December, 3 2005

Sheldrake to Be Sole Owner of
Island House and Westview
Tenant Groups Left With Fewer Options, More Time Pressure;
In a Hectic Week, a Brief Dust-up Over Conflicting Strategies
by Dick Lutz

Barring any last-minute hitch, the Sheldrake Organization is about to become the full owner of both Island House and Westview. The process will be complete by early next week, according to Charles Lucido, who heads the groups that are selling the buildings. (Other sources say it will happen "within weeks.")

Robert Klehammer, the Sheldrake Vice President handling Roosevelt Island matters, declined comment on Thursday, but Stuart Saft, the attorney representing the Island House Tenants Association (IHTA), told its members at a Wednesday night meeting that Sheldrake owner Chris Daly had lined up $130 million in financing with two major institutional lenders.
 

Attorney Stuart Saft spoke Wedneday night to a meeting of the Island House Tenants Association, bringing the news that the Sheldrake Organization is completing purchase of both Island House and Westview from consortiums headed by Charles Lucido. Saft said Island House is likely to be removed from the Mitchell-Lama program by summer.

"I presume that what’s going to happen at this point," Saft told the tenants at the session in the Good Shepherd Community Center, "is that there will be a meeting at which the new landlord will advise you what is going to happen now that the building [will] no longer be covered by Mitchell-Lama. Our understanding is that he’s planning to leave Mitchell-Lama on July 1."

Saft continued, "If, in fact, he does do that, he would be in a position to raise your rent to market.

He added, with illustrations, "There’s nothing the politicians can do to help you. We’ve tried everything." Saft represented tenants when Ruppert-Yorkville was taken out of the Mitchell-Lama program, and he described that experience – a success for his firm – at some length. Saft heads the 19-lawyer real-estate department at Wolf Haldenstein Adler Freeman & Her. "I’ve been doing this for 34 years," Saft said, calling his firm’s practice in this area "the largest" in the City. Saft also represents Rivercross, the cooperative.

Conflict on Strategies

There was a brief uproar Wednesday after Saft received a letter from the attorney representing Westview, Chad Marlow of the Public Advocacy Group (PAG). In a letter since "withdrawn," according to Johan Markey of the Westview Task Force (W.I.), Marlow had demanded Saft drop Rivercross and Island House as clients, in part because "your involvement in ongoing negotiations between the owner of Rivercross and Island House and the tenants association has involved taking positions that conflict with [the Westview Task Force’s] position before the Department of Housing Preservation and Development; to wit, that transforming any portion of the affordable housing [in Northtown] to market-rate housing would violate [the buildings’] ground leases, Roosevelt Island’s General Development Plan, and the Island’s major lease." Marlow continued that a negotiated settlement on either Rivercross or Island House would "cause significant harm to the affordable housing provisions in those documents and might undermine WTI’s legal position." The letter went on to suggest that WTI might "be forced to go to court to challenge" any agreements Rivercross or Island House might reach.

Marfey

 

On Thursday, Marfey said Marlow’s letter had been sent without the Task Force’s knowledge or permission. Both Marfey and his WTI co-chair, Opher Pail, said that Marlow no longer represents the WTI in legal matters. But Marlow seemed unaware of that in a conversation with The WIRE, in which he took full responsibility for the turmoil. A WTI member, Matthew Katz, said Marlow’s PAG still represents WTI as a public-relations consultant. In any case, by day’s end Wednesday, another letter had been sent retracting the demand that Saft drop his Island House and Rivercross clients.

Leverage Needed

Speaking before Island House tenants Wednesday night, Saft recommended the building avoid litigation: "Can we litigate? Yes, but litigation is extraordinarily expensive. It is not an efficient way to resolve things."

He concluded his presentation, before taking questions, by saying, "So that is what the situation is. It is not pleasant." Even so, he expressed optimism, in answering tenant questions, that a deal can be made that will work both for tenants and Sheldrake.

