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Clipper Equity LLC won't take no for an answer. Already rejected twice by federal agencies for its bid for affordable housing development Starrett City in Brooklyn, N.Y., Clipper may have found a new partner that may help its next revised offer get the green light. Crain's Business reported April 22 that Clipper has teamed up with the Abyssinian Baptist Church of Harlem to help them operate Starrett City. Through its Abyssinian Development Corp., the church has been an active investor and real estate management company in New York City. It's invested in projects that have brought affordable as well as market-rate housing and retail and commercial projects to Harlem, a community that has until recently been neglected by corporate America. Abyssinian has proved to be successful developing a reputation among the community and New York affordable-housing advocates for being a responsible real estate manager, playing a big role in the current turnaround of Harlem. Clipper is banking that Abyssinian's strong reputation will help it receive the approval for its next revised bid with federal regulators for Starrett City.
SECOND REJECTION New York State Housing Commissioner Deborah Van Amerongen rejected Clipper's attempt April 7 to receive state approval to acquire the sprawling complex for $1.3 billion. According to an Associated Press report, Amerongen's office rejected the offer, claiming it didn't protect residents. In order to buy the complex, Clipper Equity needs approval from both federal and state officials. The state rejected Clipper Equity's revised plan, released March 12, to keep the complex affordable. The new plan follows the federal government's March 2 rejection of the investment company's initial plan to purchase the property. The government rejected the plan, contending the buyer had no intention of keeping the development affordable. Crain's New York Business reported March 12 that Clipper Equity offered a road map for affordability by saying it would cut operating costs by installing new heating and cooling systems and by lowering management fees in the 6,000-unit development. Clipper Equity also intends to build new housing for seniors, a retirement facility and retail space using the 6 million square feet of development rights, according to Crain's. FEDERAL KNOCKOUT The federal government stepped in the way of Clipper Equity's proposed deal for Starrett City. Secretary of Housing and Urban Development Alphonso R. Jackson rejected the proposed $1.3 billion sale of Starrett City March 2 because the prospective buyer was unable to explain how it would be able to keep the development, which receives federal and state subsidies through the Mitchell-Lama program, affordable for its residents. Jackson sent a rejection letter to Clipper Equity disclosing the decision. However, Jackson did say the deal could be revived if the group could come up with remedies to the government's concerns. "We look forward to the opportunity of correcting certain underlying misinformation and to providing the secretary with the appropriate assurances he seeks," Lloyd Kaplan, a spokesman for Clipper Equity, said in a New York Times article. SHOULD THE DEAL FAIL ... The rejection of the bid by the federal government is a temporary victory for the 14,000 tenants in the development of 46 buildings spread over 140 acres. But it doesn't mean the current owners, Starrett City Associates, will keep the rentals affordable. According to the Times, the owners will most likely remove the complex from the Mitchell-Lama program, which provides tax abatements and low-interest mortgages for properties in the five boroughs in exchange for keeping rents affordable. Some owners have been opting out of this program by prepaying their mortgages and thereby allowing them to rent their apartments at whatever the market will bear. THE AUCTION Clipper Equity initially won the auction of Starrett City with its $1.3 billion offer in the wee hours of the morning of Feb. 8, outbidding eight others. Clipper Equity is composed of partners David Bistricer and Sam Levinson. Bistricer has raised some eyebrows because as a landlord, mainly in Brooklyn, he has 8,792 outstanding housing maintenance code violations across 4,768 apartments in 71 buildings. The bidder reportedly outbid the Related Cos. and Apollo Real Estate Advisors by $500 million. Tishman Speyer Properties, Westbrook, Vornado Realty Trust, ING Groep NV and Aimco also made offers for Starrett City. CB Richard Ellis, the broker for Metropolitan Life Insurance Co. on the Stuyvesant Town and Peter Cooper Village deal, is the listing agent for Starrett City Associates. DETAILS OF THE DEAL Clipper's $1.3 billion bid came out to approximately $221,000 for each apartment at Starrett City. That seems to be a hefty price to pay compared with another deal for a Brooklyn development last year. Apollo Real Estate Advisors and Taconic Partners paid $90 million, or $91,556 per apartment, for the apartment complex that sits across Flatlands Avenue from Starrett City. CAVEAT TO DEAL New York Governor Eliot Spitzer, Brooklyn Borough President Marty Markowitz and an assortment of other New York City politicians said they will use their influence to prevent a new owner from raising rents to help pay the billion-dollar price tag. Because it controls a $234.4 million interest-free mortgage on Starrett City, the state can use its influence and reject would-be buyers. Spitzer is monitoring the deal because he is concerned about the shortage of affordable housing in New York City. The record $5.4 billion sale in October 2006 of middle-income development Stuyvesant Town and Peter Cooper Village in Manhattan further eroded the city's affordable rental-housing stock. New owner Tishman Speyer has shown all signs that it will remove as many apartments as it can from rent control through renovations and hike its already expensive market-rate rentals. BILLION-DOLLAR CLUB The deal for Starrett City falls far short of the $5.4 billion MetLife was able to fetch for Stuyvesant Town and Peter Cooper Village. But the $1.3 billion price tag still is surprising to some. The main reason for the difference in price between the two developments is location. The 80 acres that house Stuyvesant Town and Peter Cooper Village are located in a highly gentrified and more expensive neighborhood in Manhattan. Starrett City is located in the working-class section of East New York in Brooklyn. But the two developments have one thing in common: They were both conceived to provide affordable housing. -- Gerald Magpily
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