Finding New Life in Old Buildings—and Keeping the Original Tenants

Existing affordable housing is a key piece of New York’s housing puzzle, and city tax breaks can help the system stay profitable

There used to be mice in Geraldine Thomas’s apartment. And rodents were far from the only problem. “Wasn’t nothing working,” she recalls. The diminutive 68-year- old has lived in her apartment in a red brick Morris Heights building for 40 years. “Since I was a young woman!” she laughed, hanging on to her blue hand cart for balance.

In those decades, Thomas says she watched the building, which is located on East 176th Street, deteriorate around her.

The once-derelict building on East 176th Street

The once-derelict building on East 176th Street

In 2014, the building was sold to a for-profit, private developer, the Lemle & Wolff Companies. This kind of transaction often spells trouble for tenants, especially if the apartments inside are affordable housing or if they are rent-stabilized, as the units in this building were.

But instead of turning the building into market-rate apartments, this developer did something different. They kept almost all the tenants in place, and left the building as affordable housing even after a multi-million- dollar renovation, which included work to the building’s plumbing and wiring, as well as sprucing up apartments, the lobby, and the building’s exterior. It was not charity: the developer was able to make a profit.

New construction and luxury condominiums, it seems, are not the only way to make money in New York real estate. Some developers, including Lemle & Wolff, make preserving and managing affordable housing the focus of their business. Maintaining low-income housing is profitable for developers because of a raft of tax abatements and other incentives from New York City and New York State. “It really comes down to economics,” explained Michael Sturmer of Lemle & Wolff. “Without the subsidies available, the projects don’t work.”

Maintaining and renovating existing buildings is central to the city’s affordable housing plan, despite the public attention on new construction and controversial affordable housing incentives like the 421-a tax abatement. “The dominant amount of the mayor’s plan is devoted to preservation,” said the New York City Department of Housing Development and Preservation Director of Bronx Planning Ted Weinstein. “New construction provides affordable housing but there’s never, ever enough affordable housing to meet the need.”

Weinstein said there was a glut of new construction in the 1920s and 1930s. These art deco buildings are visible along the Grand Concourse and all around the Morris Heights neighborhood in the Bronx. But now, those buildings are nearing 100 years old. “A building is like a body,” said Weinstein. “Eventually things start to give way.”

Thomas’s building in Morris Heights certainly fits that bill. The super at her building, Ronaldo Bracero, remembers the building before its renovation. “Before the rehab, everything was on its last legs. Down and out,” he said. Dozens of 311 calls between 2010 and the building’s 2014 sale show an astonishing array of problems: from peeling ceiling paint to leaky pipes to major electrical problems, as well as the mice Thomas remembers.

Older buildings that require more repairs are more expensive to manage, of course. And if the landlord’s financial position is not stable, as was the case in Thomas’s building, major repairs may be put off. Problems compound, and conditions for residents get worse. Ownership of the Morris Heights building had bounced between the city and nonprofit landlords since the late 1970s, when Thomas moved in. Finances were never stable, recalled Bracero, who has been the building’s super for nine years.

Kim Darga, the associate commissioner for preservation in the city’s Department of Housing Development and Preservation, acknowledged that finances are a key part of preserving affordable housing  at a January 30 community board meeting. “Preservation for us is assuring the financial and physical viability, as well as affordability,” she said. That is why the city has several tax breaks and low-interest loans designed to help landlords manage the cost of renovations.

After the city determines a project qualifies for one of these programs, the developer signs an agreement with the city. These contracts restrict rent and the income-eligibility for tenants, and the owner agrees to regular compliance checks. The contract follows the building, so tenants are protected even if a building is sold.

In exchange, the city offers tax abatements, reducing the tax bill by 4 percent or even as much as 9 percent. This, coupled with low-interest loans from the city, means it makes financial sense for companies to get involved with low-income housing. “It all comes down to economics,” said Sturmer. Without those programs, said he said, Lemle & Wolff would not be in the business of preserving affordable housing. “If we didn’t have as much government assistance as we did in New York City, you wouldn’t see all of this affordable housing being built today,” he added.

Lemle & Wolff bought the Morris Hill building in from the city for well below market rate, through the third-party transfer program. Sturmer estimated the company paid about $74,000 for the 37-apartment building. The company took out $4.4 million in mortgages with the New York Community Development Corporation to pay for the renovation.

Since the renovation, superintendent Bracero said, the building he oversees has dramatically improved. “It took a little while,” he said noting a few construction delays, “but now that it’s done, happy faces.” Lemle & Wolff stayed on as the building’s manager, and both Bracero and Thomas spoke approvingly of the company. Bracero is the super for another nearby building, managed by a different firm. “It’s like night and day. This is day,” he said.

Whether this kind of turnaround will remain tenable for the long term, however, is something of an open question. Associate Commissioner Darga said the city is committed to continuing these programs, and New York State introduced complementary programs in 2016. But it seems possible that federal programs that fund affordable housing, most significantly the Low Income Tax Housing Tax Credit, seem likely to come under fire from the President Donald Trump’s administration. That, and the murky future of tax reform could change the formula for developers in years to come. “It’s a pretty interesting time for all of us,” said Sturmer. “There’s so much speculation on tax reform.”

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