Roundtable Discussion on Challenges Facing New Affordable Housing in New York

1 ROUNDTABLE DISCUSSION HELD BY

THE NEW YORK STATE SENATE 2 STANDING COMMITTEE ON HOUSING

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ROUNDTABLE DISCUSSION ON 4

CHALLENGES FACING NEW AFFORDABLE HOUSING IN NEW YORK 5

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250 Broadway - 19th Floor 8 New York, New York 10007 9 January 25, 2012

Morning Session 10 11 12 PRESIDING: 13 Senator Catharine M. Young

Chair 14 15 ALSO IN ATTENDANCE: 16 Lorrie Pizzola

Senate Finance 17

Teresa Rosie 18 Housing Counsel

Office of Senator Young 19 20 21 22 23 24 25 1 ROUNDTABLE PARTICIPANTS: 2 Alison Badgett

Executive Director 3 New York State Association for Affordable Housing 4 Marc Jahr

President 5 New York City Housing Development Corporation 6 Jeffrey Levine

Chairman 7 Douglaston Development, Levine Builders 8 Steven Spinola

President 9 Real Estate Board of New York 10 Ron Waters

General manager 11 Nehemiah HDFC 12 ---oOo--- 13 14 15 16 17 18 19 20 21 22 23 24 25 1 SENATOR YOUNG: Well, why don't we begin. 2 And I think you all know, but, I'm 3 Senator Cathy Young, and, I'm so happy that you can 4 be here today. 5 And, this really is building on something 6 that I started last fall. Because I'm new as 7 Housing Chair, I really wanted to understand the 8 entire industry, extremely well, and also develop 9 meaningful policies that the State can do that are 10 very positive and constructive. 11 So, we started, as I said, last year with a 12 roundtable, and we'll be having another roundtable 13 this afternoon. But, this is a way to generate 14 ideas in policy, but, as you know, I try to be very 15 interactive and accessible. And, anytime you have a 16 question or a concern or an idea, I want to hear 17 from you. 18 So, I really, truly appreciate you being 19 here. 20 As you know, housing is an economic engine 21 for the state. We need -- the most critical issue 22 we have is rebuilding the economy, and I know you're 23 on front lines of that, so I look forward to hearing 24 your comments. 25 Now, what I've found since I became Housing 1 Chair, is that, usually, everybody in housing 2 knows everybody else. It's really, and truly -- 3 You're saying yes; right? 4 -- it's a community. 5 But, I thought we could go around the room so 6 people could introduce themselves, just in case. 7 STEVEN SPINOLA: Yeah, I'm Steven Spinola, 8 president of the Real Estate Board of New York. 9 JEFFREY LEVINE: Jeffrey Levine, chairman of 10 Douglaston Development, Levine Builders, a member 11 of -- founding member of NYSAFAH. 12 SENATOR YOUNG: See, proves my point 13 perfectly. 14 ALISON BADGETT: Alison Badgett, the New York 15 State Association for Affordable Housing. 16 RONALD WATERS: Ron Waters, general manager 17 for Nehemiah HDFC. 18 MARC JAHR: I'm Marc Jahr, president of the 19 New York City Housing Development Corporation. 20 SENATOR YOUNG: Very good. 21 So, there are some good things going on, on 22 the state level. 23 The Governor doubled the tax credits, which 24 I think is very important. We're trying to figure 25 out how much on the dollar it would return. 1 And, as you know -- as you may know, I have 2 legislation on a refundable tax credit that we're 3 moving through the Senate, because that would draw 4 more out-of-state investors and trigger more 5 projects. 6 So, that's going on. I would love to hear 7 your thoughts about that in this discussion, but, 8 before I start, does anybody want to say anything? 9 No, not yet. 10 Okay. 11 Well, the way I've done this, is that -- 12 STEVEN SPINOLA: We won't be shy. 13 SENATOR YOUNG: That's good. I have every 14 confidence in you, Steve. 15 The way that we've run these, is that, we 16 just want people to contribute. 17 I've held many hearings in my day, in the 18 Senate, and the Assembly, and I like this format 19 better, because you really can get some creative 20 ideas and good dialogue going. 21 So, that's really what I'm hoping to do 22 today. 23 But -- and by the way, does everybody know 24 these people over here on the side? 25 This is Lorrie Pizzola, who works for 1 Senate Finance. And, she was one of the deputy 2 commissioners at HCR for many years, and she has 3 great knowledge. 4 Teresa Rosie, my Housing counsel. 5 And, that guy, I forgot your name. 6 Oh, Joe Rosenberg. 7 JOSEPH ROSENBERG: Joe Rosenberg, special 8 counsel to the Governor. 9 SENATOR YOUNG: I was just teasing. You know 10 that. 11 He comes to see me quite frequently. 12 JOSEPH ROSENBERG: But I'll be the 13 straight-man. 14 [Laughter.] 15 SENATOR YOUNG: I'd like to start by talking 16 about new construction of affordable housing. And, 17 I wanted to get your ideas on what some of the 18 barriers associated. 19 JEFFREY LEVINE: Oh, oh, oh. 20 SENATOR YOUNG: Good! 21 [Laughter.] 22 SENATOR YOUNG: I bet you sat in the front 23 row in elementary school. 24 JEFFREY LEVINE: Oh, yes. 25 STEVEN SPINOLA: We put him in the front row 1 at our meetings. 2 JEFFREY LEVINE: The biggest issue that we 3 have always faced in affordable housing, is the 4 issue of the labor being used to construct 5 affordable housing. 6 There have been lines of demarcation. 7 Typically, low rise, low-density, have always 8 fallen, much to the chagrin of the unions and their 9 political supporters, to the non-union trades. 10 The differential in cost was just too much 11 for anybody to consciously bear. There's probably a 12 25 to 30 percent cost differential between union 13 prevailing wage -- I lump them into the same 14 category because they're generally one and the 15 same -- versus non-union. 16 So, the community constituents are very 17 much in favor of non-union because, number one, many 18 of the non-union trades typically resemble the 19 people in the community, in terms of color and race, 20 and, more housing is produced, on a non-union level. 21 So, the sword rattling over having prevailing 22 wages be necessary in connection with almost any 23 subsidy, you know, as we see now with this 24 "living wage" bill, which, for -- what is it? -- a 25 million dollars in subsidy will trigger a living 1 wage for the construction employees, but not for 2 the future tenancy. 3 If we continue to move in the direction of 4 prevailing wage for affordable housing, I think it 5 will very limit our ability to create. 6 SENATOR YOUNG: Okay. 7 STEVEN SPINOLA: As it relates to that, part 8 of the problem with the concept of prevailing wage, 9 is that, number one, it's in the hands of the 10 chief financial officer, which happens to be the 11 Comptroller of the City of New York. And, he has to 12 decide it based on the five boroughs. 13 So as a result, the prevailing wage is what 14 Manhattan tends to pay. 15 So whether it's the prevailing wage for 16 maintenance of buildings, or for construction, 17 where, if you said, Okay, we're going to look at 18 what the prevailing wage is in Williamsburg, or in 19 Bushwick, you're going to have a very different 20 number. 21 And, yet, I think the law backs up the way 22 it's being done now; although, there is a lawsuit 23 pending against the Comptroller, over the fact that 24 he just looked at a -- on moving companies, that he 25 just looked at a particular union, and didn't do a 1 survey. 2 Because, if he did a survey, I think the law 3 says you have to be at least 30 percent of the 4 market. 5 Well, you can't say that -- what it -- you 6 can't maintain a building in Manhattan -- well, you 7 can maintain a building in Manhattan with prevailing 8 wages, but not if you're getting, 15 bucks, or 9 20 bucks a foot in an office building in Brooklyn or 10 Queens. 11 And, so, one of the things that could be 12 helpful, and maybe deal with this prevailing-wage 13 issue, is to change that definition so that it's a 14 smaller geographic area, because some counties 15 outside of the city maybe have prevailing wages, 16 but it's -- if there's a town comptroller, it's 17 based on that township. 18 And, so, it's a much more realistic number 19 that you're putting forward. 20 JEFFREY LEVINE: If I could say, on a 21 national level, you know, it's really interesting 22 that there has not been a HUD-financed project, on a 23 residential basis, in New York, other than 24 232 nursing homes and 202 senior citizen facilities, 25 which are deeply subsidized, because the 1 prevailing-wage requirement and the statutory 2 limits do not work in New York City. So, we have 3 not been a beneficiary of any federal. 4 We'd think, with our friend Sean Donovan 5 coming from our backyard, there'd be a focus on 6 New York, but they really just is unable to do that. 7 I will also say, that the unions recognize 8 that they have lost the affordable low-rise, 9 low-density sector of the market. And they are 10 making strides to try to get back into it, but, 11 this prevailing-wage issue will further confound 12 that. 13 ALISON BADGETT: Senator, the issue that 14 Steve brought up, setting a prevailing-wage rate 15 based on Manhattan, that negatively affects the 16 surrounding area, that actually applies statewide. 17 So you have, around Rochester, for example, 18 Rochester is the -- you know, the hub of where 19 prevailing wage is set, which negatively impacts 20 communities around Rochester where the wages just 21 can't be the same. 22 And that's a state law that was passed in the 23 late '80s. 24 SENATOR YOUNG: Okay. 25 MARC JAHR: You know, if before directly 1 addressing this issue, if I could just step back, 2 Senator, and -- 3 SENATOR YOUNG: Sure. 4 MARC JAHR: -- thank you for all of your 5 support for affordable housing in New York City and 6 the state. 7 And also thank you for your support for HDC. 8 I know that -- I think the prior legislative 9 session, or the most recent one, you supported our 10 extender. You helped increase our bond cap. 11 All those are critical if we're going to stay 12 in business. 13 And, in this last session, you know, you 14 played a -- you drove the legislation that rolled 15 certain powers in housing in New York into our 16 statue. It clarified our ability to do subordinate 17 lending, which was very critical for us, going 18 forward. 19 We've done over a billion dollars to 20 supported loans on our bond deals, and it 21 provided us with power to get guarantees that we 22 didn't have in the past. 23 So, all that's given us additional tools that 24 allows us to do our job more effectively, and none 25 of that would have occurred without your support. 1 So, I just wanted to state that at this 2 point. 3 I should also add, Steve, I think you're 4 aware of this, and, Jeff, that legislation was 5 passed that allowed for the direct sale of bonds to 6 qualified lending institutions. 7 And, once again, you played a central role in 8 that. 9 And these are, you know, at a time of 10 austerity, the more tools we have to play with, 11 the better off we are. 12 And, these are all tools that really have 13 expanded our ability to do affordable housing, and 14 when it's most desperately needed in New York City 15 and the state. 16 I want to focus, just briefly, on a different 17 dimension than the issue of prevailing wages, as 18 important as that is. And I understand its 19 importance. 