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Thread: Southbridge Towers votes to study going private

  1. #1

    Default Southbridge Towers votes to study going private

    From the Downtown Express.

    Anything that releases apartments into the market-rate market is a good thing in my view. No doubt the residents see $$$ before them.

    http://www.downtownexpress.com/de_12...wersvotes.html

    Southbridge Towers votes to study going private
    By Vanessa Romo

    Proponents of a study analyzing the effects of privatizing Southbridge Towers, a Mitchell-Lama co-op, celebrated a double victory last week. A referendum to move forward with the study was passed with overwhelming support; shareholders voted 2 to 1 in favor of the study that could cost up to $25,000. And a vote on a tax abatement program that would require the 1651-unit co-op to remain in Mitchell-Lama for another 15 years, scheduled for Oct. 26 and 27, was canceled.

    The turn out for the election was one of the largest in the co-op’s history; 740 shareholders voted in favor of the study and 353 voted against it.

    The final tally was announced on Oct. 20, just one hour after the polls closed, and elicited cheers and applause from the 100 or so shareholders still present, said Rosemarie Ferrara, who voted for the study.

    Paul Viggiano, president of the co-op’s board of directors, called an emergency meeting on Friday, Oct. 21 and with the support of 11 board members, moved to postpone the vote on the J-51 tax abatement program until “after the privatization study is complete and disseminated among all shareholders.”

    A vote approving the co-op’s participation in the J-51 program, which would allow it to be reimbursed for a percentage of money spent on capital improvements, would automatically void the referendum in favor of the study.

    Tenants in favor of studying privatization had accused Viggiano and the board of rushing the J-51 vote before it was necessary. Viggiano claimed he always considered canceling the J-51 vote, but he never mentioned that possibility in several interviews prior to the privatization vote.

    Board member Victor Papa said postponing the vote was the right thing to do. “It would be bad faith to delay the study. To show good faith, it would dictate that we postpone the [J-51] vote until the privatization study is complete, then people can know what they want to do,” he said, and added, “That makes the question of J-51 more legitimate.”

    The study could be the first step in the legal process of dissolving the Mitchell-Lama co-op. It would assess the market-rate value of the commercial and residential properties and determine changes in maintenance, appliance and utilities fees. The complete process of converting to a private co-op could take up to three years.

    Viggiano said he plans to appoint an ad hoc committee to oversee the feasibility study within two weeks. “I have to figure out how to form a fair and unbiased committee to represent shareholders’ concerns,” he said. The interests of low- and middle-income residents, senior citizens with fixed incomes, and the wealthier residents all have to be taken into account, he said.

    The committee would be responsible for hiring a firm to conduct the study and determine when the study would begin. But Viggiano said, “I’m going to move it along as fast as I can. There will be as little delay as possible.”

    Jared Brown, founder of Southbridge Rights, the group responsible for the referendum on the study, wants Viggiano to include an accountant or attorney who has experience with a co-op that successfully privatized on the oversight committee.

    Southbridge Rights is also calling for a shareholders meeting to address the community’s concerns before the oversight committee is appointed. However, Viggiano said there are no plans for an open forum in the immediate future. “First I would like to form the committee. After that is formed and we meet, then at some point I’d like to have a shareholder’s meeting to explain what the committee is going to do, their objectives and where we intend to go,” Viggiano said.

    Opponents of the study and privatization expressed mixed feelings about Thursday’s outcome. “I am disappointed because I think we’re wasting money,” said Laurence Vide, 81, who has lived in the building since Nov. 7, 1970, a day he remembers as one of the happiest in his life. “In the end it may not be worthwhile, but since 740 people were able to show up and say they want the information, what can I do?” he asked.

    Like most shareholders on both sides of the issue, Vide hopes the study will dispel all of the rumors and half truths regarding privatization that have been circulating within the complex for years. “I’m hoping it will be honest and then everyone will know the real truth about what they’re getting into,” he said.


