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The Wall Street Journal.

Cross Country: Starrett City Blues
March 10, 2007

By Julia Vitullo-Martin

New York—When Housing and Urban Development secretary Alphonso Jackson last week rebuffed the proposed $1.3 billion sale of Brooklyn's Starrett City—the largest federally subsidized rental project in the nation—advocates cheered and New York officials announced that justice had prevailed. But had it?

One of the most intractable problems since the Great Depression has been the ever more expensive but still poor quality housing of low- and moderate-income households. Nearly all policy experts agree that urban public housing (financed, operated, and owned by the government) has been a disaster in all but a very few jurisdictions. Yet the alternative—housing financed by government but owned and operated by private investors—is far from a triumph, despite billions of dollars spent by taxpayers.

Thus it's ironic that the sale of one of the few clear successes— Starrett City—is now mired in bitter controversy and recriminations. "This transaction threatens New York City's low-income housing market and those who most need it," said Mr. Jackson. "The Starrett City sale would quickly displace most, if not all, of the 14,000 residents here."

In fact, it would do no such thing. Nor would it produce, in Mr. Jackson's inflamed rhetoric, "a human tragedy" or "the destruction of one of the safest, most friendly communities in New York City."

What this hubbub should produce is something far more staid: a serious analysis by HUD of its own review procedures, which are virtually non-existent, for transferring publicly financed property from one private owner to another. It's not that the sale is necessarily right; but HUD has no standards for judging, as the tens of thousands of defaults on HUD property over the years attest.

Built on landfill and opened in 1974 in the declining neighborhood of East New York, Starrett City was initially conceived as a state-financed co-op for union workers. But many of those with money moved to the suburbs, forcing Starrett's developers to market their 5,881 apartments on 140-plus acres as rentals—to the chagrin of home-owning neighbors who feared an infusion of impoverished, irresponsible households. Instead, Starrett managers chose tenants carefully, maintained the grounds beautifully, added amenities like landscaping, garages, retail stores and recreation areas, and ended up with a stable, fully occupied project.

Benefiting from tax abatements, low-interest government loans and rental subsidies, Starrett became highly lucrative. "This was the most profitable tax shelter in American history," says Robert C. Rosenberg, who as president of Grenadier Realty managed Starrett for most of its history.

In November 2006 the owners, led by investor Disque Dean, signaled their intent to put their valuable property up for sale. At this point they made a political error: They decided on a two-step process that withheld information from government officials on the initial bids. Officials say they were assured that they would be consulted before a buyer was chosen.

Instead, when the buyer was announced on Feb. 8, officials felt they were sandbagged, left uninformed and unprepared. No official—and indeed, no private developer—came forward to speak well of the new buyers, Clipper Equity, a partnership led by David Bistricer and Sam Levinson, relative unknowns in the clubby world of New York real estate. What was known—and immediately deplored in the press—was that the buyers owned a once notorious government-financed project, Vanderveer Estates in Brooklyn, 59 apartment buildings clustered on five blocks not far inland from Starrett.

A textbook example of failed government projects, Vanderveer had gone through several owners before being bought by Clipper in 2004 and renamed Flatbush Gardens. It carried close to 9,000 violations at the time of the sale. But Clipper says that 83% of those violations have been corrected, adding that it has put in just under $8 million in capital improvements.

So: Are Clipper's investors really slumlords who are going to exploit Flatbush Gardens even further, siphoning off ever increasing rents, while letting the property deteriorate, before flipping it profitably to someone else? "We're not flippers," says J. J. Bistricer, Flatbush Gardens' leasing manager and grandson of David Bistricer. "We buy undervalued property. We fix it up and keep it affordable for working-class people. We haven't flipped a project yet." He notes that his grandfather has been in business since 1952.

Certainly Flatbush Gardens today is a far cry from the scary, drug-infested, vandalized Vanderveer Estates. Front doors then hung off the hinges. Human feces were common on the grounds. Drug dealers operated fearlessly. According to Flatbush Gardens security director Jesse Gonzalez, a former NYPD detective, 40% of the crime in Brooklyn's 67th precinct had been attributable to Flatbush Gardens in 2001. In 2006, crime in Flatbush Gardens was almost negligible: no rapes, no grand larceny auto, no grand larceny -- but one felonious assault and 20 burglaries.

On its face, Flatbush Gardens looks like it's being converted from a reviled slum to reasonably maintained affordable housing. But is that enough of a credential for buying the far more complex Starrett City? Not clear.

What is clear is that government has no sound criteria for determining in advance whether these—or any other—buyers are suitable. "I would be thrilled," says former New York City housing commissioner Jerilyn Perrine, now executive director of the Citizens Housing and Planning Council, "if the secretary's position were signaling a change in HUD's own policy, announcing that they are going to set up a standard set of criteria to make sure projects go to good and competent landlords who can match their sales price with an infusion of capital."

Right now it's a hit-or-miss game, with local elected officials and activists, following the by-now standard script for urban political theater, howling down any substantive discussion of the buyers' qualifications. This bodes badly for future transactions in New York—and for the thousands of HUD-financed projects across the country.


Julia Vitullo-Martin is a senior fellow at the Manhattan Institute.

©2007 The Wall Street Journal


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