Brooklyn Paper: Taxpayers Paying Up for Downtown Rental

It’s hardly breaking news, but The Brooklyn Paper has a story this week about Forest City Ratner Companies receiving $109.5 million in tax-exempt bonds and $27.5 million in taxable bonds issued by the New York State Housing Finance Agency for the 335,000-square-foot building under way at 80 DeKalb Ave. According to The Brooklyn Paper, critics say that this translates into tax payers underwriting each affordable unit to the tune of $1.5 million. Wachovia Bank and Helaba provided “credit enhancement” to the $137 million in bonds. The 34-story tower, Ratner’s first residential building in Brooklyn, was designed by Costas Kondylis. It’s an 80/20 unit with 292 market-rate rental units and 73 affordable ones, that will remain so for 99 years. The building is to be green&#8212they expect to achieve LEED certification&#8212and could begin leasing next summer.
Ratner’s First Tenants [The Brooklyn Paper]
New Glassy Tower to Join Fort Greene Mini-City [NY Observer]
Development Watch: 80 Dekalb Avenue [Brownstoner] GMAP P*Shark DOB
80 Dekalb Avenue: Get Ready for Take-Off [Brownstoner]
Public Hearing Scheduled for 80 Dekalb Financing [Brownstoner]
Demo Done at Site of Ratner’s Dekalb Tower [Brownstoner]
At 80 Dekalb, No Mention of Ratner [Brownstoner]
Ratner: ‘Fort Greene, I’ve Got You Surrounded’ [Brownstoner]

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  • It’ll be interesting to see what effect 350 “families” moving in on that stretch of DeKalb has, if any. Or if they’ll have any trouble leasing the market rate units. I’m really curious, does anyone know what they’re doing with the Forte just around the way. Have they sold any units? What’s the informed outlook?

  • If Ratner keeps getting bonds, we may need to start being nice to him. You should always be nice to the people that are holding your money.

  • I don’t think the reported critics are crunching the numbers correctly. Isn’t the unit subsidy equal to the difference in the cost between market-rate paper and the tax exempt bonds? The developer still needs to pay back the loan, just at a lower interest rate. That was always my understanding of how this works; am I wrong?

  • About a third of the Forte building is occupied. Though prices have slipped, it is still more expensive then most of the condos over on Flatbush. There is an open house with a tiki bar on the roof deck every wednesday. Worth a look, even if it’s only to se the view from up there.

  • Alter… I believe that’s right.

    But it doesn’t say anywhere what the actual rent would be. It says the units would be “available” if my “household” makes less than $72k.

    I have a feeling it’s not going to be that “affordable.” The formulas are always ridiculous for this stuff. I saw a listing for new “affordable housing” not that long and, apparently, someone making $25-35k can pay $1200 for an apartment. Ridiculous city this is.

  • You are right Altervoice on the financing ‘subsidy’ issue. Either Lisa is clueless on 80/20 projects and public agency financing thru tax-exempt bonds … or it is usual Brownstoner spin when anything involves Ratner.

  • Brownstoner and Brooklyn Rag (nee Paper) rhetoric.

    Its funny how the same thing always happens – for years constituency screams for Govt to arrange more affordable housing; Government has plan to offer financing for affordable housing, developer participates in plan for affordable housing (plan is open – no special deal for specific developer), and then same people complain that it is a give away.

    Do you MORONS (who like to criticize everything) have any idea what the DIRECT COST would be to the taxpayer if the Government tried to build these kind of developments on there own would be????????

  • “apparently, someone making $25-35k can pay $1200”

    Of course they can. They just can’t eat, take a subway or have a phone.

    “Critics point out that this translates into tax payers underwriting each affordable unit to the tune of $1.5 million.”
    I don’t pretend to understand the financing stuff but why would that money only be thought of as applying to the “affordable units” when it is to the benefit of the whole building? Aren’t taxpayers actually subsidizing the market rate apartments as well, in actuality?

  • jawbreaker – it of course will depend on the price and the ultimate quality of the build, but i wouldn’t think they’d have much trouble attracting couples and young families looking to “test out” brooklyn before they buy. it’s got nice proximity to ft. greene and BAM, is not so far from smith st. and boerum hill and is about a 2 minute walk to pretty good subway access to midtown. to me, it would be less attractive than something comparable in, say, south slope, just because flatbush extension isn’t pretty and doesn’t seem to be developing amenities the same way that south 4th ave is, but the commute and other conveniences may make it a wash.

  • Thanks, ReMiXxd…for some reason it looks empty.