20 But, I think it's important that people 21 understand the context that the City is working 22 within right now, and the state; and that is a 23 context of drastic cuts at the federal level, 24 their subsidies for affordable housing. 25 And by "drastic," I mean, in New York City, 1 essentially, a $58 million cut in our home -- a 2 58 percent cut over two years in our home budget. 3 And that translates into, overall, including the 4 admin, a $65 million cut in what's available under 5 "home," for affordable housing. 6 And, at the same time, an enormous -- well, 7 not quite as big, but still an enormous cut in 8 CDBG funds, which affects, obviously, not just the 9 city, but the state and local municipalities 10 throughout the state. 11 And, we understand that, again, we're in a 12 period of time of substantial budget deficits, but 13 one could argue that these are 14 "penny wise, pound foolish" cuts that are gonna 15 translate, not just into fewer affordable-housing 16 developments and units in the city and in the state, 17 but also, you know, draining economic activity out 18 of our neighborhoods. 19 You know, I was pleased when you joined me, 20 and went up to the South Bronx, and looked at 21 developments there. It's a spectacular revival 22 that's occurred there. 23 And it couldn't have occurred without the 24 State's commitment and the City's commitment, but 25 also the federal. 1 And, reduction in federal support that's 2 going on right now is going to be -- you know, 3 impinge on our ability to do the work we want to do. 4 SENATOR YOUNG: Are you formulating a 5 strategy to deal with this right now? 6 MARC JAHR: You know, we've had 7 conversations with folks. 8 Currently, you know, at this point, I think 9 we just want to stanch the hemorrhaging. It's not 10 so much that we don't expect that they're -- there 11 are going to be restorations of funding at the 12 federal level. But, we do want to try to slow the 13 attrition in those funds. 14 And, then, you know, explore all the other 15 means that we can do to, you know, bring additional 16 resources, or better-priced resources, to the arena, 17 to benefit developers, like Jeff and his 18 colleagues, and, you know, the constituency of 19 [unintelligible]. 20 So, you know, there's a whole range of 21 activities, or actions, I think we can take. And 22 we're going to, you know, look at everything. I 23 mean, everything is on the table right now, when it 24 comes to figuring out solutions to, you know, 25 addressing affordable-housing units. 1 ALISON BADGETT: I think it's particularly 2 important, on the federal level, to focus on the tax 3 credit, given tax reform will come up. 4 It's very important that we actually educate 5 our New York delegation members on how important 6 this program is. 7 MARC JAHR: Yeah, I mean, you know, we're 8 very lucky in New York City, certainly. This is a 9 hot spot -- a Community Reinvestment Act hot spot. 10 We have the best pricing for tax credits -- 11 low-income housing tax credits in the 12 United States. 13 Last year, in 2011, our pricing averaged 14 99.5 cents of -- per credit. 15 I'll give you an example. 16 At the height of the [unintelligible] of the 17 financial crisis in '09, our pricing was down to 18 about 82 cents on the credit. 19 So, it's rebounded significantly, and that's 20 meant more free money; basically, federal subsidy, 21 into our deals. 22 Right now, Congress, you know, there -- 23 there's a -- the not -- what's called a 24 "9 percent credit" was fixed for a period of time. 25 That fix is lapsing. And having it 1 sustained, going forward, as opposed to floating -- 2 the credit floating, the rate on that floating is 3 really important. 4 I think in all our work, you know, regardless 5 of the type of housing we do, or the type of 6 financial business we're involved in, certainty is 7 really critical; particularly certainty in an era of 8 volatile markets. 9 And, so, fixing the nine is -- 10 STEVEN SPINOLA: Why is the New York City 11 numbers so much higher? 12 MARC JAHR: So much higher? 13 I think there are two reasons. 14 Fundamentally, two I'd look at. 15 One is: It's a CRA hot spot. 16 By that I mean, we have major financial 17 institutions that reside in New York City, and 18 have huge assets here. 19 And, while the Community Reinvestment Act 20 doesn't provide quotas or numbers, or dictate to 21 a bank how much they should invest, or not, in a 22 particular area, or when to lend in a particular 23 area, there are benchmarks, and it drives the 24 banks to look, because they have such big asset 25 bases here, at New York City in particular, but also 1 in the surrounding area, when it comes to 2 investments and lending activity. 3 That's one thing. 4 The second thing is, I think this is a very 5 safe environment for lending. We have a strong 6 right -- you know -- we have -- 7 JEFFREY LEVINE: Well, very low vacancies in 8 New York -- 9 MARC JAHR: -- we have an enormously strong 10 rent in the market. 11 JEFFREY LEVINE: -- on the affordable 12 sector -- 13 MARC JAHR: -- you know, on the affordable 14 side, and on the market-rate side, very low 15 vacancies, so you don't have that risk on the lease 16 upside. 17 But on the other hand, I think there's an 18 understanding on the part of investors, that the 19 City and State will back their deals. 20 That -- that, when push comes to shove, if 21 there are problems, the City is not going to walk 22 away, and say: You know, that's your problem. Take 23 your losses. Too bad. 24 That doesn't mean that we're going to dump 25 money into deals, but I think there's a 1 recognition that there's a sophisticated government 2 commitment to housing being sustained over a long 3 period of time. 4 JEFFREY LEVINE: In following up with that, 5 the reality is, that New York City -- forgive me for 6 shining the apple -- but, HPD; and, Joe, HDC; HFA, 7 at the state level -- 8 MARC JAHR: Yep. 9 JEFFREY LEVINE: -- are as expert at creating 10 affordable housing as the rest of country together. 11 And we end up sucking back the excess of 12 credits that are not utilized in many other cities, 13 which, in some sense, hurts us at times, because 14 we get a disproportionate amount because we are so 15 good, as an -- 16 MARC JAHR: I think that era of good times. 17 [Laughter.] 18 MARC JAHR: -- [unintelligible] has 19 disappeared. 20 But I think there is a recognition on the 21 part of investments, you know, and the 22 syndicators, that this is a -- you know, a 23 relatively safe environment compared to other parts 24 of the nation, for a variety of reasons, but not 25 the least, because government is committed to 1 affordable housing. 2 And, I think that leads to better pricing 3 than what you're going to find in other places. You 4 know, you don't have that discount for risk. 5 ALISON BADGETT: Even though that's a federal 6 issue, it's very -- we have a lot of new delegation 7 members. 8 MARC JAHR: Yep. 9 ALISON BADGETT: So I think it's important 10 for us all to communicate how important the credit 11 is to New York's economy. 12 MARC JAHR: And, you know, the increase in 13 the state credit, that I think -- I believe was 14 enacted in this past session, I think, again, is -- 15 it gives us another additional, you know, amount 16 of resources to address the affordable-housing needs 17 in the state. 18 It's been used in the city. It's not as rich 19 a credit or priced as highly as the federal credit, 20 but, it complements the federal credit in really 21 nice ways. 22 And I think one of the great advantages of 23 the state credit, is that it allows you to go 24 higher, in terms of the eligible income of the -- of 25 people living in units. 1 So you can go, I think, to 90 percent of 2 median income for credits -- for the state 3 credits. 4 One of the things -- one of the pieces of 5 legislation that I think were introduced at the 6 federal level -- it was in the HUD's budget last 7 year, the President's budget last year, and maybe 8 this year, we hope it will be. We know they're 9 committed to it. -- is what we call 10 "an income averaging," or, "mixed-income tax 11 credit"; a credit that would allow investors to 12 take the full basis on projects, where 30 percent 13 of the units are at or below 30 percent of median, 14 let's say, a third are at 60 percent of median, and 15 a third are at 90 percent median income. 16 And we think that that makes a lot of 17 sense, because what it's going to do, is help to 18 promote economic diversity within projects; it's 19 going to remove a lot of the complications of doing 20 mixed-income deals when you use tax credits; 21 it's going to be more efficient; and, in fact, 22 works for rural areas as well. 23 I've had a number of conversations with 24 people in the Midwest, including the head of the 25 Nebraska Housing and Finance Agency. Good guy -- 1 SENATOR YOUNG: In my district? We're in the 2 midwest. 3 MARC JAHR: I went to Buffalo. I'd say, 4 "It's the Midwest." 5 You know, I grew up in Wisconsin. "It's the 6 Midwest." 7 You know, and the problem in rural areas is 8 they're thinly populated. You know, density's 9 pretty low. 10 So, from an investor standpoint, what they 11 see is a lot of market-rate risk. You know, that -- 12 you know, you can't be certain about the lease of 13 the projects; as opposed to New York City, where, 14 you know, you build it, they come. They come, 15 thousands come. 16 But, in rural areas, it's more complicated. 17 And, so, I think, for that reason, as well as 18 others, but for that reason, there's a big steep 19 discount when it comes to pricing the credits. 20 And, so, in rural areas, and let's say, out 21 in Nebraska or Kansas, they see this sort of 22 mixed-income model as expanding the tar- -- the band 23 of eligible applications for a project; and, 24 therefore, reducing the amount of risk. 25 And they -- and we think, and they think, 1 folks out in rural areas, that the credit will 2 be priced higher; because, right now, there's a huge 3 differential between the credits, like, say, in 4 New York City, how to price, and how to price in the 5 rural area. 6 SENATOR YOUNG: Right. Exactly. 7 MARC JAHR: So, we think this is a way to 8 address, not just urban needs, but also rural needs. 9 And it's a nice coalition there that we think 10 we can put together on the federal level. 11 SENATOR YOUNG: Great. Fantastic. 12 ALISON BADGETT: Can I make one more point -- 13 SENATOR YOUNG: Yes. 14 ALISON BADGETT: -- on obstacles to new 15 construction? 16 Definitely, state subsidy. Subsidy levels 17 have been even for 12 years now. 18 SENATOR YOUNG: Okay. 19 STEVEN SPINOLA: Well, I don't think that 20 ends the obstacles. 21 SENATOR YOUNG: Yeah, keep going. 22 STEVEN SPINOLA: Well, look, the bottom line 23 is, Jeff, or any other developer, is going to build 24 something if there's a reasonable rate of return, 25 and the risk is not something that tells him he's 1 out of his mind. 2 All right? 3 So -- and, we'll build anything. 4 I mean, and the problem is, that you can't 5 afford it. 6 Now, there is a bunch of reasons. 7 Jeff says labor is, clearly, one of them. 8 Land costs is also a problem. And, in some 9 cases, it's more advantageous to an owner to keep it 10 as a ground parking lot than to sell it in a down 11 market. 