acorn sweetheartdevelopment 3-16-06

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Sweetheart Development:

Gentrification and Resegregation

in Downtown Brooklyn

New York ACORN

March 16, 2006


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EXECUTIVE SUMMARY

Developer after developer is invading Downtown Brooklyn and the surrounding areas with plansfor luxury condominiums and apartments with few or no affordable units. Meanwhile, the Cityand its taxpayers subsidize these developers with hundreds of millions of dollars annually in421a and J-51 tax abatements, which exempt them and the affluent purchasers of their luxurycondos from property taxes for years.

The 87 new developments researched for this report contain 5,934 housing units. Only 201 units – 3% of the total – are affordable to moderate-income people, while only 266 – 4% of all newunits – can be afforded by low-income families. As people displaced from their neighborhoods

by gentrification struggle to find housing, the City siphons their tax dollars into the pockets ofthe wealthy developers and luxury housing shoppers responsible for their displacement.

New one-bedroom condos routinely cost between $400,000 and $500,000; two- and three-

bedroom units range from $600,000 to well over $1 million. According to a recent Real EstateBoard of New York study, the average apartment in DUMBO sold for $1,255,000 last year. Thecost of buying an apartment in Fort Greene rose 81.9 percent. Single and two-family home salesin Boerum Hill went up 54 percent in the last year, to an average of $1,293,000; in BrooklynHeights they rose 28 percent and now average $2,722,000. These developments obviously targethigh-income individuals, not the low- and moderate-income families whose taxes subsidizethem.

While rents and purchase prices for housing have risen dramatically, so have the averageincomes of residents, as affluent newcomers flood the area. The resulting economic and social

changes accentuate existing disparities in class and race. Metropolitan New York has the widestincome gap between rich and poor in the state which, in turn, leads the country in economicdisparity. Racial inequalities aggravate these figures, as white and Asian households earn*

significantly more than African American and Hispanic ones. † As a result, many long-time residents face displacement from their neighborhoods. Thisdisplacement, which a study prepared for PolicyLink and the Brookings Institution Center onUrban and Metropolitan Policy called “one of the defining components of gentrification, and . . .also by far the most serious consequence of gentrification,” purges neighborhoods botheconomically and ethnically: African American and Latino areas are by far the most likely to be

2 NY ACORN ! 2-4 Nevins St., 2 nd Fl. ! Brooklyn, NY 11217 ! 718-246-7900 ! www.acorn.org

“Pulling Apart in New York: An Analysis of Income Trends in New York State and New York City,” Fiscal Policy*Institute, January 2000.

“Health Disparities in New York City: A Report from the New York City Department of Health and mental†Hygiene,” Fund for Public Health in New York, Inc., 2004.


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affected, and over recent decades, the Hispanic population of Brooklyn has risen only‡

marginally, while the African American population has plunged dramatically. § This wave of development may gentrify the area entirely, complete with the displacement oflow- and moderate-income families no longer able to afford to stay. The key issues: Who will beable to afford to live in and around Downtown Brooklyn? And how can the City justify taxabatements for these luxury developments that are unaffordable for the overwhelming majorityof its residents?

ACORN holds that any developer seeking tax abatements should be required to make at least30% of new housing units affordable, and to tier this affordable housing for different incomelevels, ensuring that units are affordable, at 30% of household income, for all low- and moderate-income families.


“Dealing with Neighborhood Change: A Primer on Gentrification and Policy Choices,” Maureen Kennedy and‡Paul Leonard, The Brookings Institute Center on Urban and Metropolitan Policy and PolicyLink, April 2001.

“Community District Profiles,” New York City Department of City Planning, December 2004.§


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SWEETHEART DEALS IN BROOKLYN: FAILING PUBLIC POLICY

The City is using public dollars to subsidize the developers who are building this upscalehousing, gentrifying Downtown Brooklyn and the surrounding area, and displacing low- andmoderate-income families no longer able to afford the escalating rents and sale prices. Many, ifnot all, of the 87 developments described in this report are eligible for 421a or J-51 property taxabatements.

421a is a tax exemption for new construction. Under the program, developments anywhere inthe four outer boroughs, or above 110 th Street and below 14 th Street in Manhattan, can receive taxabatements for 15 years, or in some cases 25 years, for the increase in real estate taxes resultingfrom the value added to the property by their work. Projects that do not include newconstruction, but significantly rehabilitate a property, qualify for a similar 14-year abatementunder the City’s J-51 program. Neither of these subsidies from the City requires any developerin Brooklyn to provide affordable housing units.

A 2003 study by the Independent Budget Office found that from 1985 to 2002, 69,000 units in New York City were subsidized through the 421a program. Only 7 percent of these units – 4,905 – were affordable.

