The State Appellate Court ruled today that Independence Plaza, a large residential rental building that had been in the Mitchell-Lama program had the right to convert its units to market rate when the 1,300-unit property left the program in 2004, despite the fact the building had been in the city’s J-51 program.
The outcome, which overrules a previous decision, is a victory for Stellar Management, owner of the Tribeca complex.
Independance Plaza was built in the 1970s but didn’t enter the
Mitchell-Lama program until 1974, a key cutoff that allows properties, which are rent stabilized during their participation the program, to become market rate when they exit, which is typically permitted after 20 years.
Central to the case were J-51 subsidies the building received, a tax
benefit that previously ensnared Stuyvesant Town and Peter Cooper
Village, preventing Tishman Speyer from converting that huge complex into market rate apartments and thrusting the properties into one of the largest real estate defaults in history. Independence Plaza was in the J-51 program since 1998, but the Appellate Court ruled that its participation in that program ended when it left Mitchell-Lama in 2004, a decision that validates Stellar’s plan to bump up the building’s apartments to market rate rents, which are in the many thousands of dollars a month due to the complex’s location in trendy Tribeca.
Stellar Management purchased the building in the 2003 and has
struggled with the property as a result of the litigation. The building has a $265 million mortgage. Last year, the company reached a
deal to extend that debt with special servicer CW Capital Asset Management, according to written reports at that time and also reached
a deal to recapitalize the property, which carries $575 million in debt, with the large commercial landlord Vornado.
It’s not clear if the Appellate Court’s decision alone will salvage the economics of Stellar’s investment, but if it hadn’t won, any hope
of recouping profits at the property would likely have been gone.
“After a long fight, the Appellate Court made the right decision today,” Stephen Meister, Stellar Management’s, attorney in the case
told The Commercial Observer.