On July 16, 2015, the Real Estate Finance Bureau of the New York Department of Law issued “Guidance on Housing Development Fund Corporations Seeking to Transfer or Sell Property for, or Otherwise Convert Property to Market-Rate Use” (the “Guidance”). The Guidance addressed whether Housing Development Fund Corporations formed under the New York Business Corporation Law (“HDFCs”) may convert the real property that they own into market-rate cooperative or condominium housing, either by amending their certificates of incorporation or by transferring and/or selling the property to a different type of entity.
The Guidance noted that the law severely limits the ability of an HDFC to convert its property to a free-market cooperative or condominium, but concluded that in certain narrowly defined situations, such conversion might be possible if the HDFC first consulted with, and obtained certain approvals from, its supervising agency.
Given the robust New York real estate market, it isn’t surprising that HDFC tenant-shareholders and boards are interested in exploring whether, and how, they can “go private,” and freely sell their buildings and/or shares at the market-rate, disbursing the sale proceeds to their shareholders.
This article examines the limited situations in which “going private” transactions may be possible for HDFCs, discusses the process that must be followed in such a transaction, and sheds light on some misconceptions that have led to confusion and wasted time and resources for HDFC boards and tenant-shareholders.
1. HDFCs Can’t Sell Their Buildings and/or Shares at Market Rate Merely Because Their Contractual Agreements Have Expired
An HDFC is a “special purpose” entity that is organized under Article XI of the New York Private Housing Finance Law (“PHFL”) “exclusively to develop a housing project for persons of low income.” PHFL § 2(19) defines persons of low income and families of low income as “[p]ersons or families who are in the low income groups and who cannot afford to pay enough to cause private enterprise in their municipality to build a sufficient supply of adequate, safe and sanitary dwellings.”