In 2005, New York City taxpayers gave $323 million dollars in subsidies to developers ofhousing throughout the City under the 421a property tax exemption program. Developers in**

the “Manhattan Exclusion Zone” – between 14 th and 110 th Streets – must provide at least someaffordable units in exchange for their tax breaks. But outside of the “Exclusion Zone,” in placeslike Downtown Brooklyn, developers receive this sizeable public subsidy for developingexclusively luxury housing. In these areas, the City is engaged in multi-million dollar giveawaysto create housing for the wealthy. Low- and moderate-income families, who overwhelminglyoccupy older buildings, continue to pay property taxes, directly in the case of homeowners or, fortenants, through the higher rents demanded by landlords to afford property taxes. Meanwhile,luxury housing developers and their affluent customers enjoy their 421a and J-51 exemptions,

given to them at the expense of low- and moderate-income families.


“Spotting Glut, Mayor Deflates Condo Cushion,” Matthew Schuerman, The New York Observer , March 6, 2006.**


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SIGNS OF GENTRIFICATION

Gentrification converts poor and working-class housing and neighborhoods to upscale residencesfor upper-middle- and upper-class households. It includes buying up older and sometimes vacantor run-down property in poor and working-class neighborhoods and constructing upper-middle-and upper-class condominiums, townhouses, single-family dwellings, and upscale lofts andapartments. The practice both replaces tenants who cannot afford a down payment or qualify fora home mortgage with more affluent people who can and eliminates the possibility of working-class families buying homes, as luxury condos replace all other purchasing options.

A study prepared for PolicyLink and the Brookings Institution Center on Urban and MetropolitanPolicy noted that gentrification “can impose great costs on certain individual families and

businesses, often those least able to afford them.” These costs often entail “[d]isplacement oflow-income residents,” which the report called “one of the defining components ofgentrification, and . . . also by far the most serious consequence of gentrification.” Disparities ofclass, race and national origin channel the effects of displacement: “Renters are clearly mostvulnerable to displacement, especially when renters lack legal immigration status or do not speakEnglish.” Such economic segregation disproportionately affects African Americans andHispanics, as “in most (but not all) gentrifying neighborhoods examined in the case studies,minority households (African American as well as Latino) have predominated in recent decades,and some argue that this residential segregation occurs with the tacit support of public and

private sector institutions and traditions.” †† Existing economic and ethnic disparities in New York City aggravate these trends. The 2000Census found that New York State has the largest income gap between rich and poor of any state

in the country, while the New York City Primary Metropolitan Statistical Area leads the state ininequality, with 54.5% of income flowing to the richest fifth of families, only 13.4% getting to


“Dealing with Neighborhood Change: A Primer on Gentrification and Policy Choices,” Maureen Kennedy and††Paul Leonard, The Brookings Institute Center on Urban and Metropolitan Policy and PolicyLink, April 2001.


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the middle fifth, and a meager 2.7% making its way to the poorest fifth. The poorer families‡‡

are more likely to be African American or Hispanic, as the same Census showed that only 30%of African American families and 26% of Hispanic families earned more than $50,000, while42% of Asian families and 50% of white ones did. §§ This economic inequality clearly shapes the ethnic composition of the area. Between the 1990and 2000 Census, the Hispanic population of Community District 2, roughly equivalent toDowntown Brooklyn, Fort Greene, Brooklyn Heights, and Boerum Hill, increased by only 2%,while the general population rose 4%. Simultaneously, the white, non-Hispanic population rose12%, and the Asian and Pacific Islander population leapt 66%, even as the African American

population dropped a staggering 17.2%. ***

In addition to these demographic shifts, there are multiple indicators of gentrification inDowntown Brooklyn and surrounding neighborhoods. These include:

• The high percentage of for-sale units being built and marketed in and around DowntownBrooklyn. In 2002, in sub-borough area 202 (roughly equivalent to DowntownBrooklyn), the median owner household income was $68,000 while the median renterhousehold income was $33,000. In sub-borough area 208 (including Prospect Heights),the median household income was $50,600 for owners and $24,000 for renters. †††

Clearly, the condominium, townhouse, and loft developments in and around DowntownBrooklyn are intended for high-income owners, not low- and moderate-income families.

• The increase of median household income in sub-borough area 202 from $32,292 in 1999to $41,000 in 2002 – a 27 percent increase. It rose from $23,871 to $26,724 in sub-

borough area 208 during the same time period – a 12 percent increase. Median

household income in New York City as a whole increased by a considerably smaller percentage, especially as compared to sub-borough area 202 – from $35,552 in 1999 to$39,000 in 2002, or just fewer than 10 percent. ‡‡‡

• The rise of median monthly rents in sub-borough area 202 from $475 in 1990 to $736 in2002, a 55 percent increase. In sub-borough area 208, the median monthly rent went


“Pulling Apart in New York: An Analysis of Income Trends in New York State and New York City,” Fiscal Policy‡‡Institute, January 2000.

