GENTRIFICATION PAPER #3

DECEITFUL DEALS: HOW SLATE PROPERTY GROUP MISLEADS NEW YORKERS AND DRIVES GENTRIFICATION

Since it was first reported that New York City lifted the deed restriction at 45 Rivington Street, the New York political class has followed each development of the notorious case with increasing scrutiny as new details continue to emerge.

Because it has allowed a formerly nonprofit nursing home to be transformed to luxury condos – which the community neither needs nor wants – there has been great attention given to the timeline of the de Blasio administration’s approval and knowledge of the deal.

Little attention has been paid, however, to the condo developer who, working with The Allure Group, is at the center of the scandal: Slate Property Group. Slate’s attempts to withhold its intentions to build housing on the site has been reported, but its broader portfolio and additional deals with the City have been less thoroughly scrutinized – despite the fact they often misled the public, used public benefits to drive gentrification across Brooklyn, and have partnered with Private Equity groups to harass tenants and maximize profits.

The most prominent of its current projects is perhaps the Bedford Union Armory in Crown Heights. In December of 2015, Slate was awarded development rights at the Armory with co-developer BFC Partners. Currently, the developers stand to benefit greatly from public aid to the project: the plan is to use both City and State financing at a site that was previously public land – and yet it will still be hardly affordable at all.

The City’s decision to award Bedford Armory development rights to Slate is misguided at best. The development rights for such a valuable City asset must not go to a developer involved in the Rivington deal, and especially not one who has a sordid history like Slate. The City should reverse the decision immediately and reissue the Bedford Armory Request for Proposals (RFP).

Especially since very few of the units created will be affordable for Crown Heights residents. The 330-unit project will be 50% affordable and 50% market rate housing. But even the affordable rents at the Armory will hardly be affordable at all. Only 18 units, or 5%, are affordable at 37% of AMI. Forty-eight units, or 15%, are affordable to families at 47% of AMI. The remaining affordable units – 30% of the project, or 100 units – are affordable at 110% of AMI.[1] In contrast, the household AMI of Crown Heights is 45% of AMI, or about $42,000 annually.[2]

David Schwartz, a principal of Slate Property Group, sits on the New York State Association for Affordable Housing (NYSAFAH) Board of Directors [3] alongside BFC’s Don Capoccia. In this capacity, Schwartz has used his position to lobby for the controversial 421-a tax abatement,[4] which has directed more than $1 billion a year in taxpayer dollars to developers like the Extell Development Company. The 421-a benefit was infamously applied to Extell’s project One57, which sold its penthouse for $100 million.

Despite sitting on the NYSAFAH Board, Slate is not an affordable housing organization – in fact, far from it. The company has been called one of “Brooklyn’s most prolific”[5] luxury housing developers, and has been at the forefront of creating high end markets all over the borough, from Downtown Brooklyn and Park slope to Ridgewood and Bushwick.[6] The 165 “affordable” units slated to built at the Bedford Armory would increase the “affordable” portion of its portfolio nearly five times over.

And after the Allure Group purchased the nursing home at Rivington and worked to remove the non-profit deed restriction, Slate agreed to purchase the property for $116 million.[7]
It, of course, plans not to build affordable housing, but luxury condos. As the deal was unfolding, a Slate representative instructed staff: “Do not discuss this deal…once he has [the restriction] removed, we can do whatever we want.”[8]

Slate Property Group is a clear bad actor, whose unscrupulous behavior in pursuit of profit makes them outrageously unqualified to develop affordable housing on public land. The City should reverse the award at the Bedford Armory RFP and only award the project to a non-profit developer with a proven track record of working with the City in good faith and building deeply affordable housing.

History: Private Equity Ties and History of Tenant Harassment

Slate has deep ties to Private Equity, and its principals havelong been accused of tenant harassment.

Prior to founding Slate, Martin Nussbaum and Schwartz co-founded Silverstone Property Group.[9] Silverstone, an affiliate of Private Equity giant Madison Realty Capital,[10] was established in 2009 to capitalize on distressed real estate at the height of foreclosure crisis.[11] Silverstone has recently been investigated for tenant harassment[12] and Madison Realty Capital has been accused of defrauding their investors.[13]

Nussbaum and Schwartz continue to partner with Private Equity at Slate, and continue the same practices of tenant harassment, displacing long-term residents and removing apartments from rent stabilization.[14]

Slate has built their development portfolio working with Private Equity partners such as the Carlyle Group, Capstone Equities, China Vanke, and AEW Partners to build luxury housing in downtown Brooklyn and Park Slope. While One Flatbush Avenue – a partnership with the Carlyle Group – is participating in the voluntary inclusionary housing program and will have 32 of 190 units of housing at targeted at 80% of AMI, the majority of their deals with Private Equity groups have 0 affordable units.[15]

Slate uses non-union contractors and investigation has often been issued violations from the Department of Buildings for their unsafe construction sites.[16]

Breaking Promises and Gentrifying Neighborhoods

Starting in 2014, Schwartz has been unapologetic about his plans to bring “highly amenitized development” through Williamsburg to Ridgewood along the L train.[17]
While some of Slate’s projects include affordable housing, some, like 100-120 Union Avenue, are located just outside of the 421-a geographic exclusionary area and don’t include any affordability at all. According to Schwartz, Slate’s buildings in Bushwick and Ridgewood are targeted to newcomers who have been priced out of neighborhoods in Manhattan or Williamsburg.[18]

As at Rivington House, Slate is a consistent bad-faith negotiator with the City – making promises only to break them and profit. A good example of this behavior is at 1873 Starr Street/176 Woodward Avenue, in Ridgewood.

