Paul Bass Photo
Paul Bass Photo
Harp: They should be making money by now.
Mayoral candidate Toni Harp questioned a developer’s argument that it needs a $10 million-plus bailout from the city to keep the Ninth Square project alive, while two of her opponents expressed support for spending some new money to preserve affordable housing there.
Harp and fellow Democratic mayoral candidates Henry Fernandez and Matthew Nemerson all said they’d like to know more details about ongoing financial negotiations, when asked how they would handle a new development dilemma that faces City Hall: How to respond to a request by a request by a private developer — a partnership of McCormack Baron Salazar and Related Companies — for a multimillion dollar bailout of its Ninth Square project.
Nemerson and Fernandez said New Haven needs to preserve a lively downtown neighborhood that has lots of low-income housing mixed in with market-rate apartments and stores and restaurants and galleries. Without the details, they say, they don’t know if they’d deal with the current developer or seek to work with a new one, but they said they’re ready to support in concept the idea of allocating more public money to keep the project viable.
“The developer doesn’t matter. What matters is that we preserve housing for working families in a neighborhood that has been stable for decades now. We can’t lose that,” Fernandez said.
Harp sharply questioned the idea that developer needs more government help, especially since it already benefits from what she described as generous federal Section 8 subsidies for low-income renters..
“I want to see what went wrong,” she said. We already paid them a lot of benefits. Why aren’t they making money? Their original projections are that they would.”
In the Ninth Square the city used public money 15 years ago to help the developer fix up historic but neglected three- and four-story brick buildings and construct some new brick ones throughout the district. The Ninth Square lies southeast of the Green and is bordered by Chapel, State, George, and Church Streets. The developer created 335 new apartments, with a mix of low-income and middle-class renters, plus 49,000 square feet of stores and restaurants and galleries. That was the start of a broader rebirth of downtown into a place where people live and hang out at night.
Fifteen years later, the developer has come back to ask its major lenders — the Connecticut Housing Finance Authority (CHFA), New Haven city government, and Yale — for help. The project is underwater, unable to generate enough money to pay off big debts and make needed repairs, the developer claimed in an April memo. The memorandum asks all the project’s lenders to refinance a total of $86 million under a new entity created by floating a new set of state tax credits for the project. It asks the city to forgive $9.9 million in unpaid interest and obtain another 15 years worth of tax breaks — allowing it to keep paying $750,000 a year in taxes rather than its full $1.218 million bill. Click here to read a previous article laying out the issue in depth.
If City Hall says yes to some form of the developer’s bailout request, it faces a hard sell in seeking approval from the Board of Aldermen in tough budget times. A full 82 percent of votes cast in a “TrueVote” readers poll in the Independent urged the city to say no to the request and “let the market find the solution.” And St. Louis-based McCormack Baron is one-third owned by the global investment firm Goldman Sachs, not exactly a popular recipient for public bailouts these days.
On the other hand, 57 percent of Ninth Square’s apartments are occupied by low-income renters — and the apartments blend in with a vibrant, attractive district that has sparked other development in nearby stretches of downtown. Policymakers worry about sacrificing that project by allowing the developers to fail. (Technically, a separate tax-credit partnership owns the Ninth Square properties; the developer is the controlling partner in that partnership.)
Nemerson (far left) and Fernandez (fourth from left) at Tuesday night’s debate.
The Independent asked six Democratic candidates participating in a mayoral debate Monday night what they would do if they were in Mayor John DeStefano’s position right now and dealing with the developer’s request. Four said they hadn’t learned enough about the latest developments yet to offer an opinion. Harp, a state senator, who did not attend the debate, spoke in an interview between legislative meetings at the Capitol late Tuesday. Nemerson and Fernandez said they’ve done some investigating since the Independent first reported on the subject last Thursday.
“Having talked to people, my sense is when they [originally] did the deal, they were probably expecting they would not get this money repaid” when the tax breaks and loans expired in 2013, Nemerson said. “It was not a big shock” to receive the developer’s request.
Many cities in the 1980s and 1990s struck similar deals — developments that included social goods like subsidized affordable housing — with federal tax credits and government grants that were supposed to be paid off 15 or so years later. Policymakers often expected the developers to have to return at that point with