The Price of Housing Preservation: Linden Plaza's Saga

“We call it ‘pre’ July 2008 and ‘post’ July 2008. It’s like two different worlds.”

That’s how Pamela Lockley, president of the Linden Plaza Leaseholder’s Tenant Association Council, refers to the refinancing that took place seven years ago and resulted in a 93 percent rent increase at her 1,525-unit Mitchell-Lama complex in East New York. Lockley describes evicted residents placing their furniture outside for sale, then dispersing to relative’s homes, to upstate, to Pennsylvania, to the South. She knows several people who tried to get into shelters, and one woman who ended up sleeping with her children in a church office.

At first, it sounds like the tragic but familiar story of a Mitchell-Lama building going to market. The statewide Mitchell-Lama program, launched in 1955 to provide affordable housing to middle-income families, has lost 47 percent of its units since the 1990s, as owners pay off their loans and surpass the program’s required 20-year term of affordability.

But Linden Plaza, developed by the New York real estate giant The DeMatteis Organizations in 1971, is still a Mitchell-Lama building, according to the Department of Housing Preservation and Development (HPD). HPD signed off on the public refinancing, which the agency says paid for an essential renovation while keeping the building in the Mitchell-Lama program. The agency contends that prior to 2008, rents were so low that a 93 percent increase was not that large. The owners insist that low-income tenants were protected and that there was no “exodus.”

Several housing experts say that when the city has succeeded in “preserving” a Mitchell-Lama development, it often lacks the regulatory tools and funds to keep rents low. Emily Goldstein, the senior campaign organizer at the Association for Neighborhood and Housing Development, calls Linden Plaza a “stark and extreme illustration” of this problem.

Conservation is at the heart of the de Blasio administration's Housing New York Plan: the goal of creating 200,000 units of affordable housing by 2023 will depend 60 percent on preservation of existing apartments. But the Linden Plaza experience shows that even a "successful" preservation can involve poorly managed transitions and lower affordability.

Competing claims about impact on tenants

Linden Plaza's tenants and owners disagree about the change in eviction rates since 2008. Tenant Association president Lockley estimates that at least 300 were kicked out, and that another 300 moved to avoid the new rent charges. Both HPD and the landlords insist the tenants are exaggerating, and say there has always been a turnover rate of about 100 units per year. A City Limits investigation found a similar number of housing court cases before and after 2008.

Still, several tenants say that the refinancing led to financial hardship, a higher rate of evictions for non-payment, and the break-up of a close-knit community.

“I don’t think our quality of life is better at all,” says tenant association member Angela Jones. She says the building’s parking lot desperately needs new lights, her ceiling frequently molds, and kitchen and bathroom renovations replaced durable metals with cheaper materials. “I don’t understand the point of the increase. It’s not like they’re giving us so much more.”

Quality of the renovations aside, HPD can rightly claim they have kept Linden Plaza under rent restrictions for another 30 years. But the Linden Plaza of the future will not be as deeply affordable. 

Everyone agrees that the 2008 refinancing deal was “complicated.” It involved a transfer of beneficial ownership—all ownership rights except legal title—to a new entity (still affiliated with The DeMatteis Organizations). The building acquired about $90 million in new loans that qualified the building for Low Income Housing Tax Credits, and sold these tax credits to an investor for $33 million. With their new loan, the owners prepaid the existing mortgage and funded a renovation to the tune of $50 million. The upgrade included structural repairs for the roof deck and plaza and extensive interior renovations.  

A 2008 budget projection shows that after the refinancing, the owners expected their annual loan payments to increase from about $1.3 million to nearly $4.5 million. To meet these and other new expenses, the landlords asked HPD to institute a 93 percent rent increase.

Lockley says the owners gave the tenants only a small piece of this picture: that rents would go up by $125 per room to pay for a renovation. For a tenant living in a one-bedroom apartment, that entailed an increase from more than $470 per month in 2007 to over $900 per month by July 2010. (Rent charges vary slightly according to income and other factors. According to HPD, a low-income tenant considered rent-burdened paid $135 per room in 2007, while middle-income tenants paid more.)

HPD promised that most residents of Linden Plaza—those making below 95 percent of Area Median Income (AMI), or about $54,000 for two people—would be protected from the increase by “enhancement vouchers,” issued by the federal Department of Housing and Urban Development HUD). These vouchers would allow tenants to pay the greater of 30 percent of their income or the rent each household paid before the increase. With a voucher, tenants might have to pay more than before, but no one would end up paying more than 30 percent of their income—the federal definition of “rent-burdened.” A preliminary study indicated that 82 percent of tenants at Linden Plaza would qualify.

