August 13, 2019
Lessons We Learned from Saving Parkchester
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This summer marks the 20th anniversary of the beginning of the restoration of the largest privately owned affordable housing property in the country—the 12,271 apartments in the 171-building Parkchester complex, located in the southeast Bronx.
The complex is home to more than 40,000 inhabitants who hail from all parts of the globe. Many are first-generation Americans whose parents emigrated from India, Pakistan, Bangladesh, Africa and South and Central America. They join a rich mosaic of other immigrant families from around the world that make up the Parkchester community. These men and women—school teachers, taxi drivers, civil service and blue-collar workers, small entrepreneurs and even Alexandria Ocasio-Cortez, the 28-year-old Latina who’s the new Democratic congressional nominee—are the heart of the working and middle-classes of New York. Like all New Yorkers, they strive to raise healthy families and pursue their dreams. But whatever their struggles may be, they have the comfort of knowing that their homes are safe, physically sound and affordable. This was not always so. Let’s look at Parkchester’s history—when it was built, how it fell on hard times, and its restoration—and what it can teach us about addressing the challenges of providing affordable housing in the city and elsewhere.
Built as a planned community by the Metropolitan Life Insurance Company between 1938 and 1941 for working class families, Parkchester was a precursor to Stuyvesant Town-Peter Cooper Village and even had the same architect. In addition to more than 12,000 residential units, Parkchester also contained five garages and 500,000 square feet of commercial space, including the first branch of Macy’s, which opened its doors there in 1941.
In 1968, an investment group headed by Harry Helmsley—the Bronx-boy turned real-estate tycoon—purchased the Parkchester apartment complex and proceeded to convert it to two condominiums. The North Condominium, comprised of slightly less than 4,000 residential units and several commercial spaces, was converted in 1978; the second, known as the South Condominium, with more than 8,000 residential units, was converted in 1984. The Helmsley partnership’s attempts to convert the property from a rental to a condominium structure was contentious, creating a combustible mistrust between the Helmsleys and the residents. This mistrust carried over to efforts by Helmsley to upgrade the property as people feared shoddy improvements and unaffordable housing-cost increases.
By the mid-1990s, the entire complex was plagued by severe problems. Multiple plumbing breaks were occurring—up to 60 breaks a day were reported—thousands of casement windows were warping, and the 15 amps of electrical service was inadequate to support modern-day, must-have appliances—you could not use hair dryers and toasters at the same time without blowing a fuse, and air conditioners were out of the question. Condominium sales had slowed as banks had ceased to make loans to purchase apartments. This meant that residents who bought their units had trouble reselling them and, if they did, it was often at a steep loss. Helmsley, thinking it might be easier to sell vacant apartments, had almost 1,400 vacancies by the mid-90s—the result of which required the partnership to provide additional funds to make good on their obligations to the property. The complex had deteriorated to a point where Parkchester earned the dubious distinction of being called out by the New York Post as one the 10 worst buildings in New York City. Residents had reached out to the city and state for help, but both rejected their pleas on the grounds that any renovation efforts would exhaust too much of the government’s scarce affordable housing resources. Borough President Fernando “Freddy” Ferrer told the press that the decline of Parkchester was his “biggest worry for the Bronx.”
With no obvious solution, Helmsley wanted out. In the winter of 1994, during the annual luncheon sponsored by the New York Housing Conference, I was approached by Ken Patton, a former deputy mayor under John Lindsay and then the Helmsley staffer responsible for Parkchester, as to whether the Community Preservation Corporation (CPC)—a nonprofit finance company which had distinguished itself as a leader in preserving and building affordable housing throughout New York City—would be willing to purchase the Helmsley holdings at Parkchester. This included, 6,362 unsold residential units spread between both the North and South Condominiums, 432,000 square feet of retail space, five garages, and some $70 million in loans that Helmsley had made to individual owners after the banks no longer financed purchases of the units. Not too long after that, a similar inquiry was made by one of the Helmsley partners, Charlie Benenson, through the Enterprise Foundation. As a follow up, I visited Parkchester to assess its challenges and deficiencies for myself and was struck by the fact that it needed the same kind of moderate rehabilitation that CPC had been doing for individual buildings since its founding in 1974. I was overwhelmed and, frankly, anxious about the Herculean-sized cleanup that would be needed—yet energized, too. But if CPC’s commitment in the preceding 20-plus years of preserving communities like Washington Heights and Crown Heights had any meaning, we had no choice but to take on the Parkchester challenge.
