Back in 1955, when the flight to the suburbs was going full blast and many city neighborhoods were deteriorating from lack of money and municipal attention, the Mitchell-Lama bill, named after State Sen. McNeil Mitchell and New York Assemblyman Alfred Lama, was signed into law.
The purpose of the program was to encourage the building of moderate-income housing, to keep more middle-class families within the state's cities, and to help stabilize city neighborhoods. And the program worked -- scores of Mitchell-Lama buildings (some 270 developments with nearly 140,000 apartments) were constructed throughout the 1950s, '60s and '70s, and provided housing for lower- and middle-income families. The projects developed under this program received real estate tax breaks and low interest loans and mortgages in return for keeping rents and purchase and resale prices far below market value for a period of time. After this period the co-op corporation could opt out of the program. Some say one of the real reasons for Mitchell-Lama in the first place was so that these buildings could stabilize borderline areas--clearing the way for the private real estate market to step in.
This period has changed several times over the years; it's now 20 years in most cases. Upon leaving the program, all subsidized loans and mortgages needed to be paid off and or refinanced conventionally. All real estate tax abatements and exemptions related to the initial finances, would no longer apply and real estate taxes would increase to that paid by similar cooperatives. A Mitchell-Lama technically pays what's called a "shelter rent" payment-in-lieu of taxes, which is derived through a formula which accounts for 10 percent of the annual rent roll of the shareholders plus the cost of utilities.
Many of the neighborhoods where Mitchell-Lama buildings were built have seen a dramatic increase in real estate prices, especially in neighborhoods that have become "upscale" making "buying out" more attractive than ever to many. If and when a Mitchell-Lama or a similar co-op does go private, those who own apartments can potentially sell them at market rates. If you paid $12,000 for your apartment, and are now seeing apartments all around you selling for $500,000 or $1 million or more, that's a powerful incentive for many people.
"I'm about to go into contract for a three-bedroom apartment for $1.275 million&--that's phenomenal," said Madeline Williamson, a broker for Prudential Douglas Elliman, handling apartments at 75 Henry Street, a now-privatized Article 5 co-op in Brooklyn Heights. "Studios are now ranging from $300,000 to $350,000."