| Contents |
December 2, 2006 |
Real-Estate Advisor’s Contract Extended
to Work on Deals for Westview and Island House
by Dick Lutz
Under some self-imposed pressure, the Board of Directors of the Roosevelt Island Operating Corporation (RIOC) made a deal Thursday night with their real-estate consultant, Paul Mas of Jones Lang LaSalle, for him to represent RIOC in working out deals for tenant ownership in Island House and Westview. In the end, the Board accepted a plan which had been characterized as "almost extortion" by one Board member – it was a letter from Mas, solicited by Board Chair Judy Calogero, that demanded a retainer or advance against the commission that could result from completion of a deal. With a six-month minimum, it amounts to $200,000 at the rate of $16,600 per building per month.
Rivercross was left out of the extension. Had it been included, it would have meant a retainer of $300,000. Calogero explained that because Rivercross’s paperwork for withdrawing from the Mitchell-Lama affordable-housing program is not as far along as that for Island House and Westview, the cooperative does not present a "time of the essence" situation.
But time is of the essence for Westview and Island House. Both tenant organizations have been working against negotiating extensions granted by the building owners, represented by
|
Charles A. Lucido, who acts for the consortia of owners. Dorothy Davis, who heads the Island House group, told The WIRE after the Board session, "We are only a hair’s width away from agreement. But tonight’s outcome is only one of the steps that have to take place at this critical time – our eleventh hour. Negotiations with RIOC have to be accelerated immediately so that our innovative proposal can be voted on in an emergency session of the RIOC Board during the month of December."
The hurry has to do with the change of administrations in Albany, the long arc of work that could turn to dust if the governmental equation changes abruptly, and the amount of cash now available in the real-estate market. More than once, Board members referred to the recent $5 billion deal for Stuyvesant Town in Manhattan, pointing out that the unsuccessful bidders may have a taste for affordable real-estate about to leave programs like Mitchell-Lama, which covers both Island House and Westview.
But Calogero said the situations are not similar. "We have the GDP and its requirement of affordable housing to deal with," she said. Implied was the RIOC Board’s power over any deal, stemming from its control of the ground under the buildings. Even so, several Board members indicated they wanted to extend Mas’s contract to avoid the kind of surprises that send ripples through the real-estate market when big money is involved.
Three Proposals
|
In considering a renewal or extension of Paul Mas’s contract, the RIOC Board was looking at three proposals. Board Chair Calogero called for votes in the order of her own preference and all but one Board member voted yes on the first one considered. It entailed a letter from Mas, dated Thursday, which called for the $16,600 per building per month retainer with a six-month minimum. Board member Mark Ponton, a Rivercross resident, said he could not vote for a proposal demanding a retainer and, when the vote was taken, his was the only no. That ended the matter; the other two proposals, though they had been discussed, never had to come to a formal vote.
The RIOC Board usually discusses real-estate matters in closed executive sessions. Thursday night’s meeting offered an unusual glimpse behind the curtain as the various proposals were discussed openly. Some comments skirted close to outright animosity. Paul Mas, sitting in the back of the Good Shepherd audience, offered to explain or discuss his proposal several times, but Board members held him off. When he did speak, he was critical of RIOC and its Board for acting too slowly, or not at all, on deals he had brought to the table. Some Board members, in turn, criticized Mas for failing to respond to companies and individuals inquiring about retail storefronts on the Island. "They can’t get a call-back, nada, nothing," one complained. Mas responded, "You find all kinds of people in retail [storefront real estate]. We try to get back to all of them." He said RIOC had 35 or 38 deals on offer, but hadn’t responded.
"I have to tell people, ‘Can I discuss the retail [storefronts] with you? Yes. Can I make a deal? No.’" Calogero sympathized, pointing out the unusual complexities of making real-estate deals on Roosevelt Island: A GDP, compliance with the Public Authorities Accountability Act and, by implication, an unpaid Board of Directors with other fish to fry.
"Should the pizza parlor be empty?" Mas asked. "Of course not." He made a comment about RIOC being unable to come to terms with its responsibilities under the Public Authorities Law, then said, "Come on. It’s a pizza parlor. Nobody’s going to go to jail here." The exchanges left the Islanders attending the session to think through the question of who is to blame for failure to get the Island’s retail spaces filled.
But Mas’s extended contract now excludes the Island’s retails spaces – or at least removes an exclusivity provision that kept other real-estate firms from making deals for the spaces. There was no discussion of what will now be done with the retail space – how it will be rented.
Opher Pail, the head of the Westview Taskforce, Inc., (WTI) was pleased with the deal to extend the Mas contract. Nine days ago, he and his WTI co-chair, Johan Marfey, had sent a letter to Calogero, addressed to her in her capacity of Commissioner of the State Division of Housing and Community Renewal (DHCR), headed in uppercase letters, "EXTREMELY URGENT!!" Noting that Mas’s contract with RIOC expired November 17, the letter said, "It seems that although RIOC knew about the November 17 expiration, no contingencies were made to either extend [the] contract or replace Jones, Lang, LaSalle." The letter said, "We are presently stuck and time is running out on our LOI." (LOI stands for "Letter of Intent," which is essentially an agreement to work toward an agreement on resident acquisition of the building – in this case, Westview. Island House also has an expiring LOI that has been extended several times.) Pail told The WIRE, "This vote is a win for RIOC, a win for DHCR, a win for tenants, a win for the owners, and a win for the City. We thank Commissioner Calogero and Herb Berman for their leadership and all Board members for their support. We also thank Westview Taskforce members who worked so hard to make this happen."
