Now that the owners of Stuyvesant Town have defaulted on their $3 billion mortgage
, it's worth asking what happens next to all the overleveraged apartment buildings and see-through condo projects out there – the remnants of many urban developers' ambitious boom-era dreams. In a new article for The American Prospect magazine
, I look at one increasingly popular notion: the idea that these doomed projects could turn into the housing many cities really need -- the affordable kind.
New York City is doing exactly that, through something called the Housing Asset Renewal Program, or HARP. Announced last year as Mayor Bloomberg muscled his way into a third term as mayor, HARP gives developers cash subsidies of $50,000 to $75,000 per apartment on the condition that the would-be luxe apartments are turned into housing that's affordable for a middle-class budget. (This is New York City, of course, where "middle class" means income of up to $126,000 a year.)
Not surprisingly, many New Yorkers love the idea. Those with less than Bloomberg-sized budgets understand that it's insane that two out of every five households there spend more than half their income on housing.
Alas, it may be too good to be true.
Developers, it seems, would rather wait out the downturn than give up on their high-margin dreams. So far, not a single developer has reached a HARP deal with the city's housing agency. Industry vets say they expect condos with some market appeal – good location and construction quality, neither of which was a given in the recent development mania – to see their prices eventually adjust on their own to levels where smart buyers will snap them up. "There's going to be an acquisition price with or without the HARP money," one lender pointed out to me.
But when? That's the big question. Even as more and more homeowners deliberately go into default and cease to make mortgage payments
, by and large condo developers are holding out for as long as they can. While a lot of homeowners are making the reasonable decision that they're better off walking off with a damaged credit rating than continuing to shovel cash into a property worth less than the mortgage on it, for condo developers that same move would be a career-killer. And what's more, unlike a lot of homeowners who put little or no money down, developers usually have their own dollars in their deal.
Developers also have a pot of money called a reserve fund to draw on for stormy days like these, and most are far from spent. As reckless as construction lending got in the bubble, banks making the loans assumed higher interest rates than prevail now. As a result, a lot of condo projects are on reserve fund life support and will be for many months to come – while their builders pray for a market turnaround.
So, for advocates looking to restore some of the affordable housing lost to luxury developments over the past several years, or bargain hunters hoping to scoop up an affordable condo, you may have to wait a little longer.