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    NYC Aficionado from Oz Merry's Avatar
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    A gamble or a sure thing?

    Southbridge considers privatization


    By Julie Shapiro

    Over poker games and at the grocery store, Southbridge Towers residents are debating one of the biggest financial decisions of their lives.

    The question is whether Southbridge’s 3,500 occupants should leave the state’s Mitchell-Lama affordability program, giving residents the chance to sell their co-op apartments at market rate, likely for hundreds of thousands of dollars.

    The debate has been going on for many years, and a final vote is at least several months away, but the discussion is heating up now as residents review a new document that details their options. Called a “red herring,” the 605-page report explains exactly what residents stand to gain or lose if the building goes private. In a vote that will likely come next year, two-thirds of the 1,651 apartments would have to support privatization for it to take effect.

    The decision is dividing friends and neighbors, and many Southbridge residents did not want to talk about it or be quoted, for fear of angering their acquaintances. In Southbridge’s community room on a recent afternoon, a group of senior women playing poker said raising the topic would ruin their game because they did not all agree.

    “One side calls the other side stupid, and the other side calls the one side crazy,” a white-haired woman said. “Either you’re crazy or you’re stupid. No thank you.”

    The men playing seven-card stud at an adjacent table were much chattier — perhaps because they were all of the same mind.

    “We’re all for it,” said 80-year-old Russell Torraco. “There’s no reason not to be.”

    Some of the poker players had lived in Southbridge since the complex of brick towers opened in the 1970s. They were impervious to the arguments of those who oppose privatization, who warn of additional taxes that will burden the residents.

    Joe Scelso, 81, said that even if his maintenance charges go up because of higher taxes, the benefit of owning Manhattan real estate without putting any more money down far outweighs any short-term costs. Also, he pointed out that under privatization, residents would be allowed to give their apartments to family members or leave them to family members in their wills, which is not allowed now unless the relatives already occupy the apartment.

    Leaving the questions of cost and self-interest aside, some who oppose privatization make a broader moral argument: that just as they benefited from the affordability of Southbridge, future generations should have the same opportunity.

    “Southbridge was originally built to afford middle-income people the opportunity to live in comfort [in New York City],” said an 83-year-old woman leaving the complex’s Associated Supermarket recently. “By going private, I think they’re violating that.”

    The red herring report, released in June, cost Southbridge residents $300,000, an expense that half the apartments had to approve.

    Southbridge is a Mitchell-Lama co-op and each resident owns a percentage of the complex. Individuals cannot sell their apartments on the open market. Under the privatization plan, residents who did not opt out would acquire their apartments with a no-cost paper transfer.

    State Attorney General Andrew Cuomo’s office is accepting public comment on the red herring until Oct. 23, and then the A.G. will respond with recommendations around the end of the year. There could be additional adjustments and recommendations after that. Then, likely sometime next year, Cuomo will approve a final version of the plan, called the “black book.” That is the version that will be subject to a vote, with two-thirds of the apartments required to approve it.

    Cuomo gag order

    Missing from the privatization debate are some of the voices who are most knowledgeable about the proposal’s benefits and pitfalls: the members of the Southbridge Towers board. Cuomo’s office, which governs the privatization process, has informally told board members that they are not allowed to speak publicly or privately about the red herring until it becomes a final document. During this period of open public comment, and the next phase, when the attorney general may modify the plan, the board members are barred from giving their views.

    The reason for the gag order appears to be a purely legal one: The attorney general’s office considers the Southbridge board the “sponsor” of the privatization effort, a role often taken by a landlord in Mitchell-Lama rentals. The purpose of the gag order is to prevent parties with a large financial interest in the project from influencing the debate.

    But in this case, though the Southbridge board is almost unanimously in favor of privatization, the board members do not stand to benefit any more than any other resident. And it was a vote of the complex as a whole that authorized the creation of the red herring in the first place.

