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NYC Is Testing Public-Private Housing Partnership With HUD Program

Construction fences and sheltering at Ocean Bay (Bayside) as part of renovations and upgrades under the Rental Assistance Demonstration program (Photo by Oscar Perry Abello)

Linval “Troy” Buchanan has lived in the Rockaways since 1979. His senior year at Far Rockaway High School, he expressed an interest in electrical, and a guidance counselor sent him to a program where he learned the basics of being an electrician. Though he went on to college briefly, he took time off from that for electrical school. When the course ended, the instructor, also an electrician, hired him. Since then, he’s done jobs all over the NYC area, but for the next few years, Buchanan will be spending most of his time close to home, in the Rockaways. He’ll be working at the New York City Housing Authority’s Ocean Bay (Bayside) Apartments, a 1,395-unit public housing development where major renovations recently started under HUD’s Rental Assistance Demonstration (RAD) program.

The contract is the biggest yet for Buchanan and his business partner at KLK Electric. They’re installing new electrical fixtures for all the apartments and common interior areas, as well as preparing 20 of the 24 buildings for the installation of new rooftop solar panels. KLK hired eight people for the job, including two from the Rockaways.

Ocean Bay (Bayside) is NYC’s first project under the RAD program and could set the tone for wider adoption of the model across the city. The Obama administration created RAD in 2011. The program allows public housing authorities across the U.S. to tap private capital investment to address their backlog of repairs, which total $26 billion nationwide, but renovated units then lose public housing designation.

Public housing developments are essentially designed to operate at a loss. Tenants typically pay 30 percent of their monthly income on rent to the local housing authority, no matter what the operating cost of a unit might be. The federal government was supposed to be the main source of funding to fill in the gaps, but it chronically falls short of doing so. Since 2000, federal funding for public housing operations has met the annual need only three times, while funding for repairs has been cut by 53 percent, according to the Center for Budget and Policy Priorities. President Donald Trump’s current budget proposal calls for steep cuts in public housing funding — which local officials say would be devastating to NYCHA — but the budget also advocates for expanding the RAD program. Both Trump and HUD Secretary Ben Carson are fans of public-private partnerships.

Chronically short on budgets, and with barely any support from state governments, local public housing authorities had been discussing how to access private capital for years by the time the RAD program came into being in 2011.

“In some of the leadership of public housing in general, there had been recognition that one of the biggest problems was its lack of access to private capital markets,” says Deborah Goddard, executive vice president at NYCHA. “As a nation we have this two-track system for housing, one of which has access to private capital and the other massively disinvested.”

The results of the lack of funding are notorious. Leaky roofs, broken boilers, mold, broken elevators, and rat or insect infestations are commonplace in public housing. Many residents who have stuck it out have had enough.

“We’ve lived here all these years, we’ve seen from good, to worse, to the pits,” says Lolita Miller, an Ocean Bay (Bayside) resident since the 1970s who also serves on the development’s resident council. “Hurricane Sandy put the damage on all of us.”

The Rockaways is a peninsula between the Atlantic Ocean and Jamaica Bay. Sandy hit the whole area hard and destroyed large parts of the historic 5-mile boardwalk along the peninsula’s 10-mile beachfront. It also flooded and destroyed the massive underground boiler that served all 24 Ocean Bay (Bayside) buildings, which have since run on temporary exterior boilers. The RAD renovation plan includes a new rooftop boiler for each building. There is also an emergency generator complex under construction, to keep the lights on in case of another storm; it will hold all the electrical equipment above the flood zone. The complex is officially home to 4,000 people, and all of them will be getting new bathrooms, kitchens, floors, lighting fixtures and windows.

“It’s been needed for a long time,” says Patricia Simon, executive director of Ocean Bay Community Development Corporation, which is based inside the public housing complex. “I’ve been out here for 13 years. These repairs go back before that. They’ve just not been able to manage financially to go get the money needed to do these capital repairs.”

Through RAD, NYCHA was able to secure $560 million in financing from federal, state, city and private investors. That includes $170 million in Low-Income Housing Tax Credit (LIHTC) financing from Goldman Sachs, Signature Bank, Cathay Bank, Citi Bank and Nationwide Insurance; $213 million in New York State Housing Finance Agency (HFA) tax-exempt bonds; and $1.1 million secured via the Investment Tax Credit generated from the solar panels installation. There is also $194.4 million from FEMA to pay for resiliency measures and repairs, like the power generator complex and the new boilers. Part of the reason NYCHA went with Ocean Bay (Bayside) as its first RAD conversion was the availability of FEMA funds to pay for some of the major upgrades.

Since 2011, the RAD program has raised $4 billion to finance repairs and upgrades for 60,000 units around the U.S. But the way RAD works raises red flags for some residents, in that their units officially lose status as public housing.

“There were concerns [among residents] about being displaced,” says Simon. HUD requires local housing authorities to inform all residents of a proposed RAD conversion, to hold at least two resident meetings to gather resident comments and submit them to HUD, followed by at least one more resident meeting. At one point, Miller gave a presentation to HUD officials on resident priorities for RAD.