12 So, even though this Administration thought 13 that land prices would dramatically drop when we hit 14 a recession, well, they really haven't. I mean, 15 they've come down, but it's not -- 16 JEFFREY LEVINE: But it's really very funny, 17 where land prices are concerned, we have a situation 18 which is similar to derivatives in, say, oil, or 19 commodities. 20 There are nuts-and-bolts builders who want 21 to buy dirt like a farmer, to build a building, and 22 to raise a crop. 23 And then there are speculators, and land, who 24 come in because they believe that the market is 25 moving up, and they start to buy the land in 1 anticipation. 2 And, when they're right, they have great 3 leverage and make a lot of money. 4 When they're wrong, they give it back to the 5 bank. 6 STEVEN SPINOLA: Right. 7 JEFFREY LEVINE: But, either way, we don't 8 have it to develop it. 9 STEVEN SPINOLA: And then there are some who 10 will just keep it -- 11 JEFFREY LEVINE: And affordable was the same. 12 If you remember, we tried to create that 13 organization years ago, which was a fund to help 14 purchase land so that it could be tied up -- 15 MARC JAHR: Yep. 16 JEFFREY LEVINE: -- for affordable 17 development. 18 MARC JAHR: Yep. 19 STEVEN SPINOLA: So -- so, and then you have 20 to throw in the issue of taxes, which -- 21 SENATOR YOUNG: I knew you were going to say 22 that. 23 STEVEN SPINOLA: -- well, I mean, a rental -- 24 you know, rental apartment buildings, basically, 25 are being killed. 1 The 80/20s are now being -- are paying 30 to 2 35 percent of their gross income, in the form of 3 tax -- or, they will be paying it, when the 4 abatement period is over. 5 JEFFREY LEVINE: Well, new rentals would 6 have tax abatements. 7 STEVEN SPINOLA: And new rentals. 8 And I'm told that even older portfolios. 9 One of the more established families, I won't 10 mention who, who hasn't built an 80/20, ever. And 11 when we were talking in the meetings about, 30 -- 12 30 percent, he went back and said, "What are we 13 paying?" 14 And, he's got an old portfolio. He was 15 paying 30.3 percent of his gross income to taxes. 16 JEFFREY LEVINE: If you rent, with today, 17 typically, is $60 a square foot. 18 Okay? 19 You're talking about having a figure of 20 $18 a foot, in taxes. 21 So, for a 1,000-square-foot apartment, you're 22 talking about 18,000 for a typical two-bedroom. 23 STEVEN SPINOLA: For a new building. 24 JEFFREY LEVINE: Eight for a new building. 25 I said I'm changing the name of my 1 development company to the "Sheriff of Nottingham," 2 because all I am is a tax collector. And, we don't 3 have a future in real estate as tax collectors. 4 STEVEN SPINOLA: And that -- and that moves 5 to a different problem, which, basically, the 6 question of fairness of taxes. And, basically, 7 income-producing properties are the source of paying 8 for the city services, whether that's office or 9 rental apartment buildings. 10 And they are the ones who continue to pay at 11 this high level. We're talking to the City about 12 it. 13 Politically, it's -- it is probably an 14 impossible thing to really deal with, because, 15 Marty Golden is not going to want to affect his 16 people in his district because we're paying 17 35 percent somewhere else. 18 But that brings us back to the -- so what 19 do you do about it? 20 And, what do you do, is, you play around 21 with -- you know, I'll make the argument, that, you 22 know, sometimes, two wrongs do make a right; 23 because, if you've got a bad program, but you can 24 eat into it, by coming up with, quote, an incentive 25 program, or, some kind of thing that triggers new 1 development, new jobs, and helps that building. 2 They've changed the 421a, a few years back, 3 especially going -- excluding Washington Heights 4 and Inwood from getting 421a benefits, because 5 it's a -- I guess, a prime area to build housing, 6 just made no sense at all. 7 And that was a combination of, initially, 8 City action; and then -- and, then, the Assembly 9 side saying: Well, if the City can restrict it, 10 then we can restrict it more. 11 And, went around and asked local Assembly 12 members: Do you want to -- do you want to have 13 more affordable housing in your district? 14 And when they said "yes," they said: Okay, 15 we're going to exclude 421a from being available in 16 those areas. 17 Well, that doesn't give them more affordable 18 housing, because, nobody's going to put 20 percent 19 low income in Inwood, because the rents on the 20 market rate don't work. 21 So, it -- the bottom line is, that, it just 22 costs more to build housing for the income level 23 that we're talking about, than they can afford. 24 And, so, there's no magic to what the answer 25 is. 1 The answer is: You bring down the costs. 2 Well, you can bring down the cost by building 3 non-union. You can bring down the cost by buying 4 material at the right time, or a lot of it all at 5 once. And, you can bring down costs by having 6 incentive programs, or tax programs, that help 7 you to do that. 8 So, there's no -- again, my members will 9 build as many housing units as you want, as long 10 as, reasonable return, and the risk is not crazy. 11 And, the widening the band takes away the 12 risk even more. 13 I mean, you know, one of the complaints we 14 get about the 80/20s is, the ban is too narrow. And 15 that it's difficult, sometimes, to actually -- 16 JEFFREY LEVINE: Actually, it's an incredible 17 process. 18 STEVEN SPINOLA: Right. 19 JEFFREY LEVINE: We can get 20 10,000 applications for 80 apartments, and, we have 21 to go through most of those 10,000 to fill those 22 80 apartments because of the narrowness of the 23 band at those the lower economic stratas. 24 STEVEN SPINOLA: And what is it? Is it -- 25 what's the -- was it -- 40 -- 40 to 50 percent? 1 MARC JAHR: [Unintelligible] well, it's out 2 of a low 50 on an 80/20 -- 3 STEVEN SPINOLA: 40 percent of median. 4 50 percent of median. 5 MARC JAHR: Most of the deals we do are out 6 of low 60 percent of median, which is, about, I 7 think, 48,000 for a family of four, you know. 8 You know, frankly, we're very good at 9 building housing for folks at or -- basically, 10 between 55 and 60 percent of median. And then -- on 11 the affordable size. 12 Above 60, takes enormous amounts of 13 subsidy, you know, because we don't have the tax 14 credit. We don't have a federal subsidy. 15 Below 55, takes an enormous amount of 16 subsidy, because the -- then the rent, you know, 17 what people can actually afford to pay, is -- is 18 really minimal. 19 So, trying to figure out ways to go above 20 and below is kind of the trick here. And, again, 21 the state credit is very -- 22 ALISON BADGETT: So, it comes forward for 23 the families -- 24 MARC JAHR: -- [unintelligible] addresses the 25 90 percent. 1 ALISON BADGETT: Right. 2 SENATOR YOUNG: Right. 3 MARC JAHR: And getting some tweaks in the 4 federal credit would be really helpful too. 5 STEVEN SPINOLA: And, I know this is 6 generally not a popular statement to make, because 7 it's a concept of trickle-down, but the truth is, 8 that if we can build more housing of any income, it 9 will increase the supply. 10 SENATOR YOUNG: Right. 11 STEVEN SPINOLA: There is still truth to the 12 fact that supply and demand matter, and it does set 13 up some kind of pricing. 14 And one of the issues that the 15 Supreme Court may take, the rent-regulation case -- 16 I don't know if they will -- but one of the issues 17 is: How could you argue that you have a temporary 18 solution for a 65-year problem, that, in effect, in 19 part, the rent regulations has helped maintain, or 20 made worse, because of the limitations on it. 21 And I'm not a big believer that rent 22 regulations has stopped Jeff from building. 23 It did at a certain point of time. When we 24 got vacancy decontrol, it opened up, and more 25 national companies came in, and were willing to deal 1 with it. 2 But, I do believe that you can't pretend that 3 we have a solution for housing that's 65 years 4 old, and we have a vacancy rate for under $1,000 -- 5 I mean, it's amazing, how many apartments -- we 6 have over a million -- I think we have a million 7 apartments that rent at -- 8 MARC JAHR: Rent regulated. 9 STEVEN SPINOLA: -- at -- at -- no, but that 10 rent at less than $1,000 a month, which is an 11 amazing number. 12 Now, the problem is, you know, we only have 13 900 -- and, I'm sorry -- we only have about 904,000. 14 The problem is, we've got over a million 15 people who, at 30 percent of their income, would 16 require that kind of rent. 17 So, we're -- we got a shortage of, somewhere 18 between, two and three hundred thousand of 19 affordable units. 20 Now, you throw in the underground cash world, 21 and maybe that number isn't so -- so big. 22 JEFFREY LEVINE: And the illegal 23 apartments, you know, too. 24 STEVEN SPINOLA: Yes. 25 SENATOR YOUNG: Right. 1 STEVEN SPINOLA: Which they should all be 2 locked up. 3 SENATOR YOUNG: Ron, you've been quiet. 4 RONALD WATERS: Well, I'm at the low end of 5 this conversation, as to what we do at 6 Nehemiah HDFC. 7 We're a pure non-profit organization. We 8 don't make any money on anything we sell, but, we 9 are having trouble, now, keeping it affordable, 10 because of the increase, in anything: Costs of 11 construction. The neighborhood's economy; 12 particularly, where we're working at present, is in 13 District 5 of Brooklyn. It's quite a low-income 14 area. 15 What we're trying to serve this area, the 16 community and itself, we're finding it very 17 difficult to find people who can afford to pay the 18 necessary monies for the affordable housing. 19 The term "affordable" is going out of our 20 picture. We cannot keep up with that. 21 It's a desperate scenario, and we're looking 22 for every which way, as you mentioned, to get the 23 costs down, or control them. 24 Very difficult. 25 Construction just goes up. No matter what 1 causes it, it goes up. 2 We use a combination of union and non-union 3 on the site. We do all our work in a module plant 4 in the Navy yard. It's certainly a union shop. 5 When they come out these modules to the site, 6 we have to use some non-union people to put the nuts 7 and bolts on it, and finish it up. 8 STEVEN SPINOLA: So that's non-union? 9 RONALD WATERS: Non-union, combined with the 10 union -- 11 STEVEN SPINOLA: Union inside. 12 JEFFREY LEVINE: Union on the inside is a 13 union which is much more favorably priced, which is 14 important, which is the direction that the unions 15 continue to be -- 16 STEVEN SPINOLA: I think it's about a 17 40 percent savings. 18 RONALD WATERS: Well, we also see the 19 advantage of doing module work in an enclosed place, 20 for weather conditions, et cetera. We can move 21 much more quickly than a stick-built job. 22 And, also, build concrete/steel structures 23 instead of wood structures a lot safer. 24 But, really getting to the economic side of 25 it, as I said before, the jobs are just not there. 1 We had a lottery recently, of -- we received 2 12,000 applications -- requests for applications. 