In order for the three remaining Roosevelt Island Mitchell-Lama buildings to proceed to leave the system and become free-market units, they each need an extension of their ground leases, now set to expire in 2028, to 2068, but last week brought news that RIOC would not go along with that extension if it resulted in the loss of affordable housing units to the free market. This decision, announced by RIOC’s president, and articulated in a WIRE interview with DHRC’s Commissioner Deborah Van Amerongen, was obviously not taken without consultation with the entire Board of Directors of RIOC and the Governor (and perhaps the Mayor), who are under intense political and media pressure to not lose more affordable housing units to the free market. For example, the Governor recently opposed the sale of Starrett City to a private developer and the consequential loss of its affordable units, while the Mayor has promised to build 5,000 affordable units at Queens West to make up for some of the staggering losses of affordable units that have recently occurred. Thus, blaming Shane is not an appropriate response. Indeed, he is just a messenger, but an important one.

Shane is important because, as a real-estate lawyer and professional, he is familiar with administering Roosevelt Island (he was a top assistant to a prior RIOC president in connection with the development of Southtown). And he is able to interpret and negotiate within the Island’s complex legal environment. That consists of the following legal documents:

• Master Lease between the State’s UDC and the City, with a General Development Plan ("GDP");

• Ground leases made by the State as lessors and the buildings’ owners as lessees;

• The Private Housing Finance Law (also known as "Mitchell-Lama"), which gives owners the right to leave the system after 20 years of limited profits and tax abatements and become fully taxable;

• DHCR rules and regulations concerning income eligibility, primary residence, and occupancy composition limits;

• The Act creating RIOC, which assigned the Master Lease from UDC to RIOC but retained UDC’s right to collect taxes or their equivalents from the Island’s buildings and pass them along to the City; and

• The Public Authorities Law ("PAL"), which has recently been amended to define long-term lease extensions as transfers of property that must return a fair-market value to the State, with certain important exceptions.

In his long career, Shane has negotiated many real-estate deals. Prior RIOC presidents lacked his expertise and experience and, as a result, most discussions and negotiations with them were fruitless.

The key policy and legal conclusion just reached by RIOC resulted from interpreting the mandates of the Master Lease and GDP. According to RIOC, to facilitate free market sales via the grant of an extended ground lease would violate its "core mission" to create and maintain an affordable and diverse Island community for the duration of the 99-year Master Lease. Simply put, RIOC’s obligation to the City is to build and maintain affordable housing units for 75% of Northtown and 40% of Southtown with only the balance open to free market sales and rentals. [It is quite clear that the GDP is a legal obligation imposed on RIOC by the Master Lease with the City, not a loose set of principles. For example, one issue resolved in the Southtown lawsuit was whether a six-acre "park" had to separate Southtown from Northtown as mandated by the GDP; although challenged by residents who sued RIOC for not maintaining a six-acre park, the appeals court ruled the GDP six-acre "requirement" was met by the RIOC approved plan.]

Another possible constraint that led to RIOC’s decision is the fact that the various ground leases are subject to the Master Lease and GDP. Thus, a question exists as to whether, by granting a lease extension, RIOC would be subverting the Master Lease. In other words, didn’t the lessees of the three Mitchell-Lama buildings in Northtown obligate themselves, even after leaving the Mitchell-Lama system, to maintain, for the full term of their ground leases, the parameters of the GDP? Put another way, does their lease obligation present the same legal principle as in those cases in which a "covenant" was determined to "run with the land" and thereby prevent owners from leaving a rent-regulated system because of their prior agreement to maintain the housing stock in accordance with a comprehensive urban development plan akin to the GDP?

Finally, as noted, there is intense political and media pressure on public officials to maintain affordable housing in the face of the many thousands of units that already have been decontrolled and are no longer subject to the protections of the Rent Stabilization and Mitchell-Lama regulated systems. Last year alone, 14,000 rent-regulated units were lost to the free market in the Rent Stabilization program alone. Many more are slated for the free-market system, usually due to a change of ownership and the sky-high real-estate market in Manhattan, including Stuyvesant Town and Peter Cooper Village, Starrett City, and Manhattan House. With free-market sale and rental levels reaching all-time highs, the pressure on owners to free units from regulated rents is enormous. That environment only adds to the pressure on RIOC, the City, and the State’s other public officials to do what they can to prevent the loss of affordable housing units on Roosevelt Island.

