Armory Conflict: Is the Mayor Willing to Kill a Development Over Subsidies?

In some ways, the project is a referendum on Mayor Bill de Blasio’s housing plan, which recently expanded to a goal of building and preserving 300,000 homes by 2026 (up from an original target of 200,000 units by 2024). It highlights the drawbacks of leaning on for-profit developers to produce affordable housing, particularly in communities of color that have grown to view large real estate companies as agents of gentrification and displacement.

Local activists have railed against the housing part of the armory development plan. While the proposal calls for 165 below-market rentals, only 67 of those apartments, or 20 percent, would be affordable to a typical family in Crown Heights. With the median household income in the neighborhood hovering around $41,425, the city would have to kick in a lot more money for the entire development to rent at rates that locals could afford. And the mayor’s office has refused to subsidize the armory’s housing, despite nearly two years of emotionally charged public meetings and protests.

Housing organizers charge that the city’s deal with BFC is a “gentrification plan.” It will bring housing that, by and large, only newcomers can afford. (A BFC spokesman said the company declined to comment. But the developer has said before that it is building as much affordable housing as it can without city subsidy.)

“On public land, we should ensure that we are building 100 percent affordable,” said Jonathan Westin, the director of activist group New York Communities for Change (NYCC). “The city and the administration are following a different philosophy, one that’s more of a gentrification plan, that hands over luxury housing units to developers like BFC.”

Emily Goldstein, a campaign organizer at the Association for Neighborhood Housing and Development, argued that building mostly middle-income housing on a large, publicly owned site would be a “missed opportunity.”

“There’s only so much public land in the city,” she said. “And public land creates opportunity to try creative solutions, to do deep affordability that a private developer may not want to try. [The city] can only do so much cajoling [with private owners]. They have control over public land. Then why not do the things that are hardest to do?”

Local activists have also lobbied for the city to transfer the land into a community land trust, a move that would help maintain long-term affordability through legal restrictions and ensure that a group of local stakeholders control the property. Ideally, the property would be developed and operated by a nonprofit developer, Goldstein said.

A city spokesman shot back that affordable housing groups shouldn’t keep trying to shut down mixed-income projects in favor of an entirely subsidized generation of housing. The mayor’s original housing plan has budgeted for roughly 12,000 new units of affordable housing—out of a projected 80,000 total—to be created through the Mandatory Inclusionary Housing policy. (The mayor’s office didn’t provide estimates for the number of inclusionary units expected under the expanded 300,000-unit plan, which expects to produce 40,000 additional new construction apartments by 2026.) The city considers inclusionary units “free” because it does not subsidize them, but those developers often seek other kinds of state and federal tax incentives, as well as city ones like 421a (since named Affordable New York Housing Program).

However, the rest of the armory plan will bring benefits that southern Crown Heights has long craved. The armory’s soaring, arched drill hall will become a 68,000-square-foot public recreation center with a pool, basketball courts, turf fields and community space for meetings. The head house along Bedford Avenue, which was once classrooms, offices and a firing range, will be renovated into 40,700 square feet of office space for nonprofits and community groups. BFC plans to preserve the historic brick exterior of the head house, while demolishing the former stables on President Street to make way for new condos.

The armory has also sparked heated electoral debates. Councilwoman Laurie Cumbo, who has represented the area since 2014, has been pushing for city funding to make the whole project affordable to families earning 50 or 60 percent of the city’s Area Median Income, which works out to $48,960 for a family of three. Although she officially came out against the development in May, she waited a year and a half to take a strong position on the armory, leaving her vulnerable to criticism that she supported it. Cumbo recently defeated a tough primary challenger named Ede Fox, who built much of her campaign around accusing Cumbo of “flip-flopping” on the armory.

Ultimately, Cumbo will cast the deciding vote on whether the redevelopment of the armory lives or dies. BFC is seeking a rezoning in order to build a 13-story residential tower next to the armory, and Cumbo has the power to kill the project when it reaches the City Council for a vote in the last step of the public review process. The councilwoman wasn’t available to comment, but her spokeswoman said she still opposes the project and intends to vote it down.

In his formal recommendation issued in September, Brooklyn Borough President Eric Adams came out in favor of scrapping the condos and building 100 percent affordable housing on the site. He pushed for replacing the market-rate condos and rentals with high-income affordable units, which would likely go to families earning between $85,900 and $141,735 (100 to 165 percent AMI, based on a three-person household). The condos were supposed to pay for a third of the $31 million construction cost for the recreation center, and the market-rate rentals were expected to fund a portion of the facility’s operating costs. Slashing those units would create a significant funding gap, which could be closed by getting rid of the pool, the sports center’s most expensive piece, according to Adams. He also recommended setting aside 20 percent of the rentals to house the homeless, a move that could be funded by the city’s new Our Space program.

