January 28, 2006

The RIOC Column

The Roosevelt Island Operating Corporation Board was scheduled this week to consider Westview and Island House, but the item was removed from the agenda. While we are obviously an interested observer – especially since it affects the fate of Mitchell-Lama protections – we are not a party to any negotiations, whether with an outside corporate entity or a prospective cooperative tenants association.

The negotiations do provide an opportunity to discuss again how the financial structure underpinning our Island is often misrepresented or misunderstood by some Island activists.

RIOC, a public benefit corporation created by the State Legislature 21 years ago, owns the land beneath buildings, but the buildings themselves are owned by private entities. Buildings are sold on a willing-buyer, willing-seller basis, with oversight by the State Division of Housing and Community Renewal for the WIRE buildings – Westview, Island House, Rivercross and Eastwood.

That does not mean that RIOC has no leverage. We have ground leases with owners of each building on the Island. Since owners leaving Mitchell-Lama require additional capital to finance a purchase or upgrade the buildings – whether as rentals or co-ops – they want to extend the ground leases to meet financial institutions’ lending requirements.

We have used that leverage responsibly in the past, and are studying how to use it again.

At Eastwood last year, the owner pulled out of the Mitchell-Lama program, the mortgage subsidy program that holds rents below market value. Knowing RIOC’s commitment to maintain a mixed-income community, the owner included existing tenants in federal rent-subsidy programs. The owner now gets additional income and the vast majority of existing tenants get to stay in their homes with little or no increase in out-of-pocket rent payments. As expected, the owner is now seeking financing for upgrades and is seeking to renegotiate the ground lease with RIOC.

Eastwood represents a win-win for the owner and tenants. It also gives residents who think that RIOC is an all-powerful landlord a window into the financial arrangements that underpin our model mixed-income community.

The RIOC Board’s primary interest must be fiscal stability. We need to generate enough income to maintain the Island, create a capital fund for future maintenance and development, protect past State investment and meet fiduciary obligations to bondholders. After State operating subsidies ended, we became fiscally self-sufficient, and are a model for other public benefit corporations in the State.

We also take very seriously our commitment to Island residents to maintain the mixed income community we have been for the last 37 years.

That means we must always look at the larger picture as we apply the leverage we have. While owners can seek to remove their buildings from Mitchell-Lama, the investments they commit to making to upgrade and modernize their buildings are contingent on renewed financing. Since renewing ground leases are the means for gaining the needed capital, denying an extension could block that needed investment and cause a decline in the quality of the buildings. We have to balance all of those interests in negotiating the extensions.

That same balancing requirement applies whether prospective new owners are a corporation or a newly formed tenants association seeking to coop a building. We will work closely with any owners to minimize impact on our residents if Mitchell-Lama protections end.

We encourage you to attend RIOC Board meetings and join in the discussion about the future of our Island.