HELL’S KITCHEN — The city is imposing an unprecedented administrative fee on the developer of a new building for Covenant House on the West Side — standing to profit off tens of millions of dollars that should be going toward affordable housing in the project, local leaders say.
In January, the city’s Economic Development Corporation put out a Request for Proposals (RFP) seeking a developer to build a new headquarters for Covenant House — which provides services and housing for homeless youth — along with a separate development with 700 housing units, including affordable apartments.
Under the terms of the agreement, the developer would have to pay the EDC and Covenant House 1 percent of the “unrestricted appraised value of the Eastern Parcel” — a 28,966-square foot lot between 10th and Dyer avenues containing a building that was occupied by Hunter College’s MFA program until recently, the RFP states.
“...[I]n its long history of working on many affordable housing RFPs through HPD, the city never imposed an administrative fee, payable to a city agency,” Community Board 4 chairwoman Delores Rubin and land use committee chairman Jean-Daniel Noland wrote in a letter to the EDC dated Feb. 18.
“As a percentage of appraised value, which will be in the tens of millions, this proposed fee will be substantial,” the pair added. “In an affordable housing RFP, which provides no public subsidy, any fees should further fund the affordable housing development project itself, not EDC."
Any prospective developer would also be required to pay a "participation fee" if it chose to buy development rights for any of the three lots adjacent to the RFP site, including a 9,875-square-foot lot owned by the Port Authority.
The developer would have to pay Covenant House and the city half the purchase price of any adjacent lots, to be split evenly between Covenant House and the city, the RFP said.
“Such an action is a disincentive for any developer to acquire development rights or any other parcel on this site,” the letter said. “Why would EDC or Covenant House seek financial gain if the project could become more financially feasible through additional adjacent development rights?”
At a CB4 land use committee meeting on Feb. 10, committee member Joe Restuccia claimed that when the city Department of Housing Preservation and Development (HPD) issues RFPs for affordable housing, it “never requests an administrative fee to manage or run [them]."
“In fact, you need every bit of cash going back into affordable housing,” he said, calling it an “unlegislated tax.”
Committee member Sarah Desmond agreed with Restuccia that the EDC was not the “proper vehicle” for an affordable housing RFP.
“I think this is another example where money that could be going toward affordable housing is instead being diverted to the city,” she said.
“They do real estate transactions — they don’t do affordable housing,” Restuccia had said of the EDC at a full board meeting on Feb. 3.
A spokesman for the EDC said the agency was "proud to be working to create much needed affordable housing and a new facility for Covenant House."
"NYCEDC includes administrative fees in many of our real estate RFPs, which help cover staff time and other costs associated with our work," spokesman Anthony Hogrebe said.
"We had numerous conversations with CB4 while drafting this RFP, and we value their continued input as we move forward with this important project," he added.
In its letter, CB4 also said the RFP had only “broadly” addressed concerns board members raised during “18 months of meetings” between the board, EDC, Covenant House, HPD and city administrators.
The board had hoped to see specific height limits for the development in the RFP, but the RFP only called for the project to "relate to the prevailing heights" of buildings surrounding it.
In its letter, the board said the chosen developer could use the RFP's guideline "to justify out-of-scale and out-of-context heights."
The letter also called on prospective developers to preserve the former Carnegie Library building that houses the current Covenant House building's gymnasium and other facilities, as well as restore the building's facade entrance.
The RFP only "encouraged" potential developers to "consider preserving the facade."
The board also took issue with the RFP’s statement that affordability would last “only as long as the real estate tax exemption.”
A yet-to-be-determined percentage of the planned 700 housing units will be affordable units, an EDC spokesman said in January.
The city had originally planned to set aside about 40 percent of the new housing for affordable units.
“This temporary affordability satisfies neither the board’s nor the city’s goal of promoting and sustaining economic diversity,” the letter added.