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Starrett City sale shelved by HUD.

U.S. Housing and Urban Development (HUD) secretary, Alphonso Jackson, has denied Clipper Equity, led by David Bistricer and Sam Levinson, the right to close the $1.3 billion deal to buy Starrett City.

Stating that the buyer has not provided sufficient information to illustrate the nation's biggest federally-subsidized housing complex would remain affordable, Jackson warned, "This department will not stand idly by, while a community and its people are unnecessarily placed at risk of losing their homes and way of life."

For over three decades, the 140-acres complex has provided working class families with federally subsidized housing under the Mitchell-Lama program. Under a 30-year contract, Mitchell-Lama granted the owners, Starrett City Associates--a group led by Disque Deane--tax breaks in return for providing affordable rental and cooperative housing. Now that the contract has come to term, the owners have the right to opt out of the program and charge market rates for the 5,881 apartments.

Following news of the record $1.3 billion sale to Clipper Equities last month, Starrett Associates said it was pleased that the buyer planned to keep the property affordable. However, reports quickly circulated questioning whether Clipper Equity even had the resources to do SO.

In a letter to Clipper Equity attorneys, Nixon Peabody, Jackson referred to a statement by the buyer that several investors would invest "substantial equity" in the deal prior to closing. "[That] is troubling because it suggests that Clipper Equity lacks the financial resources to achieve closing on its own."

Concern mounted amidst reports that Clipper's bid exceeded the next lowest bid by $500 million, a figure that has been disputed by sources who claim the next bid in fact came in at $1.25 billion, just $50 million short of the ultimate sale price.

Bistricer's history of housing code violations also scuppered the sale. The New York City Department of Housing Preservation and Development (HPD) said it uncovered thousands of outstanding maintenance code violations at Bistricer-owned buildings.

In his letter to Clipper Equities, Jackson called on the company to provide a financial plan, "including its plan for maintaining the project as a decent, safe and sanitary low- and moderate- income project at current HUD-approval rent levels."

He also asked for an inventory of Bistricer's local housing code violations, their current status and a certification of current compliance with local housing codes.

A spokesman for Clipper Equity said, "We remain convinced that we can provide the assurances that Secretary Jackson, and other officials require. We ask only that we be given a fair opportunity to present our fully detailed plan to achieve this goal."

While the deal is certainly on ice for now, Starrett City's ultimate sale is not out of the question. Starrett City Associates is undecided on its next step. The owner could put Starrett City back on the market, opt out of Mitchell-Lama itself or wait to see what happens with Clipper Equity.

According to Jamie Heiberger-Jacobsen, president of Heiberger & Associates, playing the waiting game for now might be the best thing to do.

"Anytime you are involved in a sale like this, where there is a large amount of federally subsidized housing at stake, there's going to be a problem. Peter Cooper Village/ Stuyvesant Town wasn't a smooth sale, but ultimately it closed. Any buyer should be sophisticated and educated enough to anticipate the hurdles that they are going to be up against in order to purchase."
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Author:Perez, Esther O.
Publication:Real Estate Weekly
Date:Mar 7, 2007
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