City Agrees To Buy 'Cluster Site' Units For $173 Million, In A Windfall For Homeless Families And A Notorious Landlord
March 15, 2019, 3:28 p.m.
The city has agreed to purchase 468 cluster site apartments from a reputed slumlord, a deal that was politically unpalatable but which homeless advocates argued was necessary.
Mayor de Blasio and city homelessness Commissioner Steven Banks
After pausing the deal, the city has agreed to purchase 468 cluster site apartments from a reputed slumlord as part of a plan to rid its reliance on renting costly and often poorly managed apartments from private landlords.
All told, the city will pay $173 million for 17 buildings in the Bronx and Brooklyn, according to the Department of Homeless Services. The purchase is part of Mayor Bill de Blasio's "Turning the Tide on Homelessness" initiative, which seeks to phase out cluster sites by 2021. Following the conversion of the units in the proposed deal, there will be approximately 1,400 cluster units remaining, down from a high of 3,650 cluster units in 2016.
“Homeless families have for decades been haphazardly sheltered in temporary accommodations that are too often poorly maintained and disconnected from services,” said Mayor de Blasio in a statement on Friday. “We’re converting these buildings into higher quality, permanent affordable housing for formerly homeless New Yorkers turning their lives around.”
Under the deal, the city will provide the financing but the buildings will be bought and controlled by a team of nonprofit entities that specialize in managing affordable housing. Many of the units are currently occupied by homeless families. Upon the conversion of the units, those who are ready will be given the opportunity to become a rent-stabilized tenant. Meanwhile, non-homeless tenants will be entitled to remain in their apartments with rent-stabilized leases.
Despite widespread support by homeless advocates, the administration announced it halted the deal in January, around the same time two news reports scrutinizing the owners were published. A Daily News story revealed that the owners who stood to benefit from the sale were members of the Podolsky family, notorious slumlords who have made hundreds of millions in dollars over the years by renting run-down shelter properties to the city.
Prior to that, the Wall Street Journal reported that federal prosecutors were investigating brothers Stuart and Jay Podolsky for tax evasion and overbilling practices related to hotels they own that are rented by the city for homeless families.
An editorial in the Daily News criticized the administration for allowing a slumlord to profit from misdeeds.
But homeless advocates came to the deal’s defense, arguing that the ends justified the means. By buying the portfolio, the city would ensure the units’ permanent affordability and put them in hands of nonprofit providers who would renovate and manage them much better than the prior owners.
“It’s a huge step forward,” said Joshua Goldfein, a staff lawyer with the Legal Aid Society, which represents tenants who live in the buildings. “The buildings will remain rent-regulated and affordable.”
Regarding the property owner’s reputation, he said, “The unsavory characteristics of the seller are a political consideration but from a business point of view, they’re irrelevant.”
It is unclear how delaying the deal, which was initially announced in December, may have affected the price. Goldfein said the city has been in negotiations for years for the portfolio.
Early on, the buildings’ market value was estimated to be between $40 million and $60 million, according to the Daily News. But the story reports a city official saying that the Law Department retained a third-party appraiser, Metropolitan Valuation Services, who valued the buildings at $143.1 million.
The Podolsky brothers were reportedly seeking $200 million.
George Arzt, a spokesman for the Podolsky family, did not immediately respond to a request for comment. In a Daily News story on Friday, a Podolsky spokesman said the brothers were “delighted” at having reached a “fair resolution.”
UPDATE: On April 5, the city closed the deal for $173 million. A spokesman from the Department of Homeless Services had previously confirmed the purchase would be for $174 million.