3 MARC JAHR: This is for a rental project? Or 4 for -- 5 RONALD WATERS: No, we don't rent. 6 Everything is home ownership, one-, two-, and 7 recently, two-, three-, family homes. Row houses. 8 MARC JAHR: And are your -- are applicants 9 able to get end loans? 10 RONALD WATERS: We make sure they get end 11 loans. We have a very good organization; a very 12 good bank helping us, but they're getting a little 13 tighter now than they have ever been before. It's 14 getting more difficult. 15 It's taking more time to do everything, 16 including, getting our construction-loan setup, the 17 end loans processed. And it's taking so much 18 time, that it's costing us more money just to 19 operate. 20 And we're -- as I said, we're a non-profit. 21 Everything, extra costs that we have not 22 anticipated, kills us. 23 It really is -- 24 SENATOR YOUNG: Are the federal regulations 25 hurting the process? 1 RONALD WATERS: We don't get involved with 2 federal funding, if we can avoid it. 3 SENATOR YOUNG: But, on the banks and the 4 lending institutions? 5 RONALD WATERS: The banks are actually 6 been -- very basically, we go through M&T Bank, if I 7 can mention names, and they process it through 8 Sonny Mae. Sonny Mae underwrites almost all the 9 loans. 10 I would prefer that M&T do that, but, for 11 some reason, they don't want to use their own funds. 12 Maybe it's more difficult for them. I don't know 13 the ins and outs of the M&T operation, but, 14 they've been very good. 15 They are the only ones that stuck by us when 16 2008 came along, everything collapsed. 17 HSBC, ran that way. And, Chase, that way -- 18 JEFFREY LEVINE: Closed up their home loan -- 19 RONALD WATERS: -- or Wachovia, everybody 20 ran. All of a sudden, everybody ran -- 21 JEFFREY LEVINE: Now, I see Met Life is 22 getting out of the business too? 23 RONALD WATERS: -- it was impossible to get 24 money from any bank, other than M&T. They really 25 stood by us, and -- 1 STEVEN SPINOLA: That's good. It's an 2 upstate bank. 3 MARC JAHR: You know, I think -- 4 RONALD WATERS: Albany. 5 Albany, Buffalo. 6 STEVEN SPINOLA: Buffalo, yeah. 7 MARC JAHR: I think the recent federal 8 legislation, like Dodd-Frank, and other regulations 9 that are either in process or being 10 [unintelligible], it's diff- -- it's un--- from my 11 standpoint, it's unclear how that's going to play 12 out in the home-mortgage market. 13 There are certain things, definitions, 14 quote/unquote, qualified residential mortgages, and 15 things like that, which, actually, the way 16 regulations are being drafted could make it very 17 difficult for low- or moderate-income prospective 18 homebuyers to actually get financing. 19 So, I think there's a lot of work that needs 20 to be done in that area, to ensure that the market 21 remains a market that, you know, qualified buyers 22 can gain access to. 23 Because, right now, putting aside all of 24 regulation, the banks' underwriting standards are 25 very stringent, whether in New York, or upstate in 1 your district, you know, when it comes to a home 2 mortgage, it's a real slog. 3 JEFFREY LEVINE: Have you read 4 "Reckless Endangerment"? 5 I'm sure you must have. 6 MARC JAHR: Nah, I didn't read 7 "Reckless Endangerment." 8 JEFFREY LEVINE: Okay, okay. 9 It's -- you know, it's Morgan -- 10 What's her name? 11 Gretchens -- Gretchen Morganstern. 12 MARC JAHR: Gretchen Morganstern, yeah. 13 JEFFREY LEVINE: Right, yeah. 14 -- and it goes, at length, as to how wrong we 15 went in the home-mortgage business. 16 MARC JAHR: Uh-huh. 17 JEFFREY LEVINE: You know, we won't get into 18 placing blame, there's plenty of blame to be placed, 19 but now we're overreacting completely the other way. 20 You know, banks will not make loans. 21 They -- appraisers will not make proper 22 appraisals. 23 They are all afraid to repeat the crimes of 24 the past years. 25 MARC JAHR: So, you know, I think we've 1 slowly worked through, on our side, the backlog of 2 affordable cooperative units, for instance, that 3 had to be marketed and sold. 4 There remained some. 5 There's some deals, where, you know, stuff 6 that was built three years ago, still hasn't sold 7 out. 8 JEFFREY LEVINE: Rockaway. 9 MARC JAHR: And it's very, very difficult, 10 but we're kind of reaching the end of that. 11 We haven't -- we had a program to do 12 cooperative lending for co-ops in New York City, 13 which, you know, we shut down. 14 I, frankly, thought it was better that HPD do 15 condominium lending, as opposed to co-ops. 16 But, putting that aside, the market 17 evaporated, and there's little point in having a 18 product on the market that -- that banks aren't 19 going to finance, and you couldn't get the end 20 loans for anyway. 21 This has been a tough time. 22 STEVEN SPINOLA: Why did you cut back on the 23 three-family homes? 24 I'm just curious. 25 Was it because -- 1 RONALD WATERS: Couldn't sell them. 2 STEVEN SPINOLA: Could not sell them? 3 RONALD WATERS: Could not sell them. 4 People did not have the resources to buy, and 5 put -- to put the assets in. 6 STEVEN SPINOLA: Because the City also 7 dropped it from eligible for 421a. 8 RONALD WATERS: Yeah. 9 STEVEN SPINOLA: And -- and which I thought 10 was a mistake. 11 I argued; I lost the argument. 12 But, on the theory, that, at least with 13 two apartments -- 14 JEFFREY LEVINE: You had the rent. 15 STEVEN SPINOLA: -- you had income coming in. 16 JEFFREY LEVINE: Yeah, the psychology of 17 those apartments today, might be that, in fact, you 18 have a higher vacancy factor to carry in those 19 units -- 20 STEVEN SPINOLA: Because, even those 21 units -- 22 JEFFREY LEVINE: -- [unintelligible] need 23 more optimists -- more optimistic, yes. 24 STEVEN SPINOLA: Wow. 25 RONALD WATERS: We do require a down payment. 1 STEVEN SPINOLA: Right. 2 RONALD WATERS: And based on -- 3 STEVEN SPINOLA: What is it? Is it, five, or 4 is it -- 5 RONALD WATERS: 5 percent -- 6 STEVEN SPINOLA: 5 percent. 7 RONALD WATERS: -- of full purchase price. 8 And, we found that nobody could afford the 9 three-family. 10 We tried to sell it, but, if they don't meet 11 the demands of the dollar sign, you can't sell it. 12 JEFFREY LEVINE: Yeah. Yep, yep. 13 RONALD WATERS: And -- 14 STEVEN SPINOLA: Now, did you do -- is 15 yours Arverne? Did you do Arverne? 16 RONALD WATERS: No, no. 17 MARC JAHR: East New York. 18 JEFFREY LEVINE: He's east New York. 19 STEVEN SPINOLA: East New York. 20 RONALD WATERS: East New York. 21 And, right now, we're working on a 22 Spring Creek program, right near Starrett City; 23 Fresh -- Spring Creek. 24 JEFFREY LEVINE: I built Fresh Creek, at 25 Starrett, years ago. 1 RONALD WATERS: I'm sorry? 2 JEFFREY LEVINE: I built Fresh Creek, at 3 Starrett, years ago. 4 RONALD WATERS: But, just to illustrate, 5 going back, we had this lottery, for sale of the -- 6 for people to apply for applications, because, 7 12,000 responses, and, in this program, and we've 8 actually sold about 200. 9 And the rest did not qualify. 10 SENATOR YOUNG: Wow. 11 JEFFREY LEVINE: That's 1 1/2 percent? 12 RONALD WATERS: Did not meet -- 13 They -- well, they don't -- they didn't read 14 the lottery requirements. 15 STEVEN SPINOLA: No, they saw the 16 opportunity -- 17 RONALD WATERS: The first -- 18 STEVEN SPINOLA: -- and they just applied. 19 RONALD WATERS: The first -- yeah, right. 20 And the first time homebuyer, you know -- 21 STEVEN SPINOLA: Right. 22 RONALD WATERS: -- they didn't consider that; 23 to stay in the home, as their primary residence? 24 No. 25 A bad credit history? That's the killer with 1 all of it. 2 Bad credit history in the community, and that 3 kills us, really. 4 STEVEN SPINOLA: Have you ever explored -- 5 and this may make no sense at all -- but, the idea 6 of, in lieu of the 5 percent, that it's a 7 rent-to-buy scenario? That, in effect, people start 8 paying rent, and some of it goes towards a 9 down payment after a period of time? 10 It may make no sense at all, I don't know, 11 but -- 12 RONALD WATERS: We've been offered, I guess, 13 all the fed programs, to -- for closing costs, so 14 that it comes to zero down payment. 15 SENATOR YOUNG: Right, with the -- 16 RONALD WATERS: But we don't believe in that, 17 my sponsors, the churches. 18 The East Brooklyn Church, they don't believe 19 in that. They believe people will work, and improve 20 their community, and -- 21 STEVEN SPINOLA: I don't disagree with that, 22 but -- 23 RONALD WATERS: -- take -- you know, if they 24 have money invested in the property. 25 And that's always been the way they work. 1 And this dates back to the early '80s. I 2 believe that we've finished, about, over 3 3,000 homes, mostly one-family. They seem to go 4 very nicely. 5 STEVEN SPINOLA: The one-families? 6 RONALD WATERS: One-family. Single-family. 7 They seem to like that better than the 8 two-family. 9 I have two-families I have difficulty selling 10 right now. 11 STEVEN SPINOLA: And that's still because of 12 the 5 percent down payment, or -- 13 RONALD WATERS: I don't think it's that. 14 No, I think the leading problem is going 15 to -- is the credit history. 16 And most of this -- yes, some things can be 17 dealt with in a different way. But, the credit 18 history, you don't meet it, you're gone. 19 And, particularly with Sonny Mae vetting 20 everything. 21 Sonny Mae, even more -- well, I shouldn't say 22 that. We're just as tough as Sonny Mae when it 23 comes to our processing. 24 But, Sonny Mae, they will not allow it. 25 If somebody makes $100 a year more than the 1 ceiling, which is, I think, about 105,000 -- 2 STEVEN SPINOLA: They'll reject it on that 3 reason. 4 RONALD WATERS: Yeah, yeah. 5 SENATOR YOUNG: They're very strict about 6 that. 7 MARC JAHR: You know, on rent-to-buy, or 8 lease-to-buy, you know, it's an idea that never has 9 really caught on. It's been discussed. It wasn't 10 needed during the bubble -- during the boom and the 11 bubble. 12 I think, now -- 13 STEVEN SPINOLA: That's because we were 14 giving people money. 15 MARC JAHR: -- but now it's kind of 16 interesting. You know, there's a thrust right 17 now -- 18 JEFFREY LEVINE: Yeah, but there's a problem. 19 MARC JAHR: -- the Federal Reserve Bank is -- 20 is, in the last, three months, four months, I 21 think the fed made it a strategic decision that it 22 would be very vocal about the issue of the housing 23 markets in the United States. Very vocal. And very 24 aggressive about saying, you know, proposing 25 possible ways to address the issue of, you know, 1 the depressed single-family housing market. 2 So, the head of the New York Federal Reserve 3 Bank, Bill Dudley, has given a couple of speeches on 4 this. 5 Elizabeth Duke, who's the governor of the 6 Federal Reserve, has spoken on it. 7 There's another governor out in, I don't 8 know, maybe it's Philadelphia, also spoke about it. 9 So the fed has really emerged from the 10 shadows, in some respects, on the issue of 11 housing policy, and has been very, very forceful 12 about saying we have to find some solutions to this 13 problem. 14 Because, I think they have concluded, and I 15 think people should have concluded this a long time 16 ago, that there will be no solution to the overall 17 problem of the economy without a solution to the 18 depressed housing market. 