  • I think someone needs to write a nice long piece describing the various forms of development programs offered by the HFA and HDC.

    If Brownstoner is going to repeatedly have articles about this, it makes sense there be a resource created so people understand what is going on.

    That said however, the term sheets for these programs is very well detailed on the HDC and HFA websites. The poster above that describes the maximum income and associated rent levels is particularly clueless – it takes 10 minutes to look up this data.

  • FWIW, we think this project is great for Brooklyn–and have been providing play-by-play coverage of the construction process. We only played up that $1.5 million number because it was the only new angle in the entire Brooklyn Paper article. Everything else has been known for months.

  • As altervoce implied, the subsidy involved here is forgone taxes. Normally the bond interest would be taxable income for whoever owns the bonds, but because the state used its tax-exempt power, the bondholders do not have to pay tax on the interest they earn. By my calculations, at a 6% rate of interest (fairly generous I believe), assuming every bond purchaser is among the richest people and is paying the top NYC/NY income tax rate of 12.14% (excluding federal taxes), the city and state would be subsidizing the building in forgone taxes to the tune of $997,908.00 a year during the duration of the bond. The lower the income the purchasers of the bond however, the lower the subsidy goes since they will have a lower tax rate and shield less income in municipal bonds.

  • So refreshing to finally see a strong dose of revolt against the incessant anti-ratner BS propaganda on this blog.

  • Would be more refreshing to see some of these posts in plain english so those of us without degrees in finance could follow along a little better. Someone earlier asked about the reality of tax subsidies (at 10:38). Maybe someone could actually explain that in a clear and non-insulting way? (We aren’t stupid- it’s just not our field of expertise).

  • let’s see if we can make this simpler. the blanket statement that the taxpayers are footing the bill to FCR is a bit misleading. if FCR built this project with a conventional construction and permanent loan the interest rate would be say 7%. ( i know they’re not that high but bear with me). in this scenario FCR wouldn’t provide 20% low-income units because it wouldn’t make sense for them nor would it be required.

    now if they build it with 80/20 tax exempt bonds, the interest rate on the bonds is something like 4% (for argument’s sake again). yet the requirement is to provide 20% low-income units. the incentive here for FCR is the spread on the interest rates. despite the loss of rental income on the low-income units relative to the market units, the savings on the interest (bonds vs conventional) on an annual basis makes it a better deal from a net cash flow perspective (i.e FCR walks away with more dough).

    now to the taxpayer’s. like was stated previously these are govt bonds which are issued by the state. the folks who purchase these bonds are exempt from paying income taxes on the interest earned. so yes this is foregone revenue by the govt that you could argue is lost. but that assumes that you see the collection of taxes as kind of zero sum game. but my main point is that the notion that dollars that come out of our paychecks are going directly to FCR for this project and others like it is incorrect. you need carrots like the interest savings in order to compel companies like FCR to build the low-income housing. otherwise they just wouldn’t.

  • OK lurker – here’s an attempt to explain this in english (to thoseof you who actually know how this work – I know that I’m really oversimplifying this):
    Let’s say a developer has determined that it would cost $1 million to build his building. He would be required to put up some of that money (nowadays it would be at least 35%) in equity and the rest would be debt – which means he would go to a bank and take out a loan. Let’s say his project will take one year to build. He would be taking out a loan for $650,000 for one year before he could sell off his units and pay off that loan. A bank would charge him interest of around 8% – so it would cost him $52,000 to pay off the interest for that loan. If the developer participates in the 80/20 program, then rather than go to the bank, either HFA or HDC basically replaces the bank and they provide the developer with the $650,000. But they only charge interest of like 5.5% – so it only costs the developer $35,750. How is the HFA or HDC able to charge less interest? Well the they are raising that $650k by selling bonds. The people who buy those bonds are earning 5.5% interest – so that’s why HFA is charging the developer that amount. Now normally, the people who buy those bonds would have to pay taxes on the money earned from those bonds – so the net amount they made would be less than 5.5%. (or more likely – the HFA would have to offer them 8% interest in order to entice people to buy them). But these are tax free bonds – so the buyers of the bonds don’t have to pay taxes, which means that the HFA can pay less interest, which means the developer can pay less interest. The exact amount of subsidy depends on which tax bracket the bond buyers in – presumably they are in the highest tax bracket which would mean that taxes are around 35%. So anyway, multiply all these numbers by the fact that a project of this size costs somewhere in the ballpark of $300 million (not $1 million) and that the life of the loan will most likely be for 30 years, not 1 year and you start to see how this adds up to real cost savings for a developer which starts to make up for all of the revenue he is losing because he can only charge a fraction of the market rent on 20% of his units.