“Health Disparities in New York City: A Report from the New York City Department of Health and mental§§Hygiene,” Fund for Public Health in New York, Inc., 2004.

“Community District Profiles,” New York City Department of City Planning, December 2004.***

Figures are from the Furman Center for Real Estate and Urban Policy, State of New York City’s Housing and††† Neighborhoods 2004.

All income figures are adjusted for inflation.‡‡‡


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from $425 in 1990 to $600 in 2002, a 41 percent increase. City-wide, median monthlyrents increased by approximately 12 percent from 1990 to 2002. §§§

• The increase of repeat sale prices for 2-4 family homes in Community District 2 (again,roughly the area of Downtown Brooklyn, Fort Greene, Brooklyn Heights, and BoerumHill) by 180% between 1997 and 2003. In Community District 8 (including ProspectHeights) repeat sale prices increased by the same percentage between 1994 and 2003. **

These price increases are almost twice as high as the 150 percent increase that occurredCity-wide between 1986 and 2003. Condo and co-op per square foot prices have nowreached $700 in parts of Prospect Heights and over $1,000 in some parts of DowntownBrooklyn. ***

Several factors encourage gentrification in and around Downtown Brooklyn and indicate itsfuture escalation. The real-estate market offers considerable demand for the high-end market-rate condos being developed and sold. Downtown Brooklyn’s proximity to Manhattan attractsaffluent buyers hoping to find better deals on real estate in an outer borough convenient toManhattan.Many soft sites exist in and around Downtown Brooklyn. Some of these, like car washes, auto

body shops, and laundromats with parking lots, attract developers because acquisition costsremain relatively low, while allowable density or floor area ratios are quite high. One-storycommercial buildings (again, many with parking lots) and gas stations often encourageresidential development because of commercial/residential zoning and the density they mayallow. This, of course, is part and parcel of gentrification wherever it occurs. After residential

property becomes the property with the highest value, everything becomes a residence.

A number of vacant lots have led to the appearance of more and more small, in-fill condominiumdevelopments.

Upzoning, some of it the result of the Downtown Brooklyn Plan passed in 2004, has alsoencouraged large-scale/high-rise condominium development.

Without any public policy in place to control these sources of gentrification and the high-enddevelopment they encourage, the area in and around Downtown Brooklyn will succumb to thenext generation of gentrification.


Figures are from the Furman Center for Real Estate and Urban Policy, State of New York City’s Housing and §§§ Neighborhoods 2002 and State of New York City’s Housing and Neighborhoods 2004 .

All income and resale figures from the Furman Center for Real Estate and Urban Policy, State of New York City’s** Housing and Neighborhoods 2004.

Cited in “Arena Nabe is Jumpin,” Lore Crogham, New York Daily News , January 26, 2006.***


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AREA DEVELOPMENTS

To document the gentrification overwhelming the area and the accompanying lack of affordablehousing, ACORN has researched 87 developments in Downtown Brooklyn and adjacentneighborhoods. This list results from an exhaustive investigation, but cannot be considered acomplete inventory of all recent and planned developments in the area. Indeed, developmentsappear so rapidly and regularly that it is virtually impossible to monitor them. Anycomprehensive analysis of Downtown Brooklyn development is rendered even more difficult by

the changing and fluid plans of developers.

The 87 developments included in Appendix A. are those that ACORN has learned of and beenable to research, some in more detail than others. All were apparently planned, constructed ormarketed, in whole or part, during 2005, although this wave of development began much earlier:In 1998, David Walentas converted DUMBO’s Clock Tower Building into luxury lofts, and by



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2000, Bruce and Stuart Eichner’s new high-rise at 182 Montague Street offered 192 rental unitsstarting at $2,100. The new developments listed in Appendix A. begin in DUMBO and continueout through Carroll Gardens and Park Slope. But new development and gentrification extendinto Brooklyn far beyond the neighborhoods researched for this report.

The information included in the description of each development comes from a variety ofsources, including the Automated City Register Information System (ACRIS) of the New YorkCity Department of Finance, the Brooklyn Borough President’s Office, Brownstoner , theBuildings Information System of the New York City Department of Buildings, Crain’s New York

Business , developer and marketer Web sites, Emporis , Laborers’ International Union Local 79,the New York City Housing Development Corporation, the Pratt Center for CommunityDevelopment, The Real Deal , Wired New York , and various media accounts. When these sourceshave differed, we have favored information from government agencies.

The small number of affordable units (267) in these 87 developments indicates that gentrificationdefines current development in Downtown Brooklyn and nearby areas. Not including thenumber of market-rate and affordable units in those projects where plans have not been finalizedor approved, or where ACORN has been unable to confirm available numbers, the followingemerges:

• 78 of the developments with established numbers have no affordable units.