19 But it's not just those individual homes 20 and all of the homeowners under water, but it's the 21 fact that, you know, you build a home or you rehab a 22 home, you know, it's not just the house that's being 23 built. Suddenly, you need a new stove, you need a 24 new refrigerator. You know, there's a multiplier 25 effect here that's enormous. 1 So the fed, I think, has recognized that, and 2 has proposed a variety of things. 3 One things that's catching on right now, and 4 it's at every level, and certainly at the federal 5 government, is a notion of aggressively renting 6 single-family properties. Selling them, bulk 7 sales, to investors, and -- 8 JEFFREY LEVINE: Right, the government should 9 do it itself. 10 MARC JAHR: -- and renting. And, then, those 11 investors renting those properties. 12 And that might make a lot of sense, but, the 13 one caveat I'd have, and this is where it 14 dovetails with what you were suggesting, is that 15 the history of absentee owners of single-family 16 homes is not a particularly good one. 17 SENATOR YOUNG: Right. 18 MARC JAHR: And that's not necessarily a 19 criticism of the absentee owner, but property 20 managing scatter sites, single-family homes, is 21 brutal. The costs of that is enormous. 22 So, you know, at the end of the day, you're 23 weighing the cost of maintaining that property 24 versus the need for return. And maybe the 25 maintenance gets short shrift in that process. 1 STEVEN SPINOLA: Yeah. 2 MARC JAHR: I think that type of proposal 3 would make more sense if there's that back-end 4 option, where the person who's renting -- 5 STEVEN SPINOLA: You know, the problem with 6 rent-to-own -- 7 MARC JAHR: -- has that incentive to 8 maintain -- 9 JEFFREY LEVINE: The problem with the 10 rent-to-own -- 11 MARC JAHR: -- the property themselves, 12 because they could potentially -- 13 JEFFREY LEVINE: The problem with the 14 rent-to-own in liberal traditional states, like 15 New York, where landlord-tenant court seems to be 16 very much in favor of the tenant, is, once they're 17 in that space, if they don't elect to buy, you have 18 a regulated tenant who's subject to the laws of the 19 land, which make it very difficult. 20 MARC JAHR: Right. 21 STEVEN SPINOLA: Well, but you're -- 22 MARC JAHR: [Unintelligible] single -- 23 STEVEN SPINOLA: -- but you're a 24 single-family home. You're not. You wouldn't be. 25 MARC JAHR: But the single-family, it's not 1 subject to stabilization. Or one to three units 2 is not subject to stabilization. 3 STEVEN SPINOLA: Yeah, right. 4 I mean, you don't know what a judge might 5 say, but -- 6 MARC JAHR: Yeah, right. 7 SENATOR YOUNG: Uh-huh, right. 8 STEVEN SPINOLA: -- but, under the current 9 law now, it would not be. 10 I mean, and you're right; if you've got a 11 whole bunch of homes, and you sell it to Jeff, 12 then he can manage it. If it's all in one area, he 13 assigns a couple of people. 14 JEFFREY LEVINE: And the solution -- 15 STEVEN SPINOLA: But if they're spread 16 throughout -- 17 JEFFREY LEVINE: The solution to the 18 single-family housing problem that I'm in favor of, 19 is, you just mentioned all of your prospective 20 buyers have -- in these last three years, had 21 financial difficulties and credit history, as many 22 people have in this recession. 23 So, many people are not qualified, even if 24 they live in a home and they're paying a mortgage, 25 to get a new mortgage at a lower rate, either 1 because the house is over-mortgaged or they are 2 under-credit. 3 I think it behooves us to allow our banking 4 institutions to waive. 5 These people are already in their homes, they 6 already owe the money. 7 Adjust the rate, accept their credit, and I 8 think you will take a lot of these houses, which are 9 subject to distress and foreclosure and sale, off of 10 that market. 11 SENATOR YOUNG: Yes. 12 STEVEN SPINOLA: Now, what that does to the 13 banks, is, theoretically, it takes money off of 14 their books, because, where they were getting 15 7 percent, they're now going to be getting 16 3 1/2 percent. 17 JEFFREY LEVINE: Well, guess what? Qualified 18 borrowers -- 19 STEVEN SPINOLA: I don't have a problem with 20 that, but -- 21 JEFFREY LEVINE: -- qualified borrowers are 22 doing it -- 23 STEVEN SPINOLA: Now. 24 JEFFREY LEVINE: -- across the board. 25 STEVEN SPINOLA: That's correct. 1 JEFFREY LEVINE: So, it's nothing untowards. 2 And if the government has to step in and 3 guarantee a small portion of that, it's a pittance 4 next to what they did for the commercial banks of 5 America. 6 STEVEN SPINOLA: Especially if the tenant has 7 the ability to pay it at the 3.5 percent, or 8 whatever the number would be. And -- 9 JEFFREY LEVINE: And to me, that's a 10 no-brainer of how to fix this problem. 11 STEVEN SPINOLA: -- you know, whether you 12 write down the value is another story. That's a 13 bigger hit to the banks. 14 JEFFREY LEVINE: No, I'm not saying to write 15 down the banks. 16 STEVEN SPINOLA: Right. 17 JEFFREY LEVINE: I'm saying, they already owe 18 the money. Don't change it, just adjust the rate to 19 today's rate, and, in spite of the fact that it's 20 underwater, so to speak, and in spite of the fact 21 that they're under-credit. 22 SENATOR YOUNG: Alison, you were mentioning a 23 study, you know, just going back to the whole 24 "affordability" issue. And, I know there are 25 concerns about prevailing wage. 1 And you're putting together some information. 2 You could tell the group about that? 3 ALISON BADGETT: Sure. 4 We're looking at how this state 5 prevailing-wage rate is set. And, how some other 6 states look at the prevailing-wage rate, and the 7 impact on New York's economic competitiveness. 8 As I said, this was a state law passed in the 9 late '80s. I think New York used to survey wage 10 rates. 11 Of course, then you get an actual median-wage 12 rate, which the Department of Labor currently 13 captures. 14 Right now, we have -- 15 SENATOR YOUNG: So, New York doesn't do that 16 right now? 17 ALISON BADGETT: New York does not, no. 18 They've created its own system, whereby, the 19 collective bargaining agreements in a particular 20 area are handed off to the Department of Labor, and 21 then that's the actual wage rate. 22 So, in New York City, for example: For a 23 carpenter, all in with benefits, you're looking at 24 165,000 a year; for an electrician, it's more like 25 180,000; compared to median which is closer to, say, 1 70,000. 2 STEVEN SPINOLA: And that goes back to Jeff's 3 first point, which is: If you're passing, and the 4 City Council will be passing, a prevailing wage on 5 office, you're gonna -- and, so, you've got an 6 office building in Brooklyn, that's getting -- 7 again, getting 16-bucks-a-foot, or 18-bucks-a-foot, 8 rent, they're going to be obligated -- 9 We've watered it down enough so it's not 10 going to affect too many. 11 -- but, they're going to be obligated, if 12 they have enough city tenants in the building, to 13 pay $77,000, or $80,000, for a cleaning person, 14 under the 32BJ contract. 15 There is no question that 32BJ does not 16 represent anywhere near the majority of people who 17 clean and take care of buildings outside of 18 Manhattan. 19 Brooklyn may have. 20 And, actually, Metro Tech doesn't use 21 32BJs. 22 So I'm guessing, even in Brooklyn, they 23 don't. 24 But, because of the way the law is written, 25 John Liu will say 32BJ is the predominant contract 1 in the city of New York; and, therefore, whether 2 you're in the Bronx or Staten Island or Queens, if 3 you have a city tenant, under the proposed 4 compromise of 50 percent or more in the building, 5 you'll have to pay prevailing wages. 6 Now, what that will mean? 7 SENATOR YOUNG: Increase in rent? 8 STEVEN SPINOLA: Increase in rent to the 9 City of New York, predominantly, because the City of 10 New York will be the predominant tenant; 11 Or, the owner will say, the next time that 12 the lease is up: You can't come. You can't stay in 13 my building. 14 So, you're going have to go back to 15 Manhattan, pay higher rent, because nobody in the 16 boroughs is going to be willing to pay the higher 17 maintenance. 18 I know this is not housing, but it's the 19 whole con- -- but, there is prevailing wages, as 20 it relates to housing as well. 21 ALISON BADGETT: Yeah, for an affordable 22 project, where your income is limited by the rent -- 23 STEVEN SPINOLA: Right. 24 ALISON BADGETT: -- that means your 25 maintenance loses out. You're not going to have the 1 money to operate the building. 2 STEVEN SPINOLA: It would be nice -- the 3 study, which -- it will be helpful to identify 4 how -- what is a fair way of determining what is 5 prevailing wage, and for what? 6 You know -- I mean, again, it's not -- it's 7 not the same in Midtown Manhattan as it is in the 8 Bronx. It may not even be the same in Midtown South 9 as it is in Midtown, although Midtown South is a hot 10 market at the moment, but... 11 JEFFREY LEVINE: Not if you listen to 12 Larry Silverstein. [Unintelligible]. 13 STEVEN SPINOLA: Oh, he's down here. 14 Larry has always said, "I'm going to build a 15 foundation, and if I can go up, I'm going to go up, 16 Steve." 17 JEFFREY LEVINE: Oh, you did a very good 18 imitation. That was very good. That's very good. 19 [Laughter.] 20 SENATOR YOUNG: On the rent-control issue, as 21 it relates to taxes, when we had a group of 22 academics in to talk about housing issues, one of 23 the questions that I had, was: How much do we lose 24 in tax revenues off of rent-control buildings? 25 And nobody really seems to know what that 1 figure is. 2 It's almost -- it would be interesting to 3 find out. 4 STEVEN SPINOLA: It's tough to figure out, 5 and, you'd have to go building by building. 6 I mean, my understanding of the numbers is, 7 that rent-regulated average number is only about 8 $100 less than what the average market rate, in 9 terms of -- 10 JEFFREY LEVINE: But that's been regulated, 11 but not rent-controlled. 12 STEVEN SPINOLA: Well, rent control -- but, 13 yeah, there's -- come on, there's few of them, Jeff. 14 I mean -- 15 MARC JAHR: We'll have to make sure 16 [unintelligible]. 17 STEVEN SPINOLA: I mean, there -- that's -- 18 MARC JAHR: [Unintelligible]. 19 JEFFREY LEVINE: Thank God. 20 STEVEN SPINOLA: It's truly outrageous. 21 But -- 22 JEFFREY LEVINE: The truth of the matter is, 23 going forward, I have no problem, when I build a new 24 building, and whether I get a tax abatement or 25 subsidy, subjecting that building to rent 1 regulation, because, generally speaking, rent 2 regulation, with the increases, keeps up pretty 3 much with the market, which is, essentially, what 4 you said. 5 STEVEN SPINOLA: Right. 6 JEFFREY LEVINE: The only place, frankly, 7 where I've had a problem with that, is, in some 8 areas, you know, two bus fares out, in the 9 boroughs of Brooklyn, Queens, and the Bronx, very 10 often, there, even though you get the stabilization 11 increases that would keep you up with the cost -- 12 STEVEN SPINOLA: You can't get it. 13 JEFFREY LEVINE: -- you can't collect the 14 rent. 15 STEVEN SPINOLA: Right. 16 JEFFREY LEVINE: And that's a problem. 