"It’s important to develop leverage. Leverage includes getting RIOC not to give him [Daly] whatever he wants, getting economic development people to not give him whatever he wants, to make him recognize the fact that it’s in his best economic interest to negotiate something that makes sense to him and makes sense to the tenants also, and it’s not all one-way. Based upon my prior negotiations with Mr. Daly, he’s a hard-headed businessman, and I believe a deal can be structured that makes sense. Not only was he on the other side of a previous deal, but I taught him when I was a professor at NYU. Unfortunately, he seems to be putting into effect the things that he learned from me in my real-estate masters program.

"Based upon my last negotiation with him, I feel very comfortable in telling you that there is a deal that makes sense provided the tenants are protected – those who want to remain as tenants."

Saft said that, based on conversations with Sheldrake’s lawyer, "his plan is to come out with a red herring in February or March. I think it will be much more difficult, once that red herring comes out with prices contained in there and not giving any rights whatsoever, to negotiate a deal. So I think that if there’s going to be protection, it has to be built in before the red herring comes out, which makes the next 30 days extremely critical."

Lucido told The WIRE on Thursday, "We negotiated this transaction two years ago at what we deemed to be a good price, and the contract is still in place, and we will honor our obligation when the buyer honors his." Referring to prices at the first Riverview building in Southtown, Lucido said, "The value is mind-boggling. We’re two years behind the times." But he pointed out that real-estate run-ups can become declines. "It depends on your timing." But, he said, "I’m encouraged that interest rates are still quite reasonable so that the ability of the tenants to get reasonable loans, if they wind up buying their apartments, is good."

Ground Leases

Islanders speculating about the future of Island House, Westview, and Rivercross had thought that any final aquisition of the buildings would depend on having a ground lease in place, since lenders are uncomfortable lending on a building where the ground could suddenly become too expensive or, conceivably, unavailable.

But Lucido explained, "I think at this day and age we all understand that a ground-lease extension is in prospect and it will be negotiated, and all the affected parties will be at the table to negotiate the terms." (However, RIOC Board members have pointed out that RIOC’s ground lease deals are with the building owners, and that they are not in a position to negotiate with tenants. Yet, Board members have frequently reiterated a commitment to affordable housing on the Island, and a lack of disruption for existing residents.) "It’s a RIOC decision," Lucido continued, "and the RIOC Board is going to have to explain why it thinks the terms of the ground lease extension make sense, and the owners and tenants will have to tell RIOC and the public what the terms should be."

Speaking of the new owner, Lucido said, "My discussions with Chris Daly give me comfort that affordable housing will be a priority."

The IHTA Chair, Dorothy Davis, said its board is attempting to take the most recent developments in stride. "We’ve been anticipating some kind of change. We didn’t know quite what it would be, but now it’s concrete. In some ways, that’s good, because at least we know who to work with. We’ve had a good realationship with Sheldrake over the last few months and beleive we’ll continue to have a good relationship with them. We don’t know how it’s going to turn out, in terms of how Sheldrake operates buildings, but when they were in the intermediary role between Lucido and us, they always left a line of communication open. We anticipate that will continue."

Changing Law

Both Saft and Davis made note of the State’s Public Authorities Act, which will become law January 1. It requires State agencies and authorities to get best value for any of their holdings, and it will apply to Roosevelt Island real estate. While at least one member of the RIOC Board has said that the Board should get best value in the context of the Island’s commitment to affordable housing, Saft is not sure that position wouldn’t have to be litigated, perhaps for years. That means there’s pressure on to reach a deal before midnight on December 31 of this year.

Westview Situation

While the Island House team has been meeting with Sheldrake in an attempt to frame a deal as soon as possible, the Westview situation is somewhat different: There have been no serious conversations since April or May, and there’s clear animosity over Westview’s assertion that no action can be taken that will alter the housing balance in the "WIRE" buildings (Westview, Island House, Rivercross, Eastwood). Thursday night, after The WIRE’s press deadline, the Westview Task Force had a meeting scheduled to discuss their situation, given the change in ownership and the failure, thus far, to have any meaningful negotiations with Sheldrake.