Residents of Island House also peppered Calogero and the politicians representing the Island with requests for cooperation and urgent action to expedite the deals being discussed with Lucido.
There had been concern that, if the Paul Mas contract to negotiate for RIOC were not extended, replacing his firm in that role would take considerable time – calling for bids or proposals, interviewing candidate firms, voting to hire one, then bringing the firm up to speed on the Island’s real-estate peculiarities. That led to a concern that Mas had the RIOC Board over a barrel: If it wanted to move tenant ownership along, head off the possibility of a deal that would cut tenants out, and get it mostly done while still under the governorship of George Pataki, they would have to stick with Mas.
Mas told the Board, "This is a good deal." He tried to allay Board members’ fears that he was holding them up, a fear some had expressed early in the meeting, pointing out that the retainer he was requesting was, in effect, an advance against the commission he would receive on a deal. Discussing it, some Board members came to see it as a kind of insurance policy: If RIOC’s cumbersome decision-making process prevented a deal from going forward, Jones Lang LaSalle would at least have the funds from the retainer as compensation for its efforts.
Calogero told Board members that her interpretation of the Public Authorities Accountability Act calls for an experienced professional negotiator to represent RIOC. "We would need a broker," she said, "and if that broker is not going to be Jones Lang LaSalle, we would then go out and ask others to come forward. But it’s always been my opinion that we need to look at this a little differently. It’s not just an average brokerage transaction. This is a very complicated transaction. I’ve been dealing with housing for 26 years, and this is among the most complicated transactions I’ve ever dealt with. It’s complicated because of the GDP, the TEP [tax equivalency payment], the ground lease — so there’s a lot of parties, a complicated transaction, so I think that brokerage service is needed and that under the Public Authorities act, it’s necessary."
|
Resident Board member David Kraut responded, "I tend to agree. Unless you are specifically qualified, then you are beyond your competence. We’re going to have to have a broker."
The urgency of deals long on hold that could succumb to pressures in the real-estate market seemed to lead the Board to conclude that it had little choice but to renew the Mas contract if it wanted to support resident efforts toward ownership.
Self-Interest
Noting that many members of an unusually large audience were displaying signs urging the Board to extend Mas’s contract, resident Board member Michael Shinozaki repeatedly reminded them that residents had been calling for dumping Mas but had now reversed, out of self-interest. "I just want to remind everybody of that," he said. "In The WIRE you’ve been beating up on Mas and now that it’s in your interest, you want his contract extended."
|
But Shinozaki was also critical of RIOC’s arrangements with Mas: "In earlier contracts we said we did not maintain any constructive control over him. He was free to operate but not allowed to make any representations. Now we have a [different] contract. Does this mean we have more control?" Shinozaki said he wasn’t satisfied with the amount of information Mas supplied to the Board about his activities on its behalf, saying that "we all know the stories" of candidates for retail space who couldn’t get a call-back or even a "go to hell" response from Mas.
Retail Space
"As it relates to the retail," said resident Board member Alberteen Anderson, speaking of Mas’s handling of prospective deals, "it’s just been no, no, no [from Mas to prospective renters]." Mas retorted, "You have sixteen proposals," implying he couldn’t get an answer from the RIOC Board’s real-estate committee. (The Chair of the committee, Deborah Beck, was absent on an urgent family matter. The other member of the real-estate committee, John Mannix, recently resigned from the Board.) Anderson was the real-estate committee’s sole representative in the Thursday night session. She responded, "I’ve seen a list of 25 names of people that are interested [in retail space], so what I’m saying is we need to limit this. We need to understand on a month-to-month basis what he [Mas] is doing."
Kraut responded, "We effectively kind of tied Paul’s hands on retail." He said he had felt things were not moving fast enough prior to the April 1 date when the Public Authorities Accountability Act became effective. That law then imposed some new requirements on deals involving State property such as the lease under which the State controls Roosevelt Island. "It’s not entirely anybody’s fault," Kraut continued. "We felt the need to read [and understand] the law." Even though I felt things were moving fast enough prior to April 1 [the date the Public Authorities Accountability Act became effective and imposed some new limits], it’s not entirely anybody’s fault."
In the end, Shinozaki defined the Board’s problem, suggesting that members dissatisfied with Mas’s past performance on marketing retail space or on how well he kept the Board informed, put those matters aside. "If we feel Jones Lang LaSalle is in the critical path for getting these deals done, then we should continue to retain [Mas]. It would take considerable time to bid out another consultant. Time is of the essence. It is an extremely critical issue. Do we pay them in flight, or [only] at the end?"
David Kraut responded, "No one is going to represent RIOC in the future without a certainty of some kind of cash flow, because it takes us a year to get around to doing anything. That’s just us." He mentioned deadlines residents had incorporated into their original letters asking for RIOC Board action on their deals. "We can’t order a crate of toilet paper in that amount of time. That’s just us," he said.
When the Board finally voted to retain Mas for the negotiations on Island House and Westview, residents in the audience broke into applause.
This RIOC Board meeting was nominally Calogero’s last, unless an emergency meeting is called for December to ratify a deal worked out by Mas and negotiators for the tenants. She seemed to have some difficulty keeping her emotions in check as she thanked Board members and called Roosevelt Island "a wonderful place to live and raise a family."