The owners of Starrett City are currently examining four final offers for the 46 building, 5,881 unit complex in Brooklyn, New York. Yet the owners already sold the property last year to Clipper Equity LLC for $1.3 billion - but Clipper’s winning bid would have required them to bring many more apartments to market rate rents than acceptable to affordable housing advocates.
Starrett City has become Exhibit A in a simmering conflict between tenant’s right advocates and investors including private equity funds and developers. In recent years a popular investment strategy has been to acquire and actively manage affordable multifamily units so as to bring them to market rate rents. However increasing scrutiny and political pressure may make these strategies more difficult, time consuming and expensive to execute.
The new agreement at Starret City between the owners and city, state, and federal housing authorities stipulates that a larger percentage of units will remain affordable. While this will reduce Starrett’s sale price by $300 million or more, it will also guarantee subsidies of approximately $70 million a year provided by the government. These guaranteed subsidies are risk free cash flows, while returns from apartment conversions and expected rent increases are much more uncertain.
A new component of active management strategies for affordable housing projects will need to be greater public private partnership and concessions so as to ensure their success.
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