Love Saves the Day

“What can you tell me about Mitchell-Lama statutes and regulations?” she’d asked Perry, after pleasantries had been exchanged.

Perry’s bushy eyebrows rose. “Are you working on an opinion letter for a client?”

Laura hated lying, knew she wasn’t any good at it. “Something like that,” she hedged, and felt her cheeks grow warm.

Perry nodded, then leaned back in his leather chair. “Well …” The tips of his fingers steepled across his stomach in the professorial air many of the younger associates found irritating, although Laura had always secretly loved it. “Mitchell-Lama is a type of subsidized housing program that was proposed by state senator MacNeil Mitchell and assemblyman Alfred Lama, and signed into law in 1955 as the Limited-Profit Housing Companies Act. There was a large working-class population in New York who needed places to live. Manhattan was pretty crowded back then”—Perry’s brief smile contained a hint of irony—“and there was a shortage of affordable housing for people who were teachers, for example, or transit workers, or store clerks. City and government officials all the way up the line wanted to find some way to make affordable housing available to these people. The thinking was that it wasn’t in the City’s best interests to have a population of only the very rich and the very poor. They wanted a stable middle class who were invested in their neighborhoods in order to generate additional tax revenues, bring crime rates down, et cetera.”

“Sounds logical,” said Laura.

“It was logical,” Perry replied. “The problem was that developers would say, I’m not going to build a building and then have the rent frozen afterward with rent control. Why should I invest money in a losing proposition? So Mitchell-Lama was created as a solution. The basis was that the city would put up ninety-five percent of the money to erect the buildings. Somebody from the private sector would come up with the additional five percent of the project cost at a ridiculously low interest rate on a thirty-five to fifty-year mortgage, and that would include the cost of the property, building a tenable building on it, and so forth. In exchange for this great deal the City was giving them, the developers would calculate rent by figuring out how much the building would need for maintenance, how much for debt service, and then they would build in a limited annual return for the investors. I forget the exact number, but something like seven percent. There would be some profit for the developers, but that profit would be limited so rents for the tenants could remain affordable. The developers knew this going in—it was why they got such favorable terms in the first place. It was a win for everybody at the time.”

“At the time,” Laura interjected when Perry paused to sip from his coffee mug. “But not anymore?”

“As you know, things change.” (Was the look he gave her then meaningful? Or was he merely looking at her? For the life of her, Laura couldn’t decide.) “There haven’t been many new Mitchell-Lama properties built in the past fifteen years or so. A lot of the buildings that already existed, especially the ones that went up in the earlier days of the program, have long since paid off their mortgages. Property values and market-rate rents have skyrocketed. So now there’s a wave of owners and development corporations that want to opt out of the program and flip the buildings, or at least raise the rents substantially. It’s not quite as simple as all that, of course. You have to get permission from the DHCR before you can privatize.” At Laura’s quizzical look, he clarified, “The Division of Housing and Community Renewal. Typically, though, that’s just a formality. There’s a mandatory process by which the building’s tenants have to be notified of a potential privatization and given a chance to protest the opt-out, and to submit any problems with building maintenance and repair that would need to be addressed before the building could be sold. Then there are several different agencies that regulate Mitchell-Lama housing. Not all buildings are regulated by the same agencies, and some buildings are regulated by multiple agencies that have conflicting regulations. Wading through all the bureaucracy can represent hundreds of billable hours and tens of thousands of dollars to a developer’s law firm. There are a number of court cases and proposed amendments to the original statutes working their way through the system right now, any one of which could change the game significantly. We’ve been keeping an eye on them for some of our clients.”

“Usually, though, the owners are able to sell the buildings.” Laura phrased this as a statement, not a question.