Interviews Bryan Kelly, President of Development, Gotham Organization

0:00 Speaker 1 Good morning. This is Mike Stola for the Stolar Real Estate Report on the CATS Roundtable. What’s happening with regard to new affordable housing market rate housing in New York. Recently there’s been new legislation passed called the four eighty five X, and there are other topics of discussion taking place with regard to New York City housing. Today I

0:19 have Brian Kelly, who is the president of Gotham Development. Brian, tell me what Gotham Development is.

0:26 Speaker 2 Mike. Gotham’s a fifth generation privately heald company that has focused primarily in New York City over the last one hundred and ten years on public private partnerships, working with not for profits and in developments that usually contain a significant component of affordable housing.

0:44 Speaker 1 Certain projects that you’re currently involved with, say, one of.

0:48 Speaker 2 The most prominent is the Innovative Urban Village, which is a joint venture with Christian Cultural Center, a monodnoc development. We EU lurped the ACRONYMOMIN and we rezoned through the New York’s process ten and a half acres about a year and a half ago.

1:03 Speaker 1 Now. This is in the East New York section of Brooklyn.

1:07 Speaker 2 This is in East New York and it’s all of the land surrounding the existing Christian Cultural Center ten and a half acres.

1:15 Speaker 1 Now, tell me a little bit about the project, because I know there’s affordable housing coupled with is for sale housing.

1:22 Speaker 2 So the master plan, the density is housing nearly two thousand units of housing anywhere from thirty percent of the city’s area median income all the way up to one hundred to create economic mobility within the community. But it’s really rooted in civic and equitable uses from a workforce development center, fresh food grocery, a plan performing arts center,

1:43 three acres of open space, and different amenities including walk and medical, really things that anchor a livable, walkable lifestyle.

1:52 Speaker 1 Now, how many apartments are being built over the different phases.

1:57 Speaker 2 Since the Europe was approved just short of a year ago, we’ve already closed construction financing this past March on nearly the first four hundred units. It was about a two hundred and seventy five million dollar capitalization, and we’re shove already and pushing to get financing to close by the end of the year for the next phase, which would

2:15 include nearly another five hundred apartments and a twenty four to seven childcare facility.

2:20 Speaker 1 Now, what is the income levels for people to qualify for an apartment?

2:25 Speaker 2 Anywhere from twenty five to thirty thousand dollars upwards to one hundred and twenty five thousand dollars, So pretty wide spectrum and that was the intended.

2:33 Speaker 1 Now aren’t you also involved with project with the Confident House.

2:38 Speaker 2 On the far west side just north of Hudson Yards. We completed about two years ago a brand new turnkey facility about eighty thousand feet for Covenant House, who helps youth, adolescent and young adults transition out of homelessness. The purpose built facility included education space and a roof over their heads instead of being on the street. Do we finish

3:00 that phase? We then bought the rest of the land that they owned, the not for profit, and we’re building a forty seven story building. Four hundred and fifty three apartments will be anchored in the podium by new office space for Covenant House International, and thirty percent of the housing will be affordable to low and middle income household

3:19 So truly diverse set of offerings for the public.

3:24 Speaker 1 So what does the new legislation have an effect on you?

3:27 Speaker 2 As a developer, I think the legislation was necessary. I think some of the wins in the legislation will be in the realm of office conversions, addressing the fact that we have high office vacancy, but New Yorkers who want to live in our downtowns by transit, so taking vacant office and converting it. The exemption for taxes is a

3:48 necessity to make that happen. I think the extension under the former Affordable New York program for developers both for profit and not for profit that put a footing in the ground those projects will most likely come to fruition.

4:03 Now the four to eighty five X program has wins and losses to it. I think the cost structure associated with that new program is going to be a hurdle to deal with.

4:15 Speaker 1 Why do you feel that way?

4:17 Speaker 2 The cost of labor and labor harmony is critically important, but the cost of labor is elevated above any former program and an environment where financing costs are very high and the capital markets are constrained. It’s just fighting walking that uphill battle with two scenarios where I think rents are starting to at least moderate and expenses or not.

4:41 Speaker 1 What about the City of Yes program.

4:43 Speaker 2 City of Yes program is a real win making parking in certain areas or many areas really a decision based on market need versus necessity. The twelve far in our transit zones, in our city centers, we should be building to the maximum density possible in our town centers. Single tax payer retail should easily be transformed and should have

5:10 been a long time ago into mid rise housing. You know, you solve your way out of a housing crisis, you know, several units at a time. You can solve it by building just mega projects.

5:20 Speaker 1 Right, Well, what’s going to happen to the older buildings that were built with twenty five year tax abatements? Now are they still are they going to be market rate or they going to become sit right.

5:34 Speaker 2 Well under the under the former Affordable in New York program, a lot of the former eighty twenty buildings could could enter into an extension which would preserve the affordability and also allow for those market rate units to continuously cross support the affordable units. So there are options on the table to support those units.

5:56 Speaker 1 What about you know, we talk about office conversions, but we new building also. Well, do you think land clids to go up.

6:04 Speaker 2 For this, I think land values will be supported in the areas using the old program. I think land values under the new forty five X program, to deal with the higher construction cost and the financing environment, we’ll see some pressure downward. But you can’t discount the optimism of New Yorkers to build housing, to be active, and at

6:26 the end of the day, the need is there, and when there’s great need in New York with very low vacancy, unlike other markets throughout this country where they’re experiencing actually increased vacancy due to supply side, we have to address our supply side issue now.

6:40 Speaker 1 Jim Well in president that Rebney said all affordable units must remain permanently affordable and permanently unstabilized. The exemption will produce less housing than its predecessor, the twenty one. What’s your thought about that.

6:57 Speaker 2 I think Jim’s point is that the cost structure under the new program is higher than the cost structure in the former program, and that the basic economics of real estate is income over cost is a yield to cost, and if you can’t meet a yield to cost, call it, for lack of better words, a hurdle, then you may

7:15 not pass the test of goal versus no go.

7:17 Speaker 1 So what’s going to happen to the units like you built in Low Island City? What’s going to happen with new developments in Lowland City?

7:25 Speaker 2 Well, for for over a decade and a half there were less barriers to entry in Long Island City as there were available sites on the waterfront, and there’s very few remaining, both on the waterfront and in Court Square.

7:39 So I think there’ll be continued activity for what remains.

7:42 Speaker 1 But at eighty percent of AMI.

7:45 Speaker 2 So for projects in Long Island City tend to be on the larger side given the zoning. So for projects north of one hundred and fifty units under four eighty five X, you would have to have twenty five of the percent of the apartments at sixty percent of the area mediate income. In other areas where the projects maybe

8:03 more moderately sized, for one hundred and fifty units or less, you can do twenty five percent of the units at eighty percent of the area meeting income. Eighty is more moderate.

8:12 Speaker 1 So I think there are interesting times over here. The legislation was definitely needed, especially since the four twenty one went away. And I think i’d like to thank Brian Kelly for being here today.

8:26 Speaker 2 Thanks for being here, Michael, Thank you