Given the decision not to extend ground leases that would facilitate free-market sales, what can be accomplished by the owners and tenants of the two rental buildings in Northtown (Westview and Island House) and the one remaining Mitchell-Lama co-op at Rivercross? One option is to wait for a new Governor and Mayor who might amend the Master Lease (as was done for Southtown by a 1990 amendment that increased the original 25% to up to 60% of the units that can be sold or rented at market rates). More realistically, in exchange for a lease extension to 2068, the owners of the two rental buildings and Rivercross’ tenant shareholders could decide to leave the Mitchell-Lama system but agree to limit rentals and sales to middle- and moderate-income tenants and buyers whose income would otherwise qualify, as though the buildings were still under Mitchell-Lama. If the two rental buildings remain as such, then renewal leases at moderate increases in line with the Rent Stabilization system might also be required to preserve affordability for future tenants. With these income and rental limits in place, the State might be satisfied that it has kept the units "affordable" as well as met its general obligation to adhere to the GDP limiting market rate units to 25% of Northtown. Of course, sales and rentals to a more limited market of buyers and tenants is likely to reduce prices significantly, but that is a trade-off to an extended ground lease that is required to create any substantial value to the units. [Income and rental limits do not solve all aspects of the "affordability" issue, as it still permits those of great wealth (net assets) to qualify despite meeting income limits. But wealth is not a current criterion for remaining in occupancy of affordable housing units.]

While income limits on sales might work to some extent for Rivercross shareholders who already own their units, the rental tenants at Westview and Island House still must first make a deal with the current owners whereby, at a significantly reduced price, they would buy the units. The higher the price sought by the current owners, the more difficult it will be for the tenants to buy units from them and, with limits on sales, the more difficult to generate sufficient revenues to make capital improvements. Thus, any such sale would also have to involve the owner contributing to a reserve fund for capital improvements. Otherwise, the current rental tenants cannot afford to buy their units; moreover, without revenue from free-market sales, the tenants as new owners may not be able to undertake the necessary repairs and improvements. Unless the deal is sweetened for them, it makes little sense for the current tenants to become owners with the right to sell units only to "affordable" buyers. It is, of course, not clear what incentive the current owners have to sell to Westview and Island House tenants at a reduced price plus contribute to a reserve fund, but perhaps they are weary of having regulated Mitchell-Lama units on Roosevelt Island; perhaps they now want to extricate themselves from these investments which that their profits to 6% under the Mitchell-Lama law; or perhaps they have actually invested in these two buildings for tax-loss purposes that may now have little or no further value to them as investors. In any event, untangling the problems facing the current tenants at Westview and Island House is a lot more complicated than solving the "affordability" issue at Rivercross.

Another open question is whether the State would require more than the Mitchell-Lama "affordability" income parameters before extending the ground lease. (Independently, Rivercross may want to impose its own criteria on new buyers such as primary residence and owner occupancy, and adopt family composition rules that are more flexible than those now allowed by DHCR.) Some consideration might be given to those on the current waiting list having rights of first refusal to match outside buyers. Also to be negotiated is the amount of ground rent to be charged by the State for any extended lease term. And, most importantly, with the loss of tax exemptions under the Mitchell-Lama program, what level of taxes is to be imposed on non-Mitchell-Lama units, which are restricted to sale to a limited income market rather than a free one? Obviously, if units are to remain "affordable" to present and future residents, then presumably their owners cannot bear the burden of full real-estate taxes or significantly increased ground rents. Hence, a negotiation of these issues that satisfies not just the State’s affordability goals, but also the Island residents’ means, must be reached. With respect to the tax issue, those negotiations must involve UDC, which retains the right to collect taxes, and the City, which ultimately has the right to collect them from UDC.

As these negotiations proceed, it is apparent that a number of legal and regulatory issues must be resolved. On top of all this, long-term leases and extensions are now subject to an amended PAL, which requires fair-market value to be obtained by the State unless RIOC determines that a less-than-fair-market value furthers the "public health, safety or welfare or an economic-development interest of the State." Those are broad terms and, in exchange for long-term affordability achieved by the State, it may be able to fit itself within that exception.

Given this context, it is beneficial that the Island have Shane in a position to negotiate for RIOC initially and then persuade DHCR, UDC, and the City to agree to a negotiated agreement. At least he understands the complexity involved and, from professional experience, may be able to work creatively with the residents to achieve their goals. Instead of looking at the decision not to allow free-market sales under an extended ground lease as a "rejection" by him, it presents an opportunity to find creative solutions that meet the various parties’ diverse needs. Moreover, given the political and media environment, the time for reaching agreement is now.

Robert Chira, a long time Island resident, practices law in Manhattan.