for five years before they sell. When they do, they'll pay a 30 percent flip tax on the profits.

The family plans to move in on Aug. 1. "It's a middle-class building," Ms. Ventura said. "It wasn't a question of coming in with a lot of leverage and forcing people out. The apartments were on the market. We qualified."

Homeowners like Erenita Chiuza, who recently bought a housing development apartment in Harlem, said they were drawn to the working-class character of the buildings. "They were people like me, humble people and very nice," Ms. Chiuza said.

In other buildings, longtime owners are greeting their new neighbors with a mix of enthusiasm and unease. For Dawn Ziegler, president of a housing corporation co-op at Seventh Avenue and Central Park North, an apartment on the market there for $795,000 means that the owners are getting their due.

"It's a reward," she said, "for the tenants who had the tenacity to go through the program, to put up with all the different personalities you have to go through in a poor community. Just having to go through that, and go through all the requirements H.D.F.C. put you through."

But others worry about how the new buyers will change the buildings. Grace Adams's son, William, also owns an apartment at 870 Riverside Drive, and he is worried about the ramifications. Mr. Adams, 52, said the newer residents care more about property values than affordability and low maintenance. They have proposed amending the building's bylaws to eliminate income caps for buyers and have succeeded in reducing the flip tax to 10 percent of the profits of a sale from 40 percent, he said.

Mr. Adams, who has no plans to sell, said he gets upset when longtime residents decide to sell for as much as possible. He said he asks his neighbors whether they could afford a home at their asking price.

"It was intended to be affordable housing," Mr. Adams said. "I was given an opportunity that should be passed on to others. What I'm seeing is - greed is not a good word. Capitalism? I just wonder."

On 156th Street, John Culpepper worries about the type of people paying $150,000 for apartments in a building where he bought his place for $250 in 1983. Mr. Culpepper, 74, was once a shipboard engineer, and became the keeper of the boiler in his building after the landlord abandoned the building.

Mr. Culpepper said he and other longtime tenants live frugally and try to keep the maintenance as low as possible. The 36-unit building is even firing its managing agent to save $1,300 a month in fees, he said. Each apartment will save about $36 per month.

"We have to be careful about who we accept," Mr. Culpepper said. "If too many rich people come in here, they can change the agenda, and the little people have to play keep-up. We have to make sure the people we accept in here don't overrule the people who paid $250."

Most of these buildings have no limits on resale prices, requiring only that the income restrictions are met, said Jordi Reyes-Montblanc, president of the Housing Development Fund Corporations Council.

Mr. Montblanc said a lack of oversight structures allows buildings to ignore the income caps, a violation that would revoke their tax credits. Housing corporation buildings are allowed to lift their income restrictions 10 to 15 years after their co-op conversion, but few have chosen to do so.

The Urban Homesteading Assistance Board monitors sales in about 60 buildings, but most others do not have to report buyer incomes or sales prices to the city's Department of Housing Preservation and Development, which governs many low-income co-ops.

"The rules that are out there for these buildings are very unclear," said Andrew Reicher, executive director of the homesteading board. "It leaves it open to abuse."

Two years ago, the Department of Housing Preservation and Development sought to tighten resales of new housing corporation apartments. Buildings entering the city's Tenant Interim Lease program - a precursor to becoming a housing corporation co-op - must now adopt a 30 percent flip tax and set its income limits at 120 percent of median. New co-ops must agree to abide by these terms for 30 years.

Mr. Reicher said that there are about 300 buildings wending their way through the process of co-op conversion. Those buildings would fall under these new limits.

Board members at housing corporation co-ops say that they still have many of the original tenants, but more and more people decide to cash out and retire to Florida or Georgia or move in with family.

But Ms. Adams, at 870 Riverside, said she won't be one of them.

"I have no desire to sell my apartment," she said. "I was born in New York, and I live in New York."