Long-Ago Land Deal Tangles “The Cage”
by Thomas MacMillan | Jan 8, 2014 4:37 pm
Posted to: Housing, West River
In his quest to make Sherman Avenue into a “destination” neighborhood, developer Shmully Hecht wants to “upscale” a housing complex once branded “The Cage.” But first he has to convince the city to abandon a decades-old claim on the property.
“The Cage,” now known as Sherman Gardens, is an apartment complex at 76 Sherman Ave. (pictured at top). Developer Hecht (pictured at left) is poised to add the property to his growing New Haven holdings by buying it out of foreclosure.
Hecht, who runs Pike International, said he wants to invest hundreds of thousands of dollars into building improvements, to turn the building into “upscale” but affordable housing for working people. For the past several years, Pike has been steadily expanding, buying and renovating properties across town.
As he was about to close the deal on 76 Sherman, Hecht pulled the title to the property and noticed “something funny.”
The property, it turns out, is still subject to a 40-page city government land disposition agreement (LDA) dating from 1970. The agreement states, among other things, that the city has the right of first refusal in the event of a sale of the property, that housing must be for “medium and low-income families,” and that the now-defunct Redevelopment Agency (some of whose functions are now covered by city government’s Livable City Initiative, aka LCI) can purchase the 22-unit property for $325 per unit.
Hecht said he doesn’t want to buy the property with the “outdated and arcane” agreement attached to it. Should he ever want to sell it, he could lose his investment if the city steps in and buys it from him for a mere $7,150, he noted.
The property owner, Deutsche Bank, hired attorney Jim Segaloff to try to nullify the LDA. Segaloff said he determined that the only way out of the agreement is through the Board of Alders. On Tuesday, he officially communicated a request to have alders “terminate” the LDA.
That request is now headed to the Board of Alders’ Community Development Committee, where it will be subject to a public hearing ahead of a vote by the full board.
The “prudent thing,” Hecht argued, would be to let his company buy the property so that he can renovate the building and continue transforming Sherman Avenue into a neighborhood of choice for students, professors, and hospital staff.
LCI chief Erik Johnson said he hasn’t yet looked into the situation at 76 Sherman or examined the LDA. He said LCI will weigh in later on the proposed deal. “If it’s something that makes sense, then city will likely support it.”
City Corporation Counsel Victor Bolden said he also plans to examine the matter. He said he doesn’t know if or how many other decades-old LDAs might be out there, still attached to properties in the city.
The land disposition agreement was signed on July 22, 1970, between the city, the New Haven Redevelopment Agency and Sherman & Scranton Housing Inc.
Attorney Segaloff said LDAs like the one concerning 76 Sherman are not uncommon. What makes this one special—and problematic—is that it never went away. The building has had several owners since the LDA’s signing. At times it has attracted organized protests from the neighborhood for its rundown condition and for attracting crime. (Hence the “Cage” name.)
Usually, an LDA lays out certain construction requirements to be met by a developer, Segaloff said. Once those requirements are met, and the city issues a Certificate of Completion—as it did in 1972—the LDA no longer pertains. “That generally is the end of it,” Segaloff said.
That wasn’t the end of it, in this case. Which means that if Hecht bought the building, he would still have to abide by the LDA and all of its conditions.
One of those conditions, the city’s right of first refusal, creates a problem, Segaloff said. “The city is not in the position of buying these buildings,” Segaloff said. “Maybe somehow it made sense in 1970, but it doesn’t make sense in 2013.”
And it doesn’t make sense that the city would be able to buy the property for $325 per unit, a total price of $7,150, an “absurd price,” Segaloff argued.
As for the requirement that the building be low and middle-income housing, “there’s nothing wrong with that, but it’s very much outdated,” Segaloff said.
“What makes it hard is a buyer coming in fresh wants to be able to buy a building just like any other building,” Segaloff said. “Who would ever think that if you were going to develop some property and spend hundreds of thousands of dollars to do it right, that the city would be able to turn around and say, ‘Oh, by the way, now you have to sell it back to us for $350 per unit’?”
“What I’m not clear on is why prior owners never had an issue with it,” Segaloff said. Somehow, the property has changed hands a number of times since 1970 without the LDA ever before becoming a problem. “It’s something that people sometimes overlook,” he said.
Sherman Gardens sits right next to a Hecht-owned building at 80 Sherman Ave. (pictured). Pike, his real estate company, owns a number of properties on the street. “We’re trying to clean up that whole neighborhood,” Hecht said.
Sherman Avenue has historic architecture and is perfectly positioned between the two hospitals, Hecht said. It should be the street people working at the hospitals want to live on, instead of commuting in from elsewhere, he said.
“Why build new housing downtown when we can take neighborhoods like these and upgrade them?” Hecht said. “Sherman is a great on-the-edges kind of block.”
Hecht said he’d like Sherman Avenue to follow the path of Chapel West. “We believe Chapel West is the Harlem of New Haven,” he said. That is, it was once a neighborhood “upper class people didn’t want to walk in.” But now it’s “wonderfully diverse,” thriving area.
“That’s what we think of Sherman Avenue,” Hecht said. “It should be upscaled, just enough to allow working class people to live there, without pushing out the good people.”
