Mayor Bill de Blasio says that New York has “a crisis of affordability.” According to the mayor’s ten-year housing plan, his administration is committed to “build or preserve nearly 200,000 affordable units” throughout the five boroughs. Mayor de Blasio calls for a “bold approach to increasing and protecting the supply of affordable housing,” but while noble, no measures have yet been implemented. Time is of the essence, though, for a certain breed of affordable housing—Housing Development Fund Companies (HDFCs).
In the 1970s, the city created HDFCs via Land Disposition Agreements (LDAs) to promote developing blighted and underdeveloped areas into affordable housing. The LDAs transferred land to cooperative housing corporations in exchange for the promise that those cooperatives would adhere to strict principles to create and maintain affordable housing. These HDFC cooperatives were formed pursuant to the statutory regime of Article XI of the Private Housing Finance Law (PHFL). The LDAs and the PHFL provide for HUD/FHA-subsidized financing, property tax breaks, and HPD regulation of HDFCs. Income restrictions for apartment owners and sale price formulas ensure apartments remain affordable.
However, most LDAs and their related regulatory agreements expire after 40 years and/or when government loans made to the HDFC are paid in full. In the last few years, many LDAs and regulatory agreements have expired and government-subsidized loans have been paid off. The shareholders of these HDFCs face probably the biggest financial decision of their lives: Does the cooperative continue as affordable housing, or does it privatize and allow its shareholders to make big money selling their cooperative shares on the free market?
Many of these cooperatives, 40 years later, are located in prime locations, and shareholders find themselves with the possibility of selling their units for more money than they ever thought possible. However, many shareholders oppose privatization because they wish to remain in their units, and may not be able to afford to do so if the benefits of HDFC regulation (e.g. tax abatements, low interest financing) are lost. For those cooperatives that ultimately decide to pursue privatization, there are serious legal questions:
Does an HDFC need governmental approval to amend its governing documents to remove income and sale price restrictions?