• The developments with established numbers contain a total of 6,118 units. 93% of theunits are market-rate. Of the 7% of affordable units, 3% may be marketed to moderate-income renters earning as much as $141,600 for a family of four, while only 4% are

affordable to low-income families who earn less than $35,400 for a family of the samesize.

• 85% of the units in developments with established numbers are for sale. These figurescontrast markedly with the 2005 New York City homeownership rate of 33% recentlyreported in the New York City Department of Housing Preservation and Development’sHousing and Vacancy survey.

COMMUNITY BENEFITS AGREEMENT

One notable exception to these trends in Downtown Brooklyn development, the Forest CityRatner Companies’ Atlantic Yards Project, will lie on a 22-acre site, bordered for the most part byFlatbush, Atlantic and Vanderbilt Avenues and Dean Street. It will include a professional sportsarena, a hotel, an office complex and residential mid-and high-rises containing 4,500 units ofnew rental housing.

Forest City has entered into a Community Benefits Agreement (CBA) with ACORN and sevenother community groups that commits the developer to making 50% of the rental units – 2,250



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units – affordable. Developers and government agencies typically define “affordable housing”using broad income brackets that encourage the development of housing affordable only to thehighest-earning members of each bracket, who may earn as much as $141,600 for a family offour. But the CBA tiers Atlantic Yards’ affordable housing to much smaller income brackets,ensuring that units will be affordable to every low- and moderate-income family : ****

The remaining 450 apartments, 20% of the affordable units, could include people making101-160% of the AMI, depending on the development’s financing negotiations and fundingcommitments. The project will also include between 600 and 1,000 affordable condos.

With 2,250 total units of affordable housing, including 1,350 affordable to low-income families,

Atlantic Yards will far exceed both the 467 units of affordable housing of the other 87developments combined and the 201 of these units affordable to low-income families. The project is currently undergoing environmental impact review.

RELIGIOUS DEVELOPMENT

The Watchtower Bible and Tract Society of New York, the organization of Jehovah’s Witnesses, plans to build Watchtower Residence Halls I and II at 85 Jay Street. Part of an 800,000-square-


Figures in the chart reflect the smaller AMI during the CBA’s negotiation.****


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foot complex including a dining hall, a three-story auditorium and an 1,100-car undergroundgarage, these four towers, rising as high as 20 stories, will house 1,600 employees in 888 newunits, nearly doubling DUMBO’s current population. Construction is expected to begin in 2006.Due to the unique nature of this development and the unusual manner in which its units areoffered, as a benefit of employment, ACORN has excluded it from the calculations in this report.

RECOMMENDATIONS

The City’s practice of subsidizing developers and getting no affordable housing in return mustend. To combat the gentrification of Downtown Brooklyn and nearby communities, and to

prevent the displacement of its residents so that the area remains a vibrant and diversecommunity where households of all income and racial and ethnic groups can afford to live,ACORN recommends the following policy changes:

1. The 421a “Exclusion Zone” should be extended to Downtown, DUMBO, ProspectHeights and other neighborhoods in Central Brooklyn, as it recently was in the rezoningof Greenpoint-Williamsburg. This would mean developers could not receive a 421a

property tax exemption unless they include affordable units.

2. In exchange for 421a and J-51 tax exemptions, developers should be required to provideat least 30 percent affordable units.

3. All affordable units in all developments should be income-tiered so that the units aretargeted to and affordable for all low- and moderate-income families, at 30 percent ofhousehold income.

4. Any developer who receives a tax exemption should be required to enter into aCommunity Benefits Agreement (CBA) with relevant community organizations, coveringlabor participation and training, minority contracting, etc., as well as affordable housing.



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APPENDIX A. DEVELOPMENTS



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APPENDIX B. MAP



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ACORN, the Association of Community Organizations for Reform Now, is the nation'slargest community organization of low- and moderate-income families, working togetherfor social justice and stronger communities. Since 1970, ACORN has grown to more than175,000 member families, organized in 850 neighborhood chapters in 75 cities across theU.S. and in cities in Canada, the Dominican Republic and Peru.

ACORN's accomplishments include successful campaigns for better housing, schools,neighborhood safety, health care, job conditions, and more.

ACORN members participate in local meetings and actively work on campaigns, electleadership from the neighborhood level up, and pay the organization's core expensesthrough membership dues and grassroots fundraisers.

ACORN has constantly challenged the traditional notions of what a communityorganization is, and its family of organizations includes two radio stations, a voterregistration network, a housing corporation, and several publications.



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Researched and prepared by Joseph Catron, Doug Timmer and Ann Sullivan. Mapdesigned by Asher Ross. © 2006 by New York ACORN.

acorn sweetheartdevelopment 3-16-06

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