Roughly 65 percent of the tenants received vouchers over the next couple years, according to data from R.Y. Management, the company that runs the building. Why some qualified tenants did not apply remains unclear to the owners.

Falling through the cracks

Since 2001, Linden Plaza resident Petra Montgomery had been struggling to make ends meet. After losing her job, draining her savings, returning to school and making a career switch, she was struggling to pay off student loans and get her son through college, all while earning around $40,000 a year, she says. Admittedly, by 2008 Montgomery was already several thousand dollars in arrears on rent. But when her rent began to increase in 2008—from $542 in 2007 to $1,132 in 2010—that was the final straw, and she found herself facing eviction. She went to court on January 2, 2013, to request a hold on the eviction, but while she was waiting at the courthouse, the landlords hired a marshall to padlock the door of her apartment. She says her belongings were placed in storage at a cost of $600 per month, which she could not afford. Eventually she lost almost everything, from her mother and father’s pictures to her mattress and clothes.

“I tried to do the best that I could,” Montgomery says. “I was there for 30 years. I’m 63-years-old and I’m a homeless person.” She now lives with a friend who was able to take her in.

62-year-old Anthonia Olanrewaju tells a similar story. She had lived in Linden Plaza for fifteen years, working nights at a nursing home and earning about $25,000 a year. From 2008 to 2010, her rent increased from over $800 to more than $1,600. She was evicted in May 2013.

Montgomery and Olanrewaju might have qualified for vouchers, but say they did not realize they could apply. Lockley says the city should have fully explained the refinancing to tenants, hired outside agencies to assist with the outreach efforts as HUD recommends in its regulations, and, in accordance with HUD rules, informed tenants whether they would receive vouchers sixty days before the first rent increase. At Linden Plaza, many tenants did not know the status of their voucher until months after the first increase, and some tenants were then burdened with retroactive rent charges.

"Anybody who was eligible did get a voucher," building manager Robert Vaccarrello told The Daily News in 2009, after tenants complained they were being forced from their homes. He added that tenants who hadn’t received vouchers had failed to fill out their applications.

In a recent e-mail, R.Y. Management spokesperson Don Miller took a more empathetic tone. “We understand the frustration and sympathize with those who are struggling through the increase in rent along with higher costs of just about everything else these days,” he wrote. But the managers, he added, did all they could to help residents apply for vouchers. “Residents were notified via numerous mailings and evening and weekend meetings were held in the community room to accommodate those who work during the day. In addition, Linden Plaza ran bus trips to HPD for tenants to complete the process of the enhanced voucher.”

A turn of fortune

Lockley said that the rent increase was difficult not only for low-income residents who failed to receive a voucher, but also for middle-class residents who never qualified. Mary De Suze, 66, found herself in trouble due to the financial crisis and her subsequent retirement.

De Suze and her husband moved to Linden Plaza in 1980, fleeing an absentee landlord in Crown Heights. Probably everyone should have paid better attention to the refinancing in 2008, she admits: “It started out gradually. Most of us really did not know. We honestly did not know. 2010 is when we woke up to the nightmare.”

With a household income of roughly $56,000 a year—slightly above 95 percent of AMI—the voucher cut-off—she and her husband waited apprehensively for their rent to rise from $666 to $1,132, as stated in the rent order. But then things got complicated: Because of the financial crisis, her company cut salaries and her household income decreased to $46,000. On top of that, their 2010 rent bill was slightly higher than expected because of a HUD fee.

De Suze retired at the end of that year, and her household income continued to drop. She says she and her husband are now living on Social Security and feeling squeezed. According to rent bills, she is now paying about 60 percent of her income in rent, but it is too late to apply for an enhancement voucher. An official from HPD, who spoke to City Limits on condition of anonymity, confirmed that tenants could only receive the vouchers if they qualified in 2008.

The fight to expose Linden Plaza 

De Suze and Lockley believe the 2008 refinancing and subsequent rent increases were not just painful, but illegal from start to finish. Representing themselves in court, they have made this argument from nearly every possible angle.

They allege that Linden Plaza’s buildings are “in worse shape than they were before the renovations,” as Lockley wrote in a complaint to HUD this year. Because they still haven’t seen a line-by-line bill of the renovation costs, they accused Linden Plaza’s owners of pocketing some of that $50 million repair money. 

It’s true that HPD has found Linden Plaza in violation of building codes since the renovation—more than 30 times since 2010, according to data collected by the Furman Center. But Tom Waters of the Community Service Society says it’s possible that $50 million couldn’t solve all the problems faced by such a large, old development.