Slate purchased 176 Woodward in partnership with its Private Equity affiliate – Madison Realty Capital -- for $770,000 in 2012, with plans seek a rezoning and build an 88-unit residential building.[19] Slate was awarded the rezoning in 2014 only after committing to build a 50% affordable project, with 20% of the affordable units to be permanently affordable.[20] Slate also conceded to rent commercial space to local artists for $10 a month. The project size grew to 125 units. Precise affordability levels were not determined by the Council through the ULURP process[21] , though the Council Member reports that units would be affordable for families between $23,000 and $105,000 annually.[22] In contrast, 28% of the population of Ridgewood made less than $25,000 in 2013.[23] The building will feature, among other things, a garage and a rooftop dog walk.[24]

Within two years after the rezoning was approved, and before the project broke ground, Slate and Madison Realty Capital flipped the property for $18.5 million – nearly $17 million in profit. The purchasers – Valyrian Capital Group and MGM Property Group – are not bound to the same affordability concessions won from Slate, though they will benefit from the rezoning. Valyrian Capital is a Private Equity company; MGM Property Group is an offshoot of L+M Development, and run by L+M principal Ron Moelis’ son Andrew.[25]

Conclusion

Slate’s footprint in Brooklyn and now Queens has expanded tremendously in just two years to over 10 large, mostly luxury development sites. At many of these sites they have received 421-a tax abatements in exchange for little or for negligible affordability. (See Appendix A.) In addition, they control a large amount of multifamily, rent stabilized housing in which they are attempting to bring out of rent stabilization and convert to condos.

Slate Property Group is not qualified to develop the publicly owned site at the Bedford Union Armory. Public sites are a non-renewable resource, and giving such large site away to a group with no motivation other than profit is an unconscionable betrayal of Crown Heights, Brooklyn, and New York City residents who are struggling to pay their rent.

Based on Slate’s track record at Rivington, in Ridgewood, and across Brooklyn, the City must reverse its decisions on the Bedford Union RFP and award the project to a non-profit mission driven affordable housing developer.

APPENDIX A: Brooklyn and Queens Sites in Development by Slate Property Group, 2014-2016

Footnotes:

[1] http://gothamist.com/2015/12/17/bedford-union_armory.php
[2]http://furmancenter.org/files/sotc/Brooklyn_Section3_SOCin_2015_4MAY2016-2.pdf
[3]http://www.nysafah.org/board.php
[4] http://therealdeal.com/2015/06/09/brooklyn-developers- lobby-for- 421a-in- albany/
[5] http://therealdeal.com/2016/03/09/slate-planning- new-117- unit-east- williamsburg-resi- building/
[6] http://www.nytimes.com/2011/06/10/nyregion/in-harlem- buildings-reminders- of-a- bubble-and- a-collapse.html
[7] http://rew-online.com/2016/03/11/slate- closes-on- 116m-rivington- building-plans- luxury-residential- conversion/
[8] http://www.nyc.gov/html/doi/downloads/pdf/2016/July%202016/pr22rivington_71416.pdf
[9] http://therealdeal.com/2013/11/18/silverstones-martin- nussbaum-forms- new-investment- firm/
[10] http://www.madisonrealtycapital.com/~madison/article.php?MADISON-REALTY- CAPITAL-CONSOLIDATES-ALL-INVESTMENT- ACTIVITIES-UNDER- THE-MADISON- REALTY-CAPITAL- BRAND-245
[11] http://therealdeal.com/issues_articles/new-yorks- upstart-investors- find-big- profit/[12]http://thevillager.com/2015/05/07/in-chinatown- trying-to- hold-up- vs-harassment/
[13] https://commercialobserver.com/2016/01/madison-realty- capital-slammed- with-150m- lawsuit-for- fraud-in- loan-bait-and- switch/
[14] http://chelseanow.com/2014/09/rally-protests- unconscionable-harassment- of-21st- st-tenants/
[15] https://a836-acris.nyc.gov/DS/DocumentSearch/DocumentImageView?doc_id=2016011300136001
[16] https://commercialobserver.com/2016/04/slate-lands- 42m-construction- loan-for- maligned-park- slope-development/
[17] http://therealdeal.com/2015/06/10/slate-plans- to-convert- williamsburg-warehouse- into-126- unit-rental- project/
[18] http://www.crainsnewyork.com/article/20140214/REAL_ESTATE/140219892/upscale-apartments- to-land- in-bushwick
[19] https://a836-acris.nyc.gov/DS/DocumentSearch/DocumentImageView?doc_id=2012112101119001
[20] http://www.timesledger.com/stories/2014/34/woodwardave_tl_2014_08_22_q.html
[21] http://a030-lucats.nyc.gov/lucats/ULURPRecord.aspx?ULURPonly=140111&ULURPall=C%20140111%20ZMQ
[22] https://www.dnainfo.com/new-york/20140819/ridgewood/ridgewood- development-pledges- 10-year- space-for-artists
[23] 2009-2013 ACS 4 Year Estimates, available at maps.nyc.gov/census
[24] http://www.crainsnewyork.com/article/20140214/REAL_ESTATE/140219892/upscale-apartments- to-land- in-bushwick
[25] http://rew-online.com/2016/03/18/new- development-the- easton-take- a-bow-in-carnegie- hill-new- queens-rental-planned/