By Josh Rogers
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Along with traffic, turkey and football, this year’s Thanksgiving talk for many Southbridge Towers residents is likely to include the words “flip tax” as they sort through a new report promising up to $1 million if they sell their apartments to the highest bidder.
Jackie Richards, who has lived in her Southbridge studio for 10 years, said she understands the 136-page report outlining the financial consequences of leaving the Mitchell-Lama state housing program, but she wants to hear what an attorney, namely her sister-in-law, has to say about it over the holiday weekend.
She thinks if the Seaport complex votes to privatize, it should be good for senior citizens who will be able to take out a reverse mortgage, and for people who want to sell and move out of the city, but she’s not sure about herself.
“It works well for someone who is about to retire,” she said, “or who is saying ‘bye to the city. I’m leaving. I’m going somewhere else.’”
Richards, a middle-aged woman who declined to give her age, said one of her concerns is the proposed flip tax on first time Southbridge sellers is 20 percent, which she thinks may be too high and be a selling barrier. According to the report prepared by real estate attorney Stuart Saft, if 3.37 % of the 1,651 apartment owners sell their homes, the flip tax will be enough to cover the added real estate taxes. Under the worst-case scenario, if residents leave Mitchell-Lama and no one sells their apartment, monthly maintenance charges would rise $339 for each apartment.
Southbridge’s shareholders, the residents, are likely to take a vote, perhaps this spring, on whether to do a more extensive “black book” study on going private. Richards raised her eyebrows when told that the study may cost $150,000 to prepare, but said she is still inclined to vote for the black book before she makes a final decision on leaving Mitchell-Lama.
“Do the study,” she said. “Maybe it will answer all these nagging questions.”
If a majority of the 1,651 shareholders vote to do the black book it will set up a final vote, which could take place two years from now. If the state attorney general approves the black book and two thirds of the apartments vote to leave the middle class housing program, then the residents would get the right to sell their apartments on the open market. Residents now own Southbridge Towers, but if they move, they sell their shares back to the complex.
Some privatization opponents at Southbridge point to the effects it would have on the large senior citizen population on fixed incomes, but the Saft report suggests people over 62 might make out the best by leaving Mitchell-Lama, because they would be eligible for reverse mortgages. Seniors could use their apartments to take out loans that they would not have to pay back while they were alive.
That was not reassuring to Marilyn Granald, 77, who remains opposed to a change. “Personally I’d never give my home to my bank,” she said.
Like many of the opponents, Granald thinks the monthly costs will rise faster if they leave Mitchell-Lama “I can’t afford for my maintenance to go up,” she said.
Paul Hovitz, a privatization opponent and a former Southbridge board member, said the flip tax will cut the apartment turnover rate. Many apartments become available when people die and Hovitz thinks heirs are more likely to hold apartments and take out home equity loans rather than sell and pay the tax.
Jared Brown, leader of Southbridge’s pro-privatization group and a board member, said it is far-fetched to think these estates would take out loans and pay interest rather than just sell the apartment and pay the flip tax. About four percent of the apartments open up every year without any financial incentive and that number should rise under privatization, he said. Even if it stays the same, it will still more than cover the real estate taxes, according to the report.
“People moving out will pay for us to maintain our lifestyle,” said Brown. “People move out now and just get their shares back. Are they not going to move out and get a half million dollars because they will have to pay 20 percent back? It doesn’t make sense to me.”
He disagrees with Hovitz on the real estate taxes too. Hovitz said the taxes will rise much higher than Saft predicts because the complex value has not been assessed recently, but Brown counters that Southbridge has never challenged a real estate assessment in its 35-year history because of the tax write-offs under Mitchell-Lama. Once it leaves, Southbridge would fight any new assessment and be able to keep the taxes in reason. He said Southbridge is valued higher than the nearby Grand Street Co-ops, which left Mitchell-Lama several years ago.
John Fratta, president of Southbridge’s board, is against privatization because he questions the numbers in the Saft report and he thinks the social costs of losing more affordable housing in the city would be too high. He said if the maintenance fees didn’t rise too much, he would be helped by privatization with a home equity loan but he doesn’t think that’ll happen.
“If maintenance goes up double, I’m in trouble,” he said.
According to the report, the least valuable studio is worth $275,000 (370 square feet) with larger ones on higher floors predicted to go for as much as $540,000. One bedrooms of 668 square feet range between $500,000 and $735,000 and three bedrooms may be worth up to $1 million.
Fratta thinks the values are too high. “They’re going to go in a 35-year old building with 35 year-old plumbing and lobbies that aren’t that much, and they’re going to spend that kind of money,” he asked.
Before the report’s numbers were released to residents, Downtown Express first published some of them Oct. 12. That triggered many letters to the editor, a few of which bothered Fratta. He disagrees that residents deserve to get rich because they moved into the Seaport before it was a desirable neighborhood.
“You’ve lived in affordable housing for 35 years and if you didn’t, you’d be living in the street,” Fratta said. “So you are entitled to a windfall? You’re entitled to a home.”
“If it hadn’t been for us, this neighborhood wouldn’t have developed the way it did,” said Brown.
Larry Schwartz, 48, moved into Southbridge in 1971 with his parents and now lives in the same three-bedroom apartment with his wife and two children. He said he favored privatization before reading the report and now he is more convinced.
“I see a lot of plusses and no minuses,” he said. “I would take out a home equity loan – I have kids who are going to go to college.”
From talking to neighbors, his sense is the report has not changed many, if any minds.
Brown, however, said one member of the anti-privatization group, Southbridge Towers Concerned Cooperators Committee, gave him dues after seeing the report and is now a member of his group, Southbridge Rights.
The Southbridge board is now trying to schedule a large meeting in January in which Saft can answer residents’ questions. Brown said only about half the residents have picked up the report. He hopes that changes soon and thinks April may be a good month to schedule the vote on whether or not to do the black book study.
“I’m just afraid that people are not sitting down and reading it,” Brown said. “That’s my biggest concern.”
If Southbridge votes to do the black book study, it will be reviewed by the state Division of Housing and Community Renewal and then forwarded to the state attorney general.
Jacques Rose, a housing attorney who represents Knickerbocker Village tenants, said the attorney general would have to find incomplete information or other specific problems with the black book in order to reject it. Brad Meione, a spokesperson for attorney general Eliot Spitzer, the governor-elect, said he did not know what the A.G.’s authority is when it came to Mitchell-Lama applications.
Local politicians, generally strong advocates for affordable housing, are not rushing to offer opinions on how they think people at Southbridge should vote. Councilmember Alan Gerson said it is different situation than when one landlord buys out of a Mitchell-Lama building, forcing people to move. He is concerned about the loss of below market rate housing at Southbridge, but he said it is up to the residents to make the best decision for themselves.
“You don’t have a concern of displacement, but you do have a broader concern,” he said. Gerson is for creating a fund to preserve and build affordable housing and said residents and landlords who leave Mitchell-Lama should contribute.
“Landlords and co-ops get a windfall,” he said. “Some of that windfall should be returned to an affordable housing trust fund.”
Josh@DowntownExpress.com