De Suze and Lockley have argued that increasing tenants' rent due to new debt service is illegal and that the rent increases should have been temporary. And they say the renovation would not have been as urgent, or as costly to tenants, if HPD had enforced a law requiring Mitchell-Lama owners to set aside a portion of tenant’s annual rents into a reserve fund to cover future repairs. As early as 1995, an audit by the New York City Comptroller’s office faulted HPD for failing to adequately enforce the reserves fund requirement on Mitchell-Lama developments. Linden Plaza was one among 48 of 58 developments that had underfunded reserves in 1993. 

More radically, Lockley, De Suze and her fellow petitioners have argued that the building has—contrary to what HPD says—secretly left the Mitchell-Lama program, thus circumventing a law requiring that exiting developments constructed before 1971 become rent stabilized, in which rent increases are limited at approximately 1 to 8 percent per year. They say the owners are actually charging Fair Market Rents—a low estimate of market rents calculated annually by HUD—rather than Mitchell-Lama rents appropriate to the budget of the building. The accusation is understandable: in 2010, a tenant in a one-bedroom apartment at Linden Plaza could be charged between $953 and $1,265 per month. The HUD Fair Market Rent around that time was similar, at about $1,200.

Everything according to plan

The HPD official who spoke to City Limits on condition of anonymity denied all the arguments tenants have employed to discredit the legality of the refinancing.

They said the tenants had misinterpreted the law, and that it was legal to raise the rent to offset new debt. They said they had personally visited the building and could confirm a substantial improvement since 2008. When asked if HPD had kept records of the renovation costs, as instructed by the Private Housing Finance Law, the official said that the New York City Housing Development Corporation (HDC) had approved each part of the renovation. Christina Sanchez, an HDC spokesperson, confirmed that the mortgage had been set “based on the actual construction contract” and that the owners could not have made a profit from the renovations. 

In a February 2014 decision, Kings County Supreme Court Judge David I. Schmidt granted partial victories to both parties. The complex had not taken the necessary steps to leave the Mitchell-Lama program, he said, and ruling otherwise would “have the unintended consequence of discharging [companies] from the Mitchell-Lama program on an involuntarily and/or unknowing basis.” But he also ruled that the building had overcharged its tenants, at least partially: the court ordered HPD to refund De Suze and the other tenants for any “HUD Excess Fees” that had showed up on their rent bills.

Two months after the judge’s decision, HPD issued a new rent increase to be phased in from 2014 through 2016. De Suze’s HUD excess fee still appears on her bills, and her rent is expected to increase to over $1,400 by 2016. Last month, a judge rejected De Suze’s motion to find HPD in contempt of court.

The future of Linden Plaza

Many of Linden Plaza’s tenants could consider themselves lucky: Other buildings have had to weather large rent increases without enhancement vouchers. And Linden Plaza’s vouchered tenants received a permanent gift—they can take their vouchers with them to other housing developments. As enhanced voucher tenants pass away or move elsewhere, the building will be affordable to tenants making 60 percent AMI, similar to most affordable housing complexes built today. 

But this means that Linden Plaza and other Mitchell-Lama developments will no longer be home to tenants from a wide spectrum of incomes, from very low to solidly middle. Low-income New Yorkers making below 50 percent of AMI are already the most rent-burdened tenants in the city—and the loss of Mitchell-Lama’s affordability will only exacerbate this problem. 

It’s also hard to say what will happen to Linden Plaza in thirty years. The development resides in the heart of an area that in a few decades may be bursting with high-rise residential buildings. With their distrust of HPD, the tenant association’s members have become some of the loudest critics of the city’s plan to rezone the neighborhood. They were part of the grassroots movement that pushed the city to delay the rezoning process until September.

If East New York does redevelop and become a destination neighborhood, Linden Plaza may once again be at risk—it’s much more tempting to leave a subsidized program if you are sitting on hot real estate.

Community Service Society’s Waters, who blames the design of the Mitchell-Lama program for its fragility and current crisis, hopes the de Blasio administration will ensure that new affordable housing programs “avoid a repeat of the massive wave of market conversions that decimated the Mitchell-Lama rental stock during the years from 2001 to 2007,” as he wrote in a recent report. This could include requirements that regulate the price of a sale, grants to ensure developments are affordable to low-income families making below 60 percent AMI, and other provisions to ensure permanent affordability and prevent the kind of skyrocketing rent increases that have accompanied some recent preservation deals.

“Who in their budget has the ability to absorb something like that?” he says, referring to the type of steep increases that occurred at Linden Plaza. “What we need are tools that are better than this.”