Hecht said he would set rents at 76 Sherman in the “mid-teens per month for a four-bedroom.” That’s half what you would pay downtown,” Hecht said.
Hecht said if takes control of the property, he won’t remove the current tenants, as long as they’re paying their rent: “No one’s going to be displaced. The people that live there and pay rent and are productive citizens are going to stay there.”
One of the current tenants, Angel Dejesus (pictured), said he plans to stay. However, he hasn’t paid rent in years, he said. He has had a deal under the last couple of owners: work as the complex’s maintenance man in exchange for free rent. Dejesus, who’s 44, said he hopes to fill the same role for Hecht.
Dejesus said the property has been well-maintained (by him) for the nine years he’s lived there. The complex hasn’t suffered from landlord neglect, he claimed. The other tenants are sometimes loud, but that’s the worst of it, he said.
Dejesus said the 22-unit complex is a mix of Section 8 publicly subsidized housing and market-rate apartments. The development has 12 four-bedroom apartments, six two-bedroom apartments, and four one-bedroom units, he said. Hecht said six of the apartments are currently vacant.
Dejesus said he has occasionally found drug paraphernalia in the parking lot, from people coming in from outside to shoot up in the parking lot, he said. He said he hopes Hecht puts a gate across the driveway, to keep out any troublemakers.
“I want to kick out the bad people,” he said. “I want a safe area.”
Dejesus said he thinks Hecht has done a good job with his other properties on Sherman Avenue.
Next door, “at 80 Sherman we have a nice mix,” said Hecht. “It’s a nice quiet building.”
Hecht said the city should redevelop its current residential buildings around town, and be wary about adding a huge number of new apartments downtown.
“Whilst we’ve approved hundreds of new luxury apartments in downtown New Haven, we’re ignoring the potential of existing housing stock,” he said.
The crash of the housing market around 2008 was caused in large part by oversupply, Hecht cautioned. While New Haven currently has strong housing market, the city needs to keep an eye on the long term implications of bid new construction plans.
“I don’t think the city should be rushing to approve so many new housing projects when so many existing buildings are untapped,” he said. “You could build new towers downtown, but you’re still going to have two cities”: downtown, and the rest of the city.
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Seems self-serving for Hecht to discourage housing downtown. We’re nowhere near a bubble. New Haven needs more housing fast, in downtown and elsewhere.
Also, who is going to want to live in “upscale” housing in this neighborhood? It’s not a good area. I could see the edges of downtown and other good neighborhoods starting to expand and including housing like this, but this is in the heart of a pretty problematic area. What working professional with money will want to live there?
If the property is in foreclosure then presumably the owners are not paying tax on the property. The city ought to exercise it’s right to purchase the property for $7K, pay off the real estate taxes, and then sell the property to the highest bidder.
Shmully is a great guy BUT he is badly mistaken if he thinks that downtown development negatively impacts or takes away from the potential of neighborhoods. If anything, adding another 20,000 downtown housing units (typically for singles and smaller families) would only make the neighborhoods more valuable, because it would bring more jobs, services, and people into close walkable proximity, and boost city tax revenue to help pay for other investments.
Maybe he is just saying there should be more infrastructure investment in neighborhoods, like nice lighting, trees, pedestrian and bike routes, and housing grants. On that point he is correct. It definitely isn’t a zero sum game though. New Haven is a very compact place. More activity downtown, or in Westville, would translate into more activity for these areas.
Styl, maybe you aren’t familiar with who lives in this area but lots of working people with good jobs want to live here and many more already do. Many doctors and nurses already live in the area, as well as Yale staff who generally earn a living wage. Just driving through doesn’t tell you that. Demand will increase once there are more high-quality housing options available, and as the Yale shuttle continues to extend its service to Edgewood and Westville as East Rock becomes too costly for its students and staff.
(1) The City (meaning you and I, as taxpayers) must have provided some benefit to the original developer in order for the restrictions (the right of first refusal, the affordability requirement and the option to purchase for $7K) to have been imposed. At a minimum, the City provided the land. Perhaps it also provided financing.
(2) Given that, there’s no reason that the City/taxpayers should release the restrictions without being compensated. Hecht will have to pay any back taxes regardless so paying back taxes isn’t sufficient compensation to taxpayers. He should also have to pay for the City’s release of the right of first refusal, the affordability restriction, and the option.
(3) If he’s not wiling to pay for the City’s release of the restrictions, let the City exercise the option and then sell the building to the highest bidder who is either willing to meet the affordability requirements or pay into a fund supporting moderate income housing.
It is possible that the agreement is so old or so odd that a judge wouldn’t enforce it. But if it is enforceable, shouldn’t the city buy the property for $7,150 and then sell it to a private developer, no strings attached? Hecht would be a fine eventual owner, his firm does a great job all across town. If that is too complicated in the face of foreclosure, because of legal or financial issues, then the city should just drop the LDA, as it is important to get the building in good hands.
On the other issues, I think Hecht is correct that he can charge 1/2 of downtown rents to nurses, interns and so forth who want to live close to the hospitals. He is wrong that it is the city’s job to worry about a housing bubble, though. Private developers bear the risk of that, which is fine. Private developers can best figure out where it is that folks want to live and how much tenants are willing to pay. There will be an equilibrium with higher rents downtown and lower rents on the edges.