South Bridge Towers Goes Private

Two Bridges Two-thirds of residents at Southbridge Towers voted for the complex to exit the Mitchell Lama affordable housing program and take their apartments private last week. The move will allow them to convert their subsidized apartments into market rate apartments and realize a windfall of equity on units they bought decades ago for $10,000 or less.

Southbridge Towers is a 1,651-unit apartment complex at the foot of the Brooklyn Bridge. The question of whether to privatize or not goes back to at least 2005 when residents voted to conduct a feasibility study to determine whether privatizing would even be possible.

According to Stuart Saft, an attorney with Holland and Knight who heads their real estate division and was charged with compiling the 900-page privatization offering plan, 1,082 Southbridge residents voted to privatize while 373 voted against the plan.

Pro-privatization residents squeaked by with 10 votes over the two-thirds threshold needed to privatize. There were three abstentions, and some residents chose not to vote or were ineligible due to being behind in their maintenance, the Mitchell Lama equivalent of rent.

The last shareholders meeting before the big vote - which was held over three days last week - was held in August when Saft and others involved with crafting the prospectus answered questions from Mitchell Lama residents. Resistance to the plan seemed staunch at the August meeting, and an anti-privatization resident later told Our Town Downtown the vote would be “harrowingly close.”

After the vote last week, that same resident, Robert DuBois, an insurance adjuster and former mortgage banker, said the fight isn’t over. He said anti-privatization residents at the complex sent a complaint to the State Attorney General’s Office, who approved the 900-page offering plan, over how it was presented. They claim Saft and others who answered questions and distributed supplemental information at the meeting in August unfairly cast the offering plan and privatization in a favorable light.

“At the informational meeting [in August], prior to the vote…there were a number of items asserted as fact but not supported by any documentation in the offering plan as accepted by the AG’s office,” said DuBois.

Among objections over the presentation of the offering plan was the assessment of friable asbestos in Southbridge units and common areas and whether fees associated with privatization would be tax deductible.

“The assertions were material and likely turned more than a few minds,” said DuBois.

Opponents to privatization believe that Southbridge is an important component of the city’s affordable housing stock and should be left for future generations to use. However, if privatization ultimately succeeds, residents will be able to put their units on the market for hundreds of thousands of dollars and, in some cases, upwards of $1 million depending on the size of their unit.

Two-thirds of residents will still have to vote to “opt in” before the deal can be finalized, said Saft in an email.

“We are going to amend the offering plan to advise the residents of the vote and give them 90 days to decide whether to remain as shareholders or become rental tenants or leave,” said Saft. “Providing that two thirds of the owner decide to remain as shareholders, we will amend the plan again to advise everyone that two thirds of the owners are remaining as owners, and then schedule the reconstitution, which will probably early 2015.”

Reconstituting will allow Southbridge residents to legally exit the Mitchell Lama program and is done in anticipation of their units being assessed for their current market value.

The Mitchell-Lama program was created in the 1950s as a way to establish and sustain affordable housing for middle class New Yorkers. In exchange for real estate tax breaks and low interest mortgages, Mitchell-Lama co-op shareholders agree to keep rents and purchase prices far below market rate. After 20 years in Mitchell-Lama, a participating co-op corporation can voluntarily exit the program with a two-thirds vote. To date, 93 Mitchell-Lama developments with 31,700 units have voted to exit the program in what’s called a buyout or privatization.

If all goes as the majority of residents planned, Southbridge Towers will soon be added to that list.