When the city announced an agreement with the Blackstone Group to preserve 5,000 affordable housing units at Stuyvesant Town-Peter Cooper Village last month, it disclosed that the fund manager would receive a $144 million loan from the public Housing Development Corporation in exchange for its efforts. Turns out calling it a “loan” is a bit of a stretch.
Blackstone will never have to pay a penny in either principal or interest, according to the deal’s term sheet, meaning what was billed as a loan is de-facto a cash gift from the de Blasio administration.
Behind the story:
Blackstone’s Stuy Town Agreement (download)
Stuyvesant Town and Peter Cooper Village
Blackstone Group
The city agreed to give Blackstone a subordinate acquisition loan over $143,718,750 through the HDC or one of its subsidiaries, which “will have a term of 20 years at 0% interest, with the principal amount of the HDC Subordinate Loan being forgiven annually at a rate of $7,185,937.50 per annum,” according to the document. At the end of the loan’s term the principal will be down to exactly zero. Since the interest rate is also zero and the “loan” is exempt from mortgage taxes per the agreement, Blackstone faces no costs.
So why didn’t the city just call the $144 million a subsidy, or waive the real estate transfer tax for Stuy Town instead?
“It is sized to the amount of real property transfer tax we will be receiving,” a spokesperson for the mayor said. “Structuring it as a loan gives the City significantly more enforcement authority.”
In other words: the city reckons structuring the subsidy as a loan (instead of just waiving the transfer tax) gives it more leverage in case Blackstone breaks the affordable-housing agreement, because the firm would then have to pay back the money.
Blackstone signed a contract last month to buy the 11,000-apartment complex in the East Village for $5.3 billion in partnership with Canadian pension fund manager Ivanhoe Cambridge. Simultaneously, the buyers reached a deal with the city to keep 5,000 units in the complex rent-controlled for 20 years in return for public backing of the acquisition.
Apart from the $144 million subsidy, the buyers will also receive a mortgage tax waiver worth about $77 million. And in exchange for agreeing to not build on the site, the buyers secured the city’s backing to sell off unused air rights to other projects.
Blackstone declined to comment for this article.