“I’m not going to sit down and watch things going on in other areas and nothing in our area,” Miller says. “HUD wanted to know what we did, the principles we set in place pertaining to what we want. “

Ocean Bay CDC has been holding biweekly informational meetings for residents who want to learn more or voice concerns about what’s going on.

“At the beginning … people were worried if they let us into their apartment to work, they were going to raise the rent,” Buchanan says.

There’s also the optics of NYCHA, the nation’s largest public housing authority, giving up some of its public housing units. Out of 1.2 million households in public housing nationwide, NYCHA houses more than 169,000. That’s more than the next 16 public housing authorities combined. The symbolism is meaningful, but so is having a decent place to live.

HUD requires units converted under RAD to remain permanently under a project-based Section 8 contract. Tenant rents are set at 30 percent of monthly income, same as public housing, so most do not see rents increase after conversion. But beyond that, local housing authorities have flexibility to decide the ownership structure for the new Section 8 project-based units. They could hand over developments entirely to private ownership, while requiring those units to remain under a Section 8 contract. But it’s the conversion into a new ownership structure with a project-based Section 8 contract that creates the conditions under which the development is more attractive for private capital to finance.

In NYCHA’s case, instead of selling an ownership stake in the property, it’s keeping the Ocean Bay deed in its own name, and extending a 99-year ground lease to a new joint venture in which NYCHA also has a 50 percent controlling stake. Through the joint venture, NYCHA shares ownership of the development (but not the land) with MDG Design and Construction (the lead and general contractor on the development), Wavecrest Management (the new management company for the development), Catholic Charities of Brooklyn and Queens (which will be providing services to residents as part of the arrangement), and Ocean Bay CDC (which is serving as resident liaison as part of the arrangement). Lastly, upon termination of the lease, the ownership of the development reverts back automatically to NYCHA.

“Our role has shifted more to an oversight role as opposed to a day-to-day management role, and we’re the administrator under the HUD contract,” says Kathie Soroka, a vice president at NYCHA.

Under the terms of NYCHA’s RAD deal, residents also have the option after a year to take their rental subsidy elsewhere as a housing choice voucher. Simon doesn’t expect many residents will leave: They’ve built their lives around where they currently live. Miller has raised six children to adulthood at Ocean Bay, and currently has 16 grandchildren and one great-grandchild.

Under the arrangement, MDG is also working closely with Ocean Bay CDC to hire residents from Ocean Bay (Bayside) or nearby. So far, MDG has hired more than 30 residents from the public housing complex and over 60 more from the surrounding neighborhood.

Iris Collado has lived in Ocean Bay (Bayside) for 11 years. With her 15 previous years of experience as a complaints specialist in the health insurance industry, she fit right into MDG’s team as a liaison, working with residents to schedule work periods and making sure the right construction teams are at the right apartments on the right day. The biggest complaint she receives? Tenants want the work done faster, even at a pace of 150 apartments a month.

“Now, to be honest, if I go stand in front of buildings 9 or 10, I guarantee you five or six clients are going to come out and say, ‘can you please come into my apartment and fix my lights,’” says Buchanan.

Born and raised in the Rockaways, Keith Ford is now working as part of the cleanup crew on the site. He’s a union member with Laborers’ Local 731, as is his father. Cleanup crews are essential for making the tenant experience as smooth as possible: When tenants return to their apartments, it needs to look as if there was no construction going on at all.

MDG has been intentional about subcontracting to minority- and women-owned businesses, especially local ones, too. MDG says they’ve subcontracted around $26 million to MWBEs for the Ocean Bay (Bayside) work so far, including $8.5 million to MWBEs from Queens. There’s the $4.3 million subcontract for Buchanan’s KLK Electric, $2.3 million for minority/woman-owned Gelstone Plumbing, and $2 million for minority-owned Big Bull Carpentry. Each of these local subcontractors has also already signed an additional subcontract with MDG to work on the preservation of Michelangelo Apartments in the Bronx. (Buchanan has worked with MDG for years under previous employers.)

For all three subcontractors, the Ocean Bay (Bayside) work was the largest project each had signed to that point, and MDG has been helpful on that end. Normally, as KLK signed on to do electrical work, they would have been expected to purchase all the materials and hire all the labor with their own cash upfront. Instead, MDG loaned KLK cash upfront for materials and labor. To repay the loan, MDG is taking a little bit off of each payment they make to KLK until it’s repaid.

“If they didn’t do it, I don’t know what we would have done. It makes life easier,” says Buchanan.

There’s now a chance to bid on more RAD conversion projects in NYC. NYCHA recently issued an RFP for three bundles of RAD conversions, two in the Bronx and one in Brooklyn, to convert another 1,652 units from public housing into project-based Section 8 housing.

“It’s been a honeymoon so far,” Simon says. “I keep waiting for that other shoe to fall, but it hasn’t and this is going to set the tone for other projects around the city.”