    Board members have asked the attorney general to clarify the need for the gag order, but they have not received anything in writing. The attorney general’s office refused to comment on the issue and did not provide a defense of their decision to Downtown Express.

    Warren Green, a lawyer and former Southbridge board member, said the A.G.’s position makes sense legally but not practically.

    “It is to the detriment [of Southbridge],” Green said. “There’s so much people want to know and understand,” he added, but the fact that only the anti-privatization advocates can speak means that, “there’s really no means of information flowing the other way.”

    Cost increases?

    Anti-privatization residents have been examining the red herring report with the help of lawyer Joan Meyler, and they held a well-attended meeting last month to explain their concerns.

    Victor Papa, a former board member who led the meeting, said the residents must be a “watchdog,” since the attorney general will not say whether the plan is a good idea or a bad one, and the current board is pro-privatization.
    The watchdog role is particularly important, Papa said, because once Southbridge votes to privatize, “You cannot turn back. You cannot return to Mitchell-Lama.”

    Meyler’s chief worry was that Southbridge residents would have higher monthly payments under privatization than they would if they stayed in Mitchell-Lama. One cost that will definitely go up is the real estate tax.

    Now, the state covers about 90 percent of the $8 million annual real estate tax, but Southbridge residents would be liable to pay the entire tax themselves if they go private, and Meyler said the taxes could rise even higher.

    Meyler is not a real estate lawyer but she has reviewed several privatization plans, including the one for Cadman Towers in Brooklyn, where she lives.

    A 66-year-old resident who gave only his first name, Nick, cited the increased taxes as the reason he opposes privatization.
    “I like the deal I have now,” he said.

    He has no desire to sell his apartment and has no one he would want to leave it to, so he sees no reason for privatizing.

    The red herring anticipates the increased fees, and hopes to counteract them by instituting a flip tax: The first time each apartment is sold, the seller will have to pay a 25 percent fee. If 3 percent of the apartments are sold each year, Southbridge will make enough money to balance the increased taxes without residents having to pay more. About 4 percent of the apartments turn over each year now, and residents will have incentive to leave once Southbridge goes private, so the 3 percent figure appears conservative.

    Meyler, though, said it was “speculative” to rely on the transfer income, because the transfer rate and the sales prices could be lower than predicted. She also pointed out that while Southbridge has about $19 million in its reserve fund, nearly all of it is slated to be spent on capital projects in the next three years, leaving little cushion for future expenses.

    In response, pro-privatization residents said that even if their annual fees go up by a few thousand dollars, they would still own an asset worth hundreds of thousands of dollars, a trade they see as worthwhile.

    Winning the lottery?

    As the prospect of selling their apartments comes closer, residents are turning an evaluating eye on the units they have lived in for dozens of years.

    On a recent afternoon, Florence Reiffe leaned on a cane in Southbridge’s central courtyard, describing the view of the East River and Brooklyn from her 22nd-floor windows.

    “You know how much I can get for my apartment?” Reiffe said, predicting at least six figures.

    She may be right. A study done last fall predicts sale prices ranging from $260,000 for studio apartments without terraces to $920,000 for three-bedroom apartments with terraces. Even with the economic downturn, a six-figure estimate for the apartments appears fair.

    Louis Trazino, a former board member, said he sees no downside to suddenly having a valuable piece of real estate in his name.

    “Every week these people go out and play the lottery,” Trazino said of his neighbors. “They drop a dollar on something they’re never going to win. But here these people have already won the lottery, and all they have to do is have the courage to step into the future.”

    Trazino’s family has lived Downtown since the 1890s, but he would be the first one to own property here — and he said he wouldn’t want to miss the chance to pass on the apartment to his two children, 11 and 13 years old.

