Interviews Eli Weiss, Joy Construction

0:00 Speaker 1 Good morning. This is Michael Stola for the Stolar Real Estate Report on the CAST Roundtable. What’s happening in affordable housing in New York? What’s happening with new legislation? I don’t have the answer, so I have the guru today from New York City, Eli Wise, who is a principal at Joint Construction, one of the largest developers of affordable

0:20 housing in the City of New York, plus a player in other areas. Thanks for coming here today.

0:24 Speaker 2 Thanks for having me, Michael.

0:26 Speaker 1 So what’s happening in affordable housing?

0:28 Speaker 2 I would say it’s been a busy few years in the sense that while traditional market rate development has seen a slow down because of interest rates, affordable housing, which that has had some negative impact on us, we’ve benefited from a lot of new legislation, both at the federal level and at the state level. So recently the state legislature,

0:50 led by the governor, passed some very crucial laws that re enacted what was the four to twenty one a tax abatement now known as for eighty five X so that will spur more rental housing and create low income and market rate housing at the same time, and also extended the previous program that had expired, and some projects

1:11 were on hold because they didn’t think they would meet the deadlines of that program, and so you’ll see a lot of projects come back to life. So while we’re overall in a very difficult climate for development, one of the nice things about affordable housing is because it’s a partnership between the public sector and the private sector. Our

1:30 production is not purely based on financial markets, but a combination of financial markets and legislation, and the latter has been very, very helpful to our industry over the last time.

1:41 Speaker 1 Let’s talk about what benefits there are today with the new changes in legislation.

1:46 Speaker 2 Well, I think one of the major changes goes back several years ago where Congress sort of made the tax credit program more robust, so there was more tax credit dollars available.

1:58 Speaker 1 To Okay, my listeners, explain what the tax credit program is.

2:01 Speaker 2 Sure, So, when you develop low income housing, you receive a tax credit that’s based on the cost of the development, and then typically you sell that tax credit to a financial organization or any corporation that needs to shelter tax income and they pay you and in that exchange, the dollars you get for the tax credits are used as

2:25 your developer equity in these projects. So Congress made those tax credits more robust, meaning more dollars for affordable housing. So that was one of the major changes over the last few years that put more money into the coffers of every single affordable housing development, and that’s been a huge change. And then, slowly but surely, as we are

2:48 experiencing a housing affordability crisis in the United States, I think home prices now are more expensive than ever, Rental prices are more expensive than ever, certainly both completely incongruous with incomes. We continue to see at the state level more and more legislation passed to try to help deal with this problem.

3:10 Speaker 1 So what is the benefit? Why does the developer build affordable housing?

3:15 Speaker 2 Personally, I’m asking, well, I think there’s several several reasons. I think the first reason is if you go into this business purely looking at it as a business, without some semblance of community mindness, you won’t be in this business very long. A It’s as I said earlier, it’s a public private partnership, which means you need to be

3:34 able to work and respect government. That’s the first thing. The second thing is because you’re developing with public funds and public programs, your project needs to I’m sorry to say it and sound like I’m in middle school, but needs to be popular in the community. You can’t just build whatever. Excuse me, you can’t just build whatever you want,

3:53 and so you have to work with your local community boards and council people and community stakeholders to develop a project that is welcome by that community.

4:03 Speaker 1 Okay, for example, you’re doing a large development in Inwood. Let’s talk about that.

4:08 Speaker 2 Sure, So the large development in Inwood is known as North Cove. It’s six hundred and eleven apartments, it’s a waterfront development that also my property will connect the waterfront park that’s being built by the city as part of the Inwood rezoning, and every single one of my apartments there are going to be affordable to people earning various

4:28 income levels.

4:29 Speaker 1 So let’s talk about the levels and what So.

4:32 Speaker 2 The levels in that project will start with fifteen percent of the units will be reserved for formerly homeless tenants. So these are people typically coming out of homeless shelters who’re receiving some form of housing assistance. And there will be units up to people making one hundred percent of the area median income, which is approximately one hundred and

4:51 forty thousand dollars a year. That’s for a family of four, that is correct, that’s for a family of four. So what this is is a mixed income community. So you’re going to see different tiers between those two ranges of income levels, and all these people will live together and have the same amenities and have the same apartments and

5:08 benefit from every part of the project equally.

5:11 Speaker 1 Now, what is the City of Yes program?

5:13 Speaker 2 So the City of Yes program, I think one of the issues that we as a developer, we as the development community has felt over the last few years is perhaps we felt like we were in a city of no and I think Inwood was a perfect example of that, where rezonings became extremely contentious and then would beyond contentious

5:34 and became extremely litigious. And so what the City of Yes program is is trying to educate local community boards, council people and sort of push forward a more positive approach to land use so that we can both expedite the process and come up with better outcomes.

5:55 Speaker 1 With regard to that, there was a discussion on parking spots.

5:59 Speaker 2 Yeah, so parking is a really interesting point of view, which.

6:02 Speaker 1 People don’t really understand.