17 STEVEN SPINOLA: You know, I'll drive the 18 city a little bit more crazy. I mean, maybe, if you 19 have rent-regulated apartments, maybe there should 20 be some cap on taxes as it relates to that. 21 Even -- you know -- I mean, it's -- the whole 22 argument that, Jeff Levine, because he owns a 23 building, and he's going to -- he's supposed to 24 subsidize the people in that building, well, it's 25 society -- if people want to subsidize people in a 1 particular building, it should be society's 2 responsibility. 3 JEFFREY LEVINE: I always say: Treat us like 4 a supermarket. Don't pick a particular supermarket 5 to sell food below cost. 6 You want to give people food stamps, give 7 them food stamps; but, don't tell me, in my 8 supermarket, that I have to sell certain people 9 bananas below my cost. 10 MARC JAHR: It's hard to argue that, but -- 11 [Laughter.] 12 STEVEN SPINOLA: No, it's easy to argue. 13 Come on. 14 [Laughter.] 15 MARC JAHR: -- but if the public -- you know, 16 if HDC or HPD are going to provide subsidy to a 17 project, then, you know, the deal -- you know, the 18 deal is, it's going be rent-restricted. 19 STEVEN SPINOLA: No, no, and Jeff's is not 20 alone -- 21 MARC JAHR: It's okay. 22 STEVEN SPINOLA: -- Jeff's not alone in what 23 he just said. 24 Most everybody would say: If I'm doing a 25 deal now, you're going to give me something, okay, 1 it's my judgment, can I accept it? 2 And the chances are, they're going to accept 3 it. 4 MARC JAHR: Absolutely. 5 STEVEN SPINOLA: But, what we're finding -- I 6 hate to be a broken record -- but what we're 7 finding, as we approach years 14 or 15 in a 8 20-year abatement, and taxes go up to -- 9 JEFFREY LEVINE: And the water -- 10 STEVEN SPINOLA: -- 30, 35 percent -- 11 JEFFREY LEVINE: And the water, and sewer -- 12 STEVEN SPINOLA: -- and water, double-digit 13 increases in the last eight years in a row, I 14 think, each year? Maybe they -- one year did not go 15 up. 16 JEFFREY LEVINE: And you want to talk about a 17 distorted tax, the reality is, when you have 18 high-rise apartments in Midtown Manhattan, where 19 they're, generally, one or two occupants. They 20 don't cook there, they don't clean there. They 21 shower and toilet there. 22 You go to the areas of less economic 23 success, and there are families of four and 24 five people; and they cook, and they clean, and a 25 lot more people bathing. 1 MARC JAHR: And they're not going on 2 vacations. 3 JEFFREY LEVINE: So, the water and sewer is 4 an unfair tax to the lower economic stratus, that, 5 we, as landlords, have to bear. 6 MARC JAHR: And, I mean, I think the City's 7 grappled with that issue. 8 STEVEN SPINOLA: I don't think the City 9 disagrees. I just don't know how to -- 10 politically, to solve it. 11 That's -- I'm not -- 12 JEFFREY LEVINE: Well, I don't know, with all 13 the meters that they put in, that they completely 14 disagree. They're happy to collect, because it's a 15 way to collect. 16 STEVEN SPINOLA: Oh, the water meters. 17 Yeah. It's -- 18 SENATOR YOUNG: Now, we -- I had a whole list 19 of things. 20 MARC JAHR: Sure. 21 JEFFREY LEVINE: Did we get them all? 22 MARC JAHR: Well, you know -- you know, water 23 and sewer, this does get to that issue of utilities; 24 whether, saving, conserving water, or conserving 25 energy. 1 And I think that was one of your questions, 2 around energy conservation. 3 And, I think it's kind of interesting, right 4 now, because there isn't a fully formed and shaped 5 system, if you will, or set of resources, I think, 6 available to owners of buildings, that will allow 7 them to do the energy upgrades that are going to 8 save them money, and protect the environment. 9 But, I think it's starting to take shape. I 10 think we have a long ways to go. 11 You know, the federal -- under the federal 12 Stimulus Act, there was actually a huge 13 weatherization assistance program, that, State of 14 New York received, like, 300 million, 400 million 15 dollars for. 16 SENATOR YOUNG: Right. 17 MARC JAHR: And the City then received a 18 suballocation. 19 And, I think all those monies were spent to 20 good effect. 21 But, continuing that type of financial 22 support on favorable terms to owners, that can 23 benefit -- it's going to benefit everybody: the 24 owners, the tenants, and the community at large. 25 JEFFREY LEVINE: And if you liken it to the 1 J-51 tax abatement, which is virtually -- virtually, 2 non-existent, I was going to say. 3 Right? 4 MARC JAHR: Right. 5 SENATOR YOUNG: We're working at it. 6 JEFFREY LEVINE: But the reality is, if you 7 remember, the concept -- 8 STEVEN SPINOLA: They're working on it. 9 We're -- coming in soon? 10 JEFFREY LEVINE: -- the concept behind the 11 J-51 tax abatement, was: Well, okay, we had 12 landlords that had buildings that were 13 deteriorating. Didn't have money for their roofs, 14 their windows, their brick -- whatever the case may 15 be. 16 So, the tax abatement created the ability to 17 make those necessary improvements. 18 Well, maybe there's is a "G-51," 19 a "green" 51, to enable buildings that don't have 20 the resources to upgrade their lighting systems, 21 their switching systems, their energy systems, to 22 facilitate those under this initiative. 23 MARC JAHR: Yeah, and, you know, I 24 discussion, and all the -- 25 STEVEN SPINOLA: J-51G. 1 JEFFREY LEVINE: You like that? 2 MARC JAHR: -- with all the exploration 3 around J-51, I mean, is -- you know, part of that 4 is, is trying to address these issues, to make 5 certain that the benefit is rich enough -- not too 6 rich, but rich enough -- and that it's targeted to 7 the types of improvements that are going to make a 8 difference to the owner, the tenants, the 9 community -- 10 STEVEN SPINOLA: Yeah, the City is looking 11 at, and they're concerned over, that, if it's just 12 being done, just for the sake of trying to get the 13 rent up, and so forth, that they'd like to figure 14 out how to... 15 And we don't object to that, as long as it's 16 a reasonable way of moving forward. 17 RONALD WATERS: Well, wherever these -- on 18 these -- 19 SENATOR YOUNG: We're getting that 20 legislation soon. 21 RONALD WATERS: -- wherever these funds are 22 coming from, we need some of it to filter down to 23 us, because, again, it's increased costs to build. 24 And, we don't know where it's coming from. 25 If it's under construction now, we can't 1 increase prices, so we would have to wear it. 2 As a non-profit, you can't do. 3 For the future, that's -- it's great for the 4 future. It's necessary, energy savings. 5 Absolutely essential for the world. 6 Right? 7 But, it costs. 8 And, again, I say, it's -- it's impact on the 9 word "affordable." It's just squeezing tight, and 10 tight, and tight. 11 SENATOR YOUNG: That's really -- 12 RONALD WATERS: We need help. 13 ALISON BADGETT: -- that's a key point. 14 And I think whatever the State does in terms 15 of green measures, it should really be about 16 savings, energy efficiency, as opposed to 17 less-tangible green requirements -- 18 STEVEN SPINOLA: Well, you know, I'm -- 19 ALISON BADGETT: -- that you can't pay for. 20 JEFFREY LEVINE: -- I'm, typically, a 21 fair-market capitalist, as that fellow on CNBC says. 22 And, the reality is, that we are enacting 23 every green measure that is cost-effective; whether 24 it's be -- whether it be the -- you know, the type 25 of lighting that we use, or the type of switching 1 that we use. 2 You know, tax credits for co-generation 3 would help that quite a bit. 4 You know, it's an intelligent thing to do. 5 It creates excess electricity as well. 6 STEVEN SPINOLA: If Jeff, or any of the other 7 developers, see's a three- to five-year return on 8 your investment, he's going to do it. 9 JEFFREY LEVINE: Absolutely. 10 STEVEN SPINOLA: If it's stretched beyond 11 that -- 12 JEFFREY LEVINE: Right. 13 STEVEN SPINOLA: -- you're going to question 14 whether to do it. 15 And then there's the question of: Who gets 16 the benefit? 17 Whether it's the tenant in there, who, you 18 know, because there's no meters, all of us -- you 19 know, if that's the case, then -- then -- or, if 20 there is a -- you know, then they're getting it, but 21 you put the money in. 22 And, we don't know if we're at a point where 23 Jeff can charge more, because he can say: You're in 24 a more efficient apartment. 25 JEFFREY LEVINE: Uh-huh. 1 STEVEN SPINOLA: And I think you may be able 2 to at the high end. You clearly can't at the 3 affordable end. 4 JEFFREY LEVINE: Well, you have to be 5 careful, because of the moving price of energy. 6 I remember, years ago -- 7 MARC JAHR: Right. 8 JEFFREY LEVINE: -- when I was a young 9 developer in love, there were many developers who 10 went away from oil- and gas-fired heating -- 11 STEVEN SPINOLA: Right. 12 JEFFREY LEVINE: -- and went to electric -- 13 STEVEN SPINOLA: Yeah. 14 JEFFREY LEVINE: -- which they lived to 15 regret many times over. 16 SENATOR YOUNG: Sure. I'm pretty sure. 17 STEVEN SPINOLA: You said you were young and, 18 in love, or loved? 19 JEFFREY LEVINE: Don't you remember that, 20 "young doctors in love"? 21 STEVEN SPINOLA: Oh, okay. All right. 22 JEFFREY LEVINE: I was "a developer in love." 23 STEVEN SPINOLA: No, because you were 24 never -- 25 JEFFREY LEVINE: That was just an expression. 1 STEVEN SPINOLA: Okay. 2 -- you were never loved. 3 Developers are never loved. 4 MARC JAHR: You know, one of the interesting 5 things here, Senator, also is -- is -- so, there's a 6 lot of ferment in this area, and the developers are 7 doing lots of different things. 8 For instance: Out in east New York -- 9 Your district -- 10 RONALD WATERS: My district. 11 Thank you very much. 12 MARC JAHR: Home. Home. Home. 13 I spend a lot of time up there. 14 -- you know, there's -- Hudson companies have 15 built two rental developments that have the 16 largest solar panel -- residential solar-panel 17 arrays in the state of New York. 18 And derive -- according to them, they expect 19 that, about, 99 percent of all at the electricity 20 they need, or something -- 21 JEFFREY LEVINE: In the common areas. 22 MARC JAHR: -- is gonna -- you know, cover 23 their needs in the common areas -- 24 SENATOR YOUNG: Right, because that's quite 25 an investment. 1 Isn't solar expensive? 2 MARC JAHR: --including their -- 3 JEFFREY LEVINE: Yeah. 4 MARC JAHR: -- including their elevators. 5 So, these are fantastic developments. 6 One of the things about them, though, is 7 that, these sorts of things, which are probably 8 going result in savings -- 9 We think they will. Certainly the developer 10 thinks it will. 11 -- they're not yet translating into what 12 appraisers are willing to appraise the buildings 13 at, and/or banks are willing to finance. 14 So, everybody's -- the banks are underwriting 15 at numbers that don't take into account energy 16 saving, going forward. 17 And, so, getting to the point where we have 18 the type of data that allows the appraisers and the 19 banks to feel comfortable underwriting to these 20 sorts of energy improvements is kind of a key thing. 21 If we can get there, then I think we're going 22 have a more rational financing system as well. 23 You know, I don't know, Jeff, whether you've 24 had those arguments with banks, or -- 25 JEFFREY LEVINE: Well, we have every 1 argument. 