How tenants can buy new co-op apartments in Chelsea for $2,500

Current state of 201-207 7th Avenue and display of new real estate (Nisha
Shetty for The Real Deal, Amie Gross Architects, Getty)

A co-op in Chelsea for $2,500 seems like a pipe dream, especially when you compare the architect’s dreamy watercolor illustration of 201-207 7th Avenue with what’s there now.

But in 2024, life will imitate art. The Chelsea property, which has been neglected for more than four decades, was unveiled last week as the site for a very unusual affordable home ownership project.

The four ailing buildings along Seventh Avenue, including 14 rental apartments, will be demolished and replaced by a nine-story building – designed by Amie Gross Architects – containing 26 co-op apartments and shops on the ground floor.

Five tenants have moved temporarily and are following a course in co-op home ownership. After the project is complete, they will buy their new units for $2,500 (or $250 if their income is low) — an incredible bargain in one of the city’s most expensive neighborhoods. The remaining 21 cooperative units will be made available through the housing lottery to households earning 130 percent of the region’s average income.

“Our family is excited to come home as homeowners to our own community,” Keyla Espinal, one of the five original tenants of the Chelsea buildings, said in a press release from the Adams administration. “It’s a win, not just for the residents of the buildings, but for the entire neighbourhood, which will see this corner of Chelsea turn into something we can all be proud of for years to come.”

Pamela Wolff, a conservator, was also grateful, though she was one of the first residents of the neighborhood to advocate for the renovation of the four buildings. “I pray for success for all involved,” she said at the groundbreaking.

Emotions were understandably high: The effort dates back 44 years. The previous landlord stopped paying property taxes — a common decision in the 1970s and 1980s when many buildings were generating less revenue than they cost to run — and the city seized them.

Wolff attributes the long struggle largely to ‘inertia and bureaucracy’.

“The tenants couldn’t keep the deal going,” she told The Real Deal. “No one was willing to take over the situation.”

The solution was a co-op conversion, but it required a lot of serendipity and a lot of elements to come together.

The project is funded through a program of the City Department for Housing Conservation and Development. The Affordable Neighborhood Cooperative Program selects developers to renovate deteriorating city-owned multi-family homes to create affordable cooperatives for low- and middle-income households.

The majority of current tenants must support the remodel, have a financially viable plan, be willing to take ownership and participate in training.

In a number of years, substantial investments in financial and human capital will be required from various parties, which is a time-consuming process.

Banks must be willing to lend – with regulatory agreements and deed restrictions – and lenders should be familiar with the program model. Complicating matters is that the banking and credit landscape has deteriorated since the pandemic. Recent changes to rental laws have also led to a tougher borrowing environment, along with concerns about inherited debt associated with any necessary renovations.

Getting financial partners on board also takes time and finesse. They need to be sure that their investment does not involve major risks. They also need to be confident that tenants can manage the building over the long term.

And crucially, landlords must be willing to sell the property at an affordable price. In this case, it was possible because the city owned the building—a rarity since decades ago, when owners often left their dilapidated buildings instead of paying the back taxes.

“Successfully converting condos into homeowner co-ops requires a huge investment and years of dedication from residents, the city and partners,” said a HPD spokesperson.

Neighborhood Restore is one such partner. It works with the agency by facilitating the transition of properties in physical and financial need to qualified new owners for stabilization.

Another example is Asian Americans for Equality, the developer of the project. It has built or preserved more than 1,200 units in the city. AAFE completed its first Affordable Neighborhood Cooperative Program project in 2017, at 244 Elizabeth Street in Manhattan, creating 19 affordable cooperative apartments. In addition to the Chelsea project, the organization is transforming three buildings in the East Village, creating 44 homeownership opportunities.

But what made this project particularly complex was that it required demolition and land construction, which entailed significant financial and personnel commitment over several years.

Thomas Yu, the organization’s executive director, said it involved “often acting as a social worker” to communicate with and temporarily relocate tenants, pay architects and engineers, and serve as a financial guarantor for the project – “a great burden on any nonprofit.”

Substantial grants were also needed to finance the Chelsea project. Development costs of $25.7 million include HPD grants in excess of $16 million; a construction loan from a charity, Enterprise Community Partners, in partnership with another mission-driven nonprofit, the Low Income Investment Fund, of approximately $8.2 million; a $1 million deferred developer fee and developer equity and reserves of approximately $414,000. Further financing will come from the sales proceeds of the 21 vacant cooperatives (but not much, given the low prices). The Manhattan borough president also threw in money.

The city provided the property free of charge. “It would not be feasible to create an affordable home ownership project, especially in neighborhoods like Chelsea where housing costs are particularly high, if land acquisition were required,” Yu said.

Enterprise’s construction loan was set at 5.5 percent below market price and has a 30-month term to coincide with construction, according to Theresa Cassano, the organization’s senior loan officer.

Enterprise, a community development financial institution and longtime partner of Asian Americans for Equality, has approximately $50 million a year of lending in the city — which isn’t limited to affordable housing. That doesn’t go far in New York City’s development, so it has to be selective in choosing projects, often pooling its own resources with public and private sources. Enterprise is rarely the sole lender on a development.

“There is a very limited pool of lenders for these types of deals,” Cassano told TRD. “They tend to have higher perceived risks and they are very complicated trades. What made us feel comfortable here was having a really trusted community partner and lots of grant support for the project. ”

At the closing of the construction loan last month, 201-207 7th Avenue was transferred to Restoring Communities HDFC construction. The end product will be owned and managed by the residents.

Demolition begins this month. Construction is expected to start early next year and will take two years.

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