  • Thank you both for the explanations. I appreciate that you explained everything without making us less than financial wizards feel completely incompetent.

    I finally understand what it all means (at least I’m beginning to) so I’d like to ask one further question, which goes back to what bxgrl was seemingly asking- Do developers make more money overall with this deal? Realizing that they aren’t losing money, do they actually make more money than if they didn’t build affordable housing at all? How much more does Ratner stand to make by adding affordable housing?


  • Yes – they make more money by taking part in the 80/20 program. The 80/20 program is optional, and it’s clearly a bigger beaurocratic headache to deal with HFA and HDC than it would be to just use a bank – so they would have to be making more money in order for it to be worth their while. The primary thing that allows them to make more money is that, by taking part in the 80/20 program the project becomes eligible for 421a tax exemption. This exempts them from having to pay real estate taxes for about 15 years. THat’s a significant reduction in operating expenses for a rental project.

  • i second P heights. they definitely make more dough by participating in the 80/20 program. i’m talking about a project’s cash flow. they have to otherwise they wouldn’t deal with HDC and HFA. in the old 421-a program, if they just built the project without the affordable they would get a 15 yr abatement. with the affordable they get 25 yr. that’s extra dough in their pocket for another 10 yrs. that was the icing on the cake.

    but we’ll see how it plays out now that the 421-a is totally different. everybody is going to be looking at doing 80/20’s and unfortunately despite the passage of the latest federal housing bill, there’s not that much of the bonds to go around.

  • bxgirl – to answer your question: yes the tax exempt funds subsidize the whole project, not just the affordable units. However, in the world of people who try to get affordable housing built, the question is always “how much subsidy to we have to provide in order to get affordable units built?” so in order to compare different affordable housing programs to eachother, they typically use the metric of “subsidy dollars per affordable unit”. Obvioulsy the goal is to figure out a way to get the most affodable units for the least amount of subisdy. Some programs are more “efficient” with their subsidy dollars than others. As fsrq was not very delicately pointing out – the 80/20 program is much more efficient than a program that would require the gov’t to actually build these units themselves.

    Anyway, the term is not meant to imply that the market rate units aren’t subsidized. I hope that clears that up.

  • thanks to you MMHPH,and Friend or Foe, it does. It’s so complicated I can’t make heads or tail of the whole subject and of course when you see a sentence like ” critics say that this translates into tax payers underwriting each affordable unit to the tune of $1.5 million” my first instinct is to choke a politician. But seeing it in context makes it a whole other story and I thank you both for taking the time to write it out.

  • “but my main point is that the notion that dollars that come out of our paychecks are going directly to FCR for this project and others like it is incorrect. you need carrots like the interest savings in order to compel companies like FCR to build the low-income housing. otherwise they just wouldn’t.”

    and it’s not just low-income housing. this is precisely why all the anti-AY BS is so retarded. people screaming about the tax revenue they’re foregoing in the AY financing. how much tax revenue are the tax payers seeing now from that land? nada. how much would they see w/o any developer incentives? nada.

  • It’s oversimplification to think anti-AY people are only upset over tax revenue. It has to do with scale, lack of proper procedure, putting the arena in an awful location, the threat of eminent domain, the bargain basement price Ratner got for the air rights from the MTA…I could go on. When you add the fact that either way- with or without AY- we aren’t going to see any tax revenue, why should taxpayers care about AY?

    Also remember that the income levels set for affordable housing include people making 100,000 (115,000 comes to mind?) a year. Sorry but at that income level you shouldn’t be subsidized. And finally while Ratner promises to build affordable housing he has a loophole allowing him to build it off site. If in fact he builds it at all. Developers have a track record of unfulfilled promises. All in all the bs on the Ratner side.

  • AY is getting subsidized in many different ways – some of them are legit and some are shameful. The tax-exempt bond financing is legit. The bargain basement price from the MTA is shameful. And while I have my own other problems with AY (closing of the block of Pacific between Carlton and Vanderbilt to create a superblock, the lack of open space, etc) I actually think that it’s not an awful location to put an rean – it’s got the best mass transit access of any location in the borough – which is really the main consideration when choosing an arena location.

    ANd I don’t think your $115,000 salary number for affordable housing is correct.

  • i’m refering to the usual suspects on this blog who scream bloody murder that tax payers are putting up 2 bill for AY. bunch of crapola.

  • BrooklynLove, what would Ol’ Dirty say about Atlantic Yards?

  • i wish he was still around to tell us. i miss him.