Despite Approval, Apex’s Arrow Linen Project Faces Dangers

The development landscape shifts with every multifamily project fight, and the Arrow Linen rezoning is certainly a victory for the industry and the city.

But don’t pop the champagne yet. The 250-unit development still faces major pitfalls. Here are three.

Danger No. 1: Financing

Near the end of her rezoning negotiations with Andrew Esposito’s Apex Development, Brooklyn Council member Shahana Hanif said, “There will be a project.” Not necessarily.

The Windsor Terrace project got its rezoning, but it still needs a construction loan. Council members tend to assume such loans are routine or not even required. Not true. Some projects that win rezonings are never built.

It’s far from certain that Apex and its partner, the Magliocco family, will nab financing to replace the laundry facility with housing and community space. Lenders might deem it too risky to justify providing tens of millions of dollars to start building and about $150 million to finish.

The numbers for the Arrow Linen project, at 441 and 467 Prospect Avenue, are daunting.

The state’s new 485x rules will require the construction and service workers to be paid prevailing wages. Few if any 485x projects have scored a loan.

Also, Hanif insisted that 100 of the apartments be affordable to households making, on average, 60 percent of the area median income, meaning those units will operate at a loss.

“When you combine a higher percentage of [affordable units], deeper levels of affordability, plus wage requirements and no subsidy, it is making these large projects extremely difficult,” Esposito said after the Council approved the rezoning.

Even if a lender steps forward, it might demand a high interest rate, personal guarantees, or both, to compensate for the risk of default — in which case, Esposito and the Maglioccos might balk. A personal guarantee could allow the lender to go after their personal assets if foreclosing on the land were not enough to pay back a defaulted loan.

Danger No. 2: The mathematics of affordable housing

Many Council members will assume every project can pencil out with 40 percent of units affordable at 60 percent of the area median income. But the reality is that most cannot.

The Maglioccos bought the property in 1978, when Windsor Terrace was a sleepy market. Today, the purchase price would be much higher. Add in Hanif’s affordability terms and the development’s financials would be wrecked.

Another reason this deal wouldn’t pan out everywhere is that market-rate rents are not high enough in many neighborhoods to subsidize so many low-rent units.

It would be deeply ironic if Arrow Linen creates unrealistic expectations that kill other rezonings, resulting in less housing overall. The future of Bruce Teitelbaum’s One45 in East Harlem, now under review, will help answer that question.

Danger No. 3: Political opponents

Hanif’s rezoning might cost her the Democratic primary this June. This happened in the Bronx to Marjorie Velázquez.

The Arrow Linen project’s critics vowed to support her opponent if Apex’s two buildings, initially planned as 13 stories each, were any taller than nine. Hanif got them down to 10 stories, while greatly increasing the development’s affordability and not losing a single unit of the new housing that the city desperately needs.

She also got a child care center and community space for survivors of domestic violence.

That’s a helluva deal, by any objective measure, and especially for a Council member under tremendous pressure to balance competing interests.

Yet it wasn’t good enough for the NIMBY group, “Housing, Not Highrises,” which pledged after the deal to help defeat her in the June primary.

“We made it very clear to Council member Hanif that we had come to what we saw as the middle on a nine-story building and anything above that would result in our organization organizing against her in the primary,” group member Jack Walsh told Brownstoner.

That’s not just petty, it’s dangerous.