2 We have an argue about the fact that we have 3 a city with a 1 percent vacancy, and the banks 4 insist upon having a 5 percent vacancy. 5 So, you know, we have issues. 6 STEVEN SPINOLA: That's what they project? 7 That's where they calculate it? 8 JEFFREY LEVINE: Oh, yeah. 9 And if it's, historically, been 1 percent, we 10 can support it in a documented fashion. But, 11 underwriting requires that. 12 SENATOR YOUNG: So, that was interesting to 13 hear, a G-51 program. 14 Some good ideas today. 15 STEVEN SPINOLA: We just don't want the City 16 to say you can only get it for green programs. 17 SENATOR YOUNG: Right. That's always the 18 danger of that. 19 STEVEN SPINOLA: We got that with -- when 20 ICIP was being phased out, they originally said: 21 You can only get it if you do, quote, high, 22 intelligent buildings, and -- 23 SENATOR YOUNG: What about -- you know, we 24 touched on a little bit -- 25 STEVEN SPINOLA: It's smart. It's smart. 1 SENATOR YOUNG: -- but, zoning incentives to 2 encourage affordable housing. 3 Want to address that? 4 STEVEN SPINOLA: Well -- 5 JEFFREY LEVINE: I can address that all day 6 long, because I was at the tip of the sword there. 7 When I was intimately involved in the 8 rezoning of the Brooklyn Greens' waterfront, 9 because I owned property there, in Williamsburg, the 10 argument was made, you know, I have seen the City, 11 through many years, use private-sector gains to 12 support affordable housing. So, it became a 13 cross-subsidy. 14 And when things were renting and selling at 15 price points, where it was truly a subsidy, there 16 was a great idea. 17 You know, you can get the rezoning, you 18 create the affordable housing, and it all works. 19 But, as they eliminated, completely, 421a, 20 and did all of these things that made it dependent 21 upon a booming economic society, I mean, listen, 22 you're writing a law that may kill itself, because, 23 if this economy doesn't sustain itself, we will not 24 be able to create this housing, both market rate or 25 affordable, with the cross-subsidy for the 1 affordable, because the market is not there to buy 2 or rent it. 3 And that's essentially what happened, from 4 '08, '09, and then '10, and '11. 5 STEVEN SPINOLA: What's your FAR, Jeff? 6 JEFFREY LEVINE: In Williamsburg? 7 STEVEN SPINOLA: Yeah. 8 JEFFREY LEVINE: On the waterfront, you have 9 a 10 FAR, okay, which can go to a 12, with the 10 affordable. 11 Okay? 12 MARC JAHR: Of affordable, which is 13 voluntary. 14 JEFFREY LEVINE: Which is vol- -- but it's 15 not voluntary. 16 It became mandatory, because they eliminated 17 the tax abatement which had been our as of right 18 there. 19 So, where the tax abatement was the part of 20 the puzzle that made the economics viable, not in 21 my mind. I was unable to go to a lending 22 institution and get a reasonable return on my risk 23 and they get a fair return on their senior debt, 24 without the tax abatement, which is evidenced by the 25 fact that those areas, where had 421a removed, 1 have seen no new residential development. 2 MARC JAHR: Right -- yeah, well, you know, 3 history is not a controlled experiment. 4 But, you know, for worse; not for better or 5 worse. 6 I mean, during this period of time, you know, 7 the economy, and the market for financing for 8 residential and mixed-income projects, collapsed. 9 JEFFREY LEVINE: Absolutely. 10 MARC JAHR: You know, it just completely 11 collapsed. 12 So, it hasn't been the -- necessarily, the 13 best period to test out. 14 JEFFREY LEVINE: Yeah, but I can tell you, 15 categorically, right now -- "right now" -- that 16 the -- you will not see market-rate jobs done on 17 the waterfronts of Brooklyn and Queens -- 18 MARC JAHR: A year to come out of the 19 [unintelligible]. 20 JEFFREY LEVINE: -- without -- 21 Well, that job had a tax abatement. 22 I'm saying, that I bought the property with 23 the tax abatement in place. 24 MARC JAHR: Okay. 25 JEFFREY LEVINE: But, anybody buying 1 property, where, the 421a has been eliminated, and 2 you need to do inclusionary zoning bonus in order to 3 get the tax abatement, nobody's going to do a 4 project that is fair market without the tax 5 abatements. 6 So, the elimination of the tax abatement has 7 eliminated the possibility of fair market. 8 And, then, when you go to the incorporation 9 of the affordable component, it makes the 10 economics quite difficult, as you can see by the 11 projects that are not happening all along the 12 Greenpoint waterfront. 13 The predominance of rezoning that is 14 available to be built -- because Williamsburg is, 15 essentially, built out -- is Greenpoint. 16 MARC JAHR: Uh-huh. 17 JEFFREY LEVINE: And I don't see any shovels 18 going to work over there. 19 SENATOR YOUNG: So -- 20 STEVEN SPINOLA: And there really haven't 21 been, either. 22 SENATOR YOUNG: Steve, is there any kind 23 tracking of that, or -- 24 STEVEN SPINOLA: Well, we probably know 25 what's been built there, or not. But I -- 1 JEFFREY LEVINE: Well, I don't. 2 STEVEN SPINOLA: The -- 3 JEFFREY LEVINE: Greensburgh, Greenpoint, has 4 built nothing. 5 STEVEN SPINOLA: Nothing. 6 The average FAR for the whole week, was 4.1, 7 which is why I asked you what yours was. 8 JEFFREY LEVINE: Well, no, you have -- no, 9 you have the waterfront, and the upland production 10 portion, which is lower, yeah. 11 STEVEN SPINOLA: And we actually made an 12 argument to the City, that -- you know, because, 13 part of the problem is transportation. 14 You get on the Double L or the L train, and 15 you can't get on it, you know. 16 And -- and, yet, when you say, "We want ferry 17 or we want bus service," they say, "Well, there's 18 not enough people." 19 Well, the truth of the matter is, if you 20 increase the density a bit, you'll have enough 21 people who will actually utilize the transportation. 22 So all -- if all what you do is to -- on 23 uplands, is to say, We're not going to go more than 24 four stories high, or whatever, well, you're, in 25 effect, hurting yourself, in terms of having the 1 population to be able to pay for the services that 2 you would need. 3 You know, Jeff, had a -- you -- did you 4 get -- you get the ferry. You got the ferry 5 stopping. 6 JEFFREY LEVINE: I mean, I don't know if 7 you've been reading, but, the ferry has been 8 successful beyond their expectations, which is 9 good news. 10 STEVEN SPINOLA: And -- and they needed a 11 subsidy from the City as well. 12 And -- and, you know, and, hopefully, they're 13 going to -- the City's gonna be able to cut back on 14 the subsidy. 15 I mean, there's no transportation system in 16 the city that doesn't have a -- 17 MARC JAHR: Subsidy. 18 STEVEN SPINOLA: -- subsidy. 19 SENATOR YOUNG: Right. 20 So, is -- are your buildings right next to 21 the ferry? 22 JEFFREY LEVINE: I happen to be right at the 23 Williamsburg stop, yes. 24 SENATOR YOUNG: I know exactly where it is. 25 STEVEN SPINOLA: He's got -- 1 MARC JAHR: [Unintelligible]. 2 JEFFREY LEVINE: Yes, which is part of the 3 rezoning. Yeah. 4 STEVEN SPINOLA: Only because Jeff is modest 5 and shy. 6 Jeff -- I'll say this: Jeff's got a 7 beautiful building there, if you want to go see a 8 wonderful setup. 9 SENATOR YOUNG: I've walked past it. 10 JEFFREY LEVINE: Oh, yeah. 11 And, actually, I was telling Mark, as we came 12 in, it's -- I think it's among the best 13 moderate-income housing that the City has ever 14 supported. 15 Because, as I said, the concept of having -- 16 I think it's better, frankly, than the 80/20, 17 because, you know, I have some psychological issues 18 with 80/20. 19 And that, obviously, creating the 20 percent 20 affordable within a high-rise building really puts 21 the costs on steroids; so, it's not the most 22 effective. 23 So, I'm typically in favor of an off-site 24 lower cost -- 25 STEVEN SPINOLA: See, he was right able to do 1 it right there, but off -- 2 JEFFREY LEVINE: -- [unintelligible] -- 3 STEVEN SPINOLA: -- but not in the same 4 building. 5 JEFFREY LEVINE: -- but I did it on site. 6 But because it was adjacent to my building, 7 it was a site-affordable rather than a 8 building-affordable, we were able to maintain the 9 separation that's necessary for the marketing of the 10 market component. 11 But, we were also able to build the highest 12 quality, masonry-bearing buildings, with 13 floor-to-ceiling windows, and incremental heating 14 and cooling, which typically is not done in 15 moderate-income affordable. But, because of its 16 connection to the market rate, it behooved me to 17 make it the best it could be. 18 SENATOR YOUNG: Okay. 19 We talked about land costs, and taxes on new 20 construction. 21 STEVEN SPINOLA: And by the way, the other 22 area where we saw housing go up, is the rezoning of 23 the high-line area, which has clearly been a huge 24 success. 25 And, in that case, they gave us an average, 1 about a 7 1/2. A little bit -- I think, 10 on the 2 Avenue. 3 And it's proved to be a huge, huge success, 4 because, zoning. 5 You know, when the City says they can't 6 afford incentives, I always say: You can always 7 do additional air rights. It doesn't cost you 8 anything. 9 JEFFREY LEVINE: Well, the best example, 10 because the high line is evolving, as we speak -- 11 STEVEN SPINOLA: Yes. 12 JEFFREY LEVINE: -- you know, O'Hara. 13 But, the Chelsea 6th Avenue corridor is the 14 best evidence of what a rezoning can do -- 15 STEVEN SPINOLA: Right. 16 JEFFREY LEVINE: -- because, that flower 17 district, essentially, was not a big tax roll for 18 the City. 19 STEVEN SPINOLA: You're right. 20 JEFFREY LEVINE: It was kind of seedy. 21 And, you go up 6th Avenue now -- 22 MARC JAHR: No pun intended. 23 STEVEN SPINOLA: Very good. 24 JEFFREY LEVINE: Actually, yes, no pun 25 intended. 1 STEVEN SPINOLA: It was dirty, too. 2 MARC JAHR: Sorry about that. 3 JEFFREY LEVINE: What could we do with the 4 fur district? I know we got... 5 STEVEN SPINOLA: But, it's amazing what's 6 there. 7 You know, look at Google now buying. 8 Chelsea Market wants to build another 9 300,000 square feet behind it, because of what is 10 going down there. 11 And, just some zoning changes, and you make 12 a neighborhood, give it some cache, or whatever you 13 want to call it, all of a sudden, the area becomes 14 hot. 15 MARC JAHR: Well, the City gets some credit 16 there; right? City Planning. 17 STEVEN SPINOLA: City, that's great. 18 I argue, there wasn't enough FAR, but -- 19 JEFFREY LEVINE: I always said -- 20 STEVEN SPINOLA: -- but it was a good -- 21 JEFFREY LEVINE: Listen -- 22 STEVEN SPINOLA: -- it was a really good 23 plan. 24 JEFFREY LEVINE: -- I -- always, 25 Mayor Bloomberg has gone right to the chase. He 1 understands, too, you got a housing, you know, 2 crisis, here, of a very low vacancy. 3 Guess what? Build more. 4 You look at the -- 5 MARC JAHR: And, you know, on the waterfront, 6 you know, that was, essentially, a dead zone for 7 several decades. 8 JEFFREY LEVINE: Yes. 9 MARC JAHR: And nobody was prepared to take 10 on that political fight of -- 11 JEFFREY LEVINE: Well, because, there was 12 some people waiting -- 13 MARC JAHR: -- rezoning, meaning, that was a 14 thing of past. Or it was in the past. 15 JEFFREY LEVINE: Right. 