The Art Nouveau armory at 1555 Bedford Avenue was originally built in 1903 for the Troop C Cavalry unit, a National Guard outfit organized in 1895 to fight in the Spanish-American War. The National Guard used the building as a drill hall for decades, but in recent years, the property has been rented out mostly for film shoots and Hasidic weddings. The military left the facility in 2011, and the city took control of it in 2013.

Later that year, the New York City Economic Development Corporation issued a request for proposals for the 138,000-square-foot structure. The RFP didn’t mention housing at all. But it did require a project that will serve the community, generate cash flow for at least the next decade and preserve the character of the existing building.

A handful of developers submitted proposals, including Triangle Equities, Steiner NYC, RBH Group and a partnership between Jonathan Rose Companies and Poko Partners, according to documents obtained through a Freedom of Information Law request. All of the bids included housing and community space. But each team came armed with its own ideas for retail and commercial portions of the complex. Steiner pitched a Brooklyn outpost for the artsy, Berlin-based Michelberger Hotel with a performing arts space and greenhouse. RBH proposed a WeWork, an aeroponic (soilless) farm and an Eataly, as well as public gardens and a farmer’s market. Triangle floated a grocery store, a New York Sports Club and an Alamo Drafthouse Cinema.

However, the winning plan came from BFC Partners, Slate Property Group and then-Knicks player Carmelo Anthony’s Melo Enterprises. In March 2014, as part of the RFP process, BFC sent a letter to EDC outlining the future ownership structure of the armory development. BFC would own 50 percent of the complex, Slate would control 40.1 percent, and Melo Enterprises would own 9.9 percent.

In June 2015, the developers signed a contract, known in development-speak as a term sheet, with EDC. They agreed not to take any city subsidies or financing for the housing portion of the project, except in the form of tax-exempt bonds. The only municipal cash mentioned in the early documents released by EDC is $1 million dollars set aside from the Brooklyn borough president’s office, an amount originally earmarked for the armory by Marty Markowitz when he held the post. But to fund the construction of the recreation center, the developers intend to apply for roughly $6.5 million in state funding and $3 million in city discretionary funding, according to a financial document from BFC dated September 2016.

Without additional money from the city, BFC can only build 50 percent affordable housing. The market-rate rentals and condos are necessary to subsidize the below-market rentals and the recreation center, BFC’s John Valladares argued at a public meeting in February. Financial documents back that up: The condos, for example, are expected to net nearly $42 million. But after $38 million in development costs and $2.5 million in broker’s fees are subtracted from the equation, only $737,000 is left. Similarly, the rental building will generate roughly $8.2 million annually, but once operating costs, real estate taxes and debt service are subtracted, it will generate roughly $800,000 a year.

And now, BFC has less capital to draw on than when it first won the contract for the armory. Both of its original development partners dropped out of the project last year. In the spring of 2016, Slate got caught up in a scandal involving Rivington House, a Lower East Side nursing home it acquired just as the previous owner convinced the city to lift a deed restriction on the property. After de Blasio announced that he would take a “very hard look” at Slate’s involvement in the armory, the developer backed out of the project in August 2016.

At the same time, community activists sharply criticized Anthony for his financial stake in the armory in an open letter published by the New York Daily News. “This development is not good for Crown Heights, and it’s not good for Brooklyn,” wrote Bertha Lewis, the head of the Black Institute. “Your name should not be associated with such a terrible deal for New Yorkers…As it stands, the Bedford Armory development will further exacerbate the gentrification of Crown Heights.”

Anthony, who had planned to help fund the recreation center, jumped ship in September 2016. This March, BFC replaced its former equity partners by bringing in a nonprofit developer, the Local Community Development Corporation of Crown Heights.

Given that the project doesn’t have a large financial cushion, real estate experts said that the city cannot ask the developers to pour more money into construction or operations.

“When you want to do an affordable housing project with a [for-profit] developer, you have to see what the developer can stand,” said Stewart Sterk, the director of the Center for Real Estate Law & Policy at the Cardozo School of Law. “If you ask for too much, the developer can always do other things with its money. And if it won’t get a return on its investment, it will go elsewhere. The city is never in a good position to evaluate the developer’s risk in the project. The city knows that if it asks too much of a developer, the project will fold.”

Nevertheless, community groups continue to pressure the administration and city politicians into subsidizing the armory. Last week, protesters from New York Communities for Change and the Crown Heights Tenant Union pushed their way into a City Planning meeting about the armory plan.

As the City Planning Commission green-lighted the proposal, neighborhood City Council candidate Jabari Brisport and Joel Feingold, a founding member of the tenant union, were arrested and hauled away in handcuffs. Brisport and NYCC hosted another protest a few days later where they blocked Broadway in front of City Hall, demanding that Laurie Cumbo “Kill the deal, not tweak the deal.”