    Low income seniors

    If Southbridge goes private, no one would be forced to own their unit. Instead, residents would be able to remain renters, paying rents equal to the maintenance fees they were paying under Mitchell-Lama. Rent increases would be limited to the percentages approved each year by the Rent Guidelines Board and would never exceed 5 percent. No one would be evicted unless they failed to pay rent.

    For some seniors, the monthly maintenance fees are already too taxing. Residents of about 50 Southbridge apartments receive additional help from the city’s Senior Citizens Rent Increase Exemption Program, which is for people 62 and older whose household disposable incomes are less than $29,000.

    Those residents will not be eligible for the assistance program if Southbridge exits Mitchell-Lama, but the red herring offers the seniors an identical program, paid for by the building rather than the city. The building’s program would stay in effect for as long as the city’s program exists. The red herring also extends the program to anyone who becomes eligible within the first six months of privatization, but anyone who turns 62 after that would not receive assistance.

    In response to concerns that renters and seniors could face hardships if Southbridge left Mitchell-Lama, privatization advocates say that the best option for everyone is to take ownership of their apartment. Then, they can always take out a mortgage if they need money and want to stay at Southbridge. Seniors may also be able to take out reverse mortgages, in which they essentially will their apartment to a bank and draw an income from that transaction for the rest of their lives.

    The fine print

    At 605 pages, the red herring report is not light reading. But lest residents of Southbridge be tempted to merely skim through it or rely on the opinions of their neighbors, the report includes several hard-to-miss warnings in bold. For example: “THE OUTCOME OF YOUR VOTE…MAY BE ONE OF THE MOST IMPORTANT FINANCIAL DECISIONS OF YOUR LIFE. THE ATTORNEY GENERAL STRONGLY URGES YOU TO READ THIS PLAN…CAREFULLY AND TO CONSULT WITH AN ATTORNEY BEFORE VOTING.”

    Still, very few people have read the plan in its entirety. One of them is Meyler, the lawyer, who attracted a standing-room-only crowd to Southbridge’s community room last month. She raised a slew of concerns about the plan’s details, ranging from asbestos in ceilings to governance loopholes.

    The asbestos in many apartments’ plaster ceilings could be an obstacle to selling the units and could be costly to remove, Meyler said.
    In response, privatization advocates said that even if the asbestos cost tens of thousands of dollars to remove, it would still be easy to turn a profit on the sale of the apartments.

    Meyler also pointed out a paragraph that allows the Southbridge board to make changes to the privatization plan after the residents have approved it. The language appears to be there out of legal necessity, but Paul Hovitz, a resident, said it does not make sense to give such broad powers to the board. The board should have to return to the shareholders for a vote after making any changes, Hovitz said.

    In addition, Meyler raised the prospect of Southbridge having to pay onetime property transfer taxes, which could be as high as $30 million. The red herring estimates that the taxes, if applicable, would be only $4 million.

    In any case, no Mitchell-Lama co-op has ever paid the transfer tax to the state or city, although one is currently challenging a tax bill in court. The red herring states that Southbridge should be exempt because there is no deed transfer, just a reconfiguration of the body that owns Southbridge.

    Another concern frequently heard is that the new residents who buy into the complex will want to add high-end features, and once they elect representatives to the board, they will vote for costly renovations that will raise everyone’s maintenance fees.

    Privatization supporters, though, say that anyone in search of a high-end condo would buy at a newer building, while Southbridge will attract more cost-conscious buyers who won’t want their maintenance fees to go up.
    With all the detailed, heated discussions back and forth, it was almost surprising to run into a Southbridge resident last week who merely shrugged at the mention of privatization.

    “Either way is okay with me,” said the 75-year-old man, who did not give his name. He said he would talk to his friends to figure out how he would vote.

    But there was one thing he knew for sure: “I’m not going anywhere,” the man said as he walked along one of Southbridge’s shaded paths. “This is my home.”

    http://downtownexpress.com/de_337/ag...surething.html

    http://curbed.com/archives/2009/10/0...g_decision.php

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