HUD Clips Starrett Buyer

Updated from 1:35 a.m. EST

At a press conference Friday morning, Housing and Urban Development Secretary Alphonso Jackson blocked the $1.3 billion sale of Starrett City in Brooklyn, N.Y, to Clipper Equity LLC, a private investor group. Jackson had said earlier that he had not completely shut the door on a sale, demanding more information about financing and Clipper's plans to maintain affordability in the complex; it's clear now the deal is dead.

Although those particular questions prompted Jackson's decision, it is clear that concerns about the buyer's management capabilities and its attitudes toward some of New York's most vulnerable tenants were also at issue. As the city's overall housing stock for its working-class population faces increasing market pressures, officials seem willing to draw a line in the sand at Starrett City, and even if Clipper succeeds it faces stiff financial challenges.

Built in the mid-1970s, Starrett, with just under 6,000 units in 46 buildings, is the nation's largest federally subsidized housing development, and it is being sold by the investment group that took it over in the early 1990s, which is a complicated general partnership structure led by investor Disque Dean, who also was a lead in Corporate Property Investors, which was the entity that sold the General Motors Building to Donald Trump and Conseco Insurance in the late 1990s.

Well over 90% of the units are subsidized in some form: Some 3,600 are low-income subsidies such as Section 8, and the remainder are for moderate-income or working-poor families. Almost all the subsidized units are protected, meaning a new owner will not be able to churn tenants to try to create market-rate housing.

What concerns Jackson, as well as New York state and city officials, is the spotty record of Clipper principal David Bistricer, who has been known to operate apartment complexes with many hundreds of violations. Although Clipper has cured thousands of violations at Flatbush Gardens, which it acquired 18 months ago, many new violations have reportedly been created. It should be noted that a small group of tenants there has written a letter to authorities in support of their landlord. Bistricer has also been barred by New York state's attorney general from converting buildings to co-ops and condos. However, Bistricer was given clearance to convert a Brooklyn office building last year, indicating that the prohibition may be under review.