With the approval of CPC’s board, an offer was made to purchase Helmsley’s Parkchester assets, except for the loans, for $5 million. A few weeks later, a counter offer was received for $10 million. “Oh my God!” I thought to myself, “this might really happen!” Parkchester would be CPC’s first venture into development—and what a place to start! After a lengthy assessment of the property’s “insults and injuries” and lots of negotiations, assisted by our future partner, CPC reached an agreement to buy the Helmsley interests for $4 million.
It was clear we needed a partner to take on this task. After interviewing several property owners, we selected Mort Olshan, someone that CPC had worked with to renovate properties he owned in Washington Heights. He in turn asked a partner of his in some retail ventures, Jerry O’Connor, to join the partnership—”O&O.” A renovation plan was developed. A CPC alumnus, Alex Wagman, a property renovator and retired Israeli army officer, was selected as our residential construction manager. Another affordable housing colleague, Linda Field, took over the residential management responsibility. O&O would upgrade and manage the garages and the retail properties.
CPC took the lead in organizing over $210 million of construction funds from its own credit resources, and from several CPC member banks, with guarantees from O&O. Next, we advocated and obtained special legislation for Parkchester from the state and city that essentially eliminated real-estate taxes on the residential units for 17 years. We presented a compelling case that the elimination of these taxes was essential to keep the renovation costs at Parkchester affordable. Recognizing the importance of preserving this iconic housing complex, the legislation passed unanimously in the State Senate and Assembly, as it did in the City Council.
For the project to go ahead, however, each condominium would have to approve the plan with an absolute two-thirds vote by all the condominium owners. In the South, the new partnership owned almost 60 percent of the voting shares; in the North, only about 40 percent. A vigorous battle ensued to obtain the approval, punctuated by physical threats, smears, and efforts to pit the various ethnic groups against one another. Old canards about mistrusting the sponsor to do the right thing and fear of unaffordable cost increases were repeated. Opponents boasted that they had a better plan without offering anything concrete. But the fight was joined by courageous residents who recognized the benefits that would follow. In the South Condominium, Kumar Kancherla, a recent immigrant from India, stood up in a raucous meeting that was condemning the plan and, in a quiet voice that resonated around the room, said that Parkchester urgently needed these improvements and that “we can trust the new sponsors.” Misbah Uddin, a leader of a local public-employee union, added his voice in support, as did Margaret Walsh, the unflinching retired parochial school teacher whose toughness and sense of decency must have inspired generations of her students.
In the North, it proved more difficult to obtain approvals. A dispute on the election of directors that questioned the right of the sponsor to vote for condominium board members resulted in a lengthy legal battle, delaying the vote on the renovation. The North board chair Harry Brown, a retired postmaster from upstate New York who was built like a squat middleweight, took on everyone and anyone to support the renovation. He never wavered, and never backed down. After the legal battle was won, and the vote was taken, almost two years after the start of renovation of the South Condominium, the plan was approved.
The local clergy displayed similar courage and unflagging support. From the outset, Monsignor Charlie Kavanaugh of Saint Raymond’s Church lent his voice and prestige. Father Thomas Derivan of Saint Helena’s Church alerted us to the need to help low-income seniors as critical to gaining their support. The sponsors responded by creating a subsidy program for eligible senior homeowners. The burly Hillary Gaston, a former cop and pastor of Parkchester Baptist Church, called out the detractors who tried to infuse divisive racism into the campaign for approval. Frank Thomas, pastor of the Lutheran Church, and Fakhrul Islam, the Imam of the local mosque, supported the plan among their congregants. And all local political leaders—most prominently and vocally Borough President Freddie Ferrer—provided unbridled support.
The purchase was finally consummated in the summer of 1998, with work on the South Condominium starting a few months later. After six years of extensive work that included replumbing the entire property, removing asbestos, installing more than 70,000 new casement windows, upgrading the electrical system to enable air conditioning for the first time (“Parkchester – a cool place to live” became our motto), and countless other repairs in the apartments, the renovation of Parkchester—more of a rebirth, really—was completed. Miraculously, of the 12,271 units in the complex, all but about 20 apartments provided contractors timely access to their residences.