6:04 Speaker 2 And there’s a few different perspectives of it. So as a developer, you can look at parking two ways. One many times it’s an amenity depending on where you live. Your tenants actually want to be able to park their car. However, when you have to build parking, especially if it’s subsurface, it’s extremely expensive and then puts pressure on the developer

6:24 from a cost point of view. So there’s definitely a feeling of balance between what tenants want, what’s cost efficient, and then we have to look at the broader perspective of living in this city, which is congestion and traffic, and do we want more cars on the road or do we want people taking public transportation. I, for one,

6:44 have lived in New York City my whole life. I don’t own a car. I take public transportation everywhere, so I have one point of view. But I do have friends who need their car for work, so it parking has become very, very challenging. But look how much has changed over the last ten to fifteen years. Right, We

6:58 have electric bicycles, scooters, bicycle lanes, uber shared rides, So parking has been in a very much an evolving part of the development world over the last twenty years.

7:09 Speaker 1 Okay, with regard to the new zoning changes, what’s up there.

7:14 Speaker 2 So basically what we’re seeing is, you know, attempts to try to I mean, one of the major changes is trying to focus on office conversions, particularly with the office vacancy and work from home being a major challenge in New York I think, but for certain pockets of the office market, specifically huts and yards, some of the statistics

7:38 in New York in terms of return to work are shopping and so I think there’s a major push within zoning to try to solve that problem by converting office buildings into residential.

7:51 Speaker 1 But in order to do that, you also have to provide certain tax credits.

7:55 Speaker 2 That is correct. So typically when that was done in the Financial District many years ago, is done with that is correct, and that provided a tax abatement to allow developers to convert those buildings and receive a tax abatement for doing so. I mean typically in New York City for the last fifty years, new rental housing cannot be

8:16 built without some sort of tax abatement, and so the challenge is to find the right tax abatement that will spur development. The secondary issue is design, right, I mean, these projects have to be feasible from a construction point of view.

8:31 Speaker 1 That said, and financially feasible.

8:33 Speaker 2 And financially feasible. You know, these things typically take some time to work into the system. You know, to go back to the Low income housing tax credit, that legislation was passed in nineteen eighty six, and I don’t think the program really got going in terms of uses until two to three, even four years later. It takes time.

8:53 It takes time to figure it out, It takes times for financial institutions to get comfortable, It takes time more markets to change. Any development right now of an office conversion will be challenged by the financial markets. Right the cost of capital right now is very high.

9:10 Speaker 1 One of the other challenges today’s insurance. I understand that the Association is trying to create a captive that’s correct.

9:17 Speaker 2 So what we’ve noticed, and I think it’s a national problem, and I think we all experience it, whether we own a home, a car, or anything, is the cost of insurance has gone up tremendously over the last few years.

9:29 In fact, I think when you look at the breakdown of inflation. Nationally, insurance has been at one of the top of the list in terms of experiencing high levels of inflation. But what we experienced as property owners in the Bronx was and in all of the borrows, a just media art like, an unbelievable rise in the cost

9:50 of insurance to the effect that pre COVID we would ballpark that per apartment insurance would cost us about seven to eight hundred dollars per unit per year, and by the time we got to our last renewals about three months ago, they were getting close to two thousand dollars. Now, obviously, in affordable housing where the rents can’t go up, we

10:12 can’t absorb that. So we had to be creative and look to a solution. So I give a lot of credit to some of the industry leaders, specifically John Crotty said, hey, look, there’s all of us and we’re all experiencing the same problem.

10:24 We all know each other, we all own the same type of assets, our financing is very similar. There’s real synergy here. And what he said is if we could pool all of our assets together, we could create a captive which is basically self insuring and pooling our assets together and becoming our own insurance company, and by doing that,

10:44 we would actually lower the cost because when we did the research and analysis, we realized that while we were paying significantly more for the insurance, the loss runs, meaning the payouts from the insurance companies, had not gone up in any sort of correlation to the increase of the insurance costs. So if that was the case, I would

11:04 rather switch positions and be the insurance company. And that’s what the industry did.

11:08 Speaker 1 One quick question. You’re also involved with the hospitality industry. What’s going on with regod to the hospitality?

11:14 Speaker 2 So I am involved in the hospitality. Over the last few years, I developed two hotels in New York, the four Points by Sheridan Midtown West on thirty fifth and tenth in Hudson Yards and the Civilian Hotel in Times Square, which the boutique hotel. So what we’re experiencing in the hospitality industry, I would say is it is the best

11:33 of times in the hospitality industry. From above the line, meaning on the revenue side, we’re seeing business travel come back. Leisure travel has been unbelievably strong for the last three years. Rates are significantly higher than pre COVID occupancy is roughly the same, if not a couple of percentage lower, But with the increase in rates, we’re ending up at a

11:54 better place. That said, where we’re suffering is on the expense side.

11:57 Speaker 1 So as I would say on my TV show where I had my apple, my shiny apple, it sounds like things are positive and there’s future good things going to happen in affordable housing and hopefully expenses and everything else.

12:10 I’d like to thank Eli Wise for being here today and I’ll see you next week. Thank you.