16 -- they were waiting for the commercial 17 manufacturing to come back. 18 MARC JAHR: Yeah. 19 Well, you know, and there's -- some people 20 still waiting for that to come back. 21 STEVEN SPINOLA: Some of them are in the 22 City. 23 [Laughter.] 24 STEVEN SPINOLA: We're still protecting 25 government workers. 1 Sorry. 2 SENATOR YOUNG: We won't go there. 3 So, I guess -- you know, you've done a really 4 good job, I have to commend you, of covering a lot 5 of the -- I knew this would be free-flowing, and a 6 lot of ideas, which is -- is wonderful. 7 Does anyone want to add anything? 8 Or, is there something that I'm forgetting, 9 that -- 10 MARC JAHR: I would add one thing, and I'll 11 argue my own case here -- actually, two things. 12 One is -- and, again, I think you've been 13 very helpful in this area -- I think there's 14 legislation that's been introduced, that would 15 modify the impact of the bond-issuance charge on 16 HDC. 17 And, that's a charge, that, it's on a sliding 18 scale. Depending on how much you issue, you know, 19 you get hit with a fee on the bonds. 20 And, it ranges, from -- as high as 84 basis 21 points. 22 Just a huge fee. 23 STEVEN SPINOLA: Uh-huh. 24 MARC JAHR: It's a huge fee. 25 And, as it stands right now, the way it's 1 applied, is, regardless of the nature of the 2 issuance that we do, the fee is hit. 3 So, you know, we get hit with the fee. 4 Now, some of these fees, we can pass on to 5 the developer, to their, you know, regret, and 6 unhappiness. And, it just increases the cost of 7 the project. 8 JEFFREY LEVINE: Subsidy. Economic -- 9 STEVEN SPINOLA: You increase the subsidy. 10 JEFFREY LEVINE: To the economic liability of 11 others. 12 MARC JAHR: Just [unintelligible] more 13 subsidy, going in. 14 JEFFREY LEVINE: Yep. 15 MARC JAHR: And some of these fees we have 16 to eat ourselves. 17 For instance: If we're refunding bonds. If 18 we're refinancing for -- as we restructure. 19 STEVEN SPINOLA: And the fee is paid to the 20 State? 21 MARC JAHR: The fee goes to the State. 22 And, you know, I think we -- we're seeking, 23 and, you know, we'd prefer not to get it 24 legislatively. We want it -- you know, we've been 25 talking to the Division of Budget, and asked them 1 for a waiver of certain forms of the fee, but not 2 the whole fee. 3 And, you know -- 4 SENATOR YOUNG: What are they saying to you? 5 MARC JAHR: There's been silence on this, for 6 months. 7 SENATOR YOUNG: But maybe if we move some 8 legislation, it may make them -- 9 MARC JAHR: It may help them. 10 SENATOR YOUNG: Right. 11 MARC JAHR: You know, because this is a 12 very -- it is a very expensive fee. 13 At such -- you know, back in the, let's say, 14 '07, the fee would have been higher than the fee 15 that a bank would have charged for an LC, you know, 16 to a borrower like Jeff. 17 So, this is not an inexpensive fee that's 18 being charged. And, either, it drives up the 19 amount of subsidy that's required, or, you know, 20 increases the costs to the developer. Or, it's a 21 fee we absorb, and -- and, you know, and when we 22 absorb it, it just means we have less subsidy that 23 we can put into deals. 24 SENATOR YOUNG: Right. 25 MARC JAHR: You know, in our most recent 1 closings, we had around -- the closings are 2 December closings, I think the fee amounted to 3 about a million eight. 4 SENATOR YOUNG: Wow. 5 MARC JAHR: Not a small amount of money. 6 And I can understand the State's need, 7 obviously, for revenue. So, you know, we understand 8 that, but, there has to be a balance struck 9 between -- 10 SENATOR YOUNG: What would be a reasonable 11 rate? 12 MARC JAHR: I think it would -- you know, 13 it's a good question. 14 We could do it, a flat fee across everything, 15 based on what we project. You know, what our 16 historical averages has -- rolling average has 17 been, in terms of issuance; 18 Or, it could be, there's certain categories 19 of bond issuance that are exempted. 20 It's probably simpler to do the latter than 21 to do the -- you know, sort of some flat fee across 22 everything. 23 I'll give you an example. 24 One example, is that: We worked very hard 25 down in Congress with our elected officials, to get 1 a provision put into federal law called "recycling." 2 And you've used it on deals. 3 In single-family homes, somebody 4 pre-pays, bonds are paid down. 5 That -- the amount of the bond that's paid 6 down, you can use it again, another time, for 7 single-family financing. 8 In multi- -- that ability never existed in 9 multi-family financing. 10 Now, the result was, for instance, on some 11 projects, we would issue bonds. And, then, at 12 conversion to permanent tax credits, equity 13 comes in, and the bonds get paid down. 14 So, for two years, you would use this 15 volume cap, a small volume cap, and then it's paid 16 down, and disappear. 17 So this law that Congress passed during -- in 18 2008, as part of the Housing and Economic Renewal 19 Act, I think it is, "HERA," this law allowed us to 20 recycle the bonds, one more time, for another 21 32 years. 22 JEFFREY LEVINE: With no tax credits, just 23 the bonds. 24 MARC JAHR: With no tax credits, just the 25 bonds -- 1 STEVEN SPINOLA: Right, but it was important. 2 MARC JAHR: -- and you'd get the tax-exempt 3 rate. 4 So, an enormous benefit to the City, and the 5 State, and -- 6 SENATOR YOUNG: So you're envisioning, that, 7 possibly, we should do something like that on the 8 state level? 9 MARC JAHR: So -- well -- well, it's not so 10 much that. 11 But, right now, when we -- because of the 12 nature of the legislation, we -- you know, we were 13 recycling the bonds. The legislation sort of 14 complicated it. 15 We have to, in effect, warehouse the bonds 16 until the next deal comes along that can use it. 17 So, we issue bonds, that warehouse these 18 recycled bonds, we get hit with the fee. 19 Then -- 20 JEFFREY LEVINE: Even for the warehouse. 21 MARC JAHR: -- we get hit with the fee again. 22 So, we're getting hit twice for this 23 issuance, because of the nature of the federal 24 legislation. 25 And sometimes it's a third time. 1 JEFFREY LEVINE: You mean the tax ID number 2 for resale. 3 MARC JAHR: So, I -- you know, so, the idea 4 here, would be to exempt that type of issuance with 5 a waiver from the BIC. 6 I know that's long, it's complicated. I can 7 give you more -- 8 JEFFREY LEVINE: No, I'm serious. 9 It's, like, when I buy insurance for 10 construction, you buy material for construction, you 11 have a tax ID number, you don't pay the taxes 12 multiple times as you produce the product. 13 MARC JAHR: Right. Product; right. 14 JEFFREY LEVINE: So, you need a resale 15 number, is what it -- 16 SENATOR YOUNG: Well, we'd like to talk some 17 more about that. 18 MARC JAHR: Okay. 19 ALISON BADGETT: I think one more state issue 20 to be aware of -- 21 MARC JAHR: Sure. 22 ALISON BADGETT: -- the Mortgage Insurance 23 Fund, and the excess reserves, traditionally, have 24 gone to the General Fund. 25 And I think the Sage Commission recently 1 recommended that those reserves actually go to 2 affordable housing, since it's coming off of 3 housing. 4 Those reserves could actually be lowered, and 5 you could increase your subsidy as a result, at the 6 state level, which, as I said, has been stagnant for 7 the last 12 years. 8 SENATOR YOUNG: That's a great idea. 9 STEVEN SPINOLA: We would love not to have to 10 come back every year for multi -- multi-year, what 11 you do for us. But, it would be nice if we just 12 made it permanent, and so we don't have to. 13 So, if there's some piece of legislation -- 14 SENATOR YOUNG: Then I would never see you, 15 Steve. 16 [Laughter.] 17 STEVEN SPINOLA: You'll see me. I'll think 18 of something else I'll need. 19 Trust me. 20 It would be wonderful if that was just there, 21 so that there could be longer-term planning. 22 And, Alan Weiner [ph.] wasn't calling me 23 every day, and saying: Did you get it passed? Did 24 they do it yet? Did they do it yet? 25 And with the other bill that you mentioned, 1 that may be helpful, because Fannie or Sonny is 2 totally out of -- one of them is, and the other one 3 may be going. 4 So, think about it. 5 I don't think Shelly's going to want to do 6 it, but, you never know if there's a bill that, 7 somehow, everybody has to pass. Maybe it can be put 8 in there. 9 I mean, we've been doing a multi-year now, 10 forever. But it's -- we do -- some years are easier 11 than others. 12 SENATOR YOUNG: Right. 13 MARC JAHR: And -- I mean, and part of this 14 issue, is, you know, yeah, we all want more capital 15 in one form or another, and more subsidy in one form 16 or another. 17 But, on the other hand, you know, if we can 18 reduce the cost of capital, whether it's through 19 direct, you know, sales and bonds -- 20 STEVEN SPINOLA: Right. 21 MARC JAHR: -- or through eliminating the 22 BIC, things like that, that's -- 23 STEVEN SPINOLA: Actually, I think Alan said 24 he's now working on the possibility of the first 25 direct bond. 1 MARC JAHR: We -- actually, we're working on 2 a couple of deals, yeah. 3 STEVEN SPINOLA: So -- 4 MARC JAHR: No, this, it's going to take 5 [unintelligible], but, it's going be very helpful to 6 everybody. 7 STEVEN SPINOLA: Yeah. 8 So, it was -- you know, I don't know who came 9 up with it. I don't know if it was Alan. 10 He says it was his idea, but, it's -- 11 [Laughter.] 12 STEVEN SPINOLA: -- but it's -- I think it's 13 very important that we gave another option, another 14 road to go down, to do these things. 15 SENATOR YOUNG: Great. 16 MARC JAHR: Yeah. 17 JEFFREY LEVINE: Right. 18 SENATOR YOUNG: Great. 19 Well, thank you. 20 I'm not going take anymore of your precious 21 time. 22 STEVEN SPINOLA: Thank you. 23 Thank you for this. 24 Thanks for the help in each of the sessions. 25 We really appreciate it. 1 SENATOR YOUNG: Uh-huh. And that will 2 continue. 3 But, I just want to say to you: Thank you. 4 Your input is really valuable. 5 I think we got a lot of great ideas today. 6 And, keep them coming. 7 I mean, this is a good way for people to get 8 together, but, if you have any ideas that you think 9 that would be helpful to the State, and to the -- 10 you know, the industry, and, creative ways we get 11 things moving in the economy, I would love to hear 12 those. 13 So, thank you so much. 14 JEFFREY LEVINE: Thank you. 15 STEVEN SPINOLA: And I think this was a 16 very -- is a very good way of doing it. 17 I think everybody is willing to say whatever 18 they're thinking, rather than worry about -- and I 19 know it's a public record, but it -- it's -- 20 SENATOR YOUNG: But -- no, but still -- 21 STEVEN SPINOLA: -- it's an easier way of 22 having this dialogue. 23 SENATOR YOUNG: Right, exactly. 24 And you have the interaction. 25 I've been to so many hearings, and, you know, 1 I interact with the speaker. But, then, I know 2 there are people in the audience who are just dying 3 to say something, and they can't. 4 So, this is just a great way to do these 5 things. 6 STEVEN SPINOLA: Yeah. 7 No, thank you. 8 JEFFREY LEVINE: Great. 9 SENATOR YOUNG: So, thanks so much. 10 MARC JAHR: Thank you, Senator. 11 12 (Whereupon, the roundtable discussion 13 held by the Chair of the New York State Senate 14 Standing Committee on Housing, concluded.) 15 16 ---oOo--- 17 18 19 20 21 22 23 24 25