By most measures, the project was an overwhelming success. Upon completion, Parkchester provided sound housing at an affordable price for another generation of owners and renters. The new sponsors secured approximately $250 million of private debt to pay for the renovations backed by only their Parkchester holdings. Condominium resident-owners did not have to take on any new debt, but paid for their share of the work through an increase of their common charges. With the virtual elimination of real estate taxes for up to 17 years (as noted above), the net increased costs to residents were about $50 to $75 a month for the South Condominium, and higher for the North owing to the delay in starting its renovation. Existing renters were protected by rent laws and saw only modest rental increases. For income-eligible seniors and disabled owner-residents, the sponsors offered to subsidize those increases.
In the end, despite the ferociousness of the approval process and occasional rifts in the partnership, it was a win-win for all.
For the more than 5,850 Parkchester non-sponsor condominium apartment owners, the value of their properties rose from a low of $20,000 to $30,000 for a two-bedroom unit in 1998 to more than three times that after the renovation was completed in 2004-2005, and between $185,000 and $225,000 today. This translates into an increase of the collective net worth of these predominantly working-class families of almost $1 billion dollars!
For CPC, Parkchester was a signature accomplishment, reaffirming the merit and the importance of its preservation efforts. Parkchester also provided a strong financial foundation for the next generation of CPC’s growth: its 2018 annual report states that $146 million of its $213 million fund balance is from its ownership interest in Parkchester.
Parkchester’s revival was accomplished without any direct public subsidy. Still, two public actions were critical for its success: first was the legislation that extended real-estate tax relief from New York City specific to Parkchester; and second, the State of New York Mortgage Agency insured the permanent financing, provided by Freddie Mac, at a time when such an investment was considered risky.
Even with the ardent support of civic and community leaders, cooperation from city and state legislatures and agencies, and the eventual enthusiasm from residents, the most important economic driver of Parkchester’s success was its low purchase price. For this, we must thank a real-estate icon who is not usually praised when the discussion turns to affordable housing: Leona Helmsley—the widow and heir of Harry Helmsley and a real-estate magnate in her own right. Mrs. Helmsley and her partners probably could have made more money by selling off the retail spaces and/or large numbers of apartments to separate investors, which would have made the restoration of Parkchester infinitely more difficult. Instead, her patience and willingness to sell to CPC at such a low price made the renovations possible. To us, Leona Helmsley was the Queen With Means.
Simply put, Parkchester’s success was a great cooperative effort. Residents, the new sponsor, clergy, local civic leaders, lenders, government and a myriad of professionals all rose to the occasion. CPC’s highly talented project management team was headed by Kathleen Dunn, and included for a short time a future Obama luminary, Shaun Donovan, who served as his first HUD Secretary. One early critic, an editorial writer for a local newspaper, became an ardent supporter of the renovation. Paraphrasing an editorial he wrote in The Parkchester Times, “We come from different countries—many from Pakistan, India, Bangladesh and elsewhere—exposed to constant tensions between our governments. In Parkchester all these differences were put aside as we fought to restore this community that we all share so as to provide a nurturing environment in which to raise our families and strive for our share of the American dream.”
And what lessons might we learn from Parkchester? Timely and decisive action, and the availability of capital, allowed CPC to take advantage of a downturn in the economy to buy Parkchester at a bargain price. This enabled the property to be restored, yet remain affordable to its moderate-income residents for another generation of use.
During the Great Recession, a similar dynamic was in play. Millions of home owners had defaulted on their mortgages, with foreclosures hollowing out entire communities. Also lost was the promise that the equity in their homes would help provide a secure future for their family.
The holders of that debt, Fannie Mae, Freddie Mac, the Federal Housing Administration and major banks, were selling multi-billion dollar portfolios of their defaulted mortgages to hedge funds and other investors at steep discounts—prices far below the face value of those individual mortgages. The sellers wanted to clear out their bad debt so they could resume business; the buyers hoped to eventually benefit financially with the return of a more robust housing market.
What if instead there had existed CPC-type organizations with the capacity to purchase these mortgages at the same bargain discounts and committed to pass those low prices through to distressed homeowners by reducing the balance of their individual mortgages? If this scenario had taken place at the time of the 2008 financial crisis, it might have saved our nation from the trauma of so many families—8 million-plus!—losing their homes, as well as millions of other families who lived in fear of similar catastrophic losses.
Imagine how that could have changed our political landscape!
Parkchester’s rebirth reflects the best of New York and stands as a lesson for communities throughout the country seeking to preserve and enlarge their stock of affordable housing.
Michael D. Lappin, a New York-based expert on affordable housing and urban development, served as CEO of the Community Preservation Corporation (CPC) from 1980-2011. He currently heads MLappin & Associates LLC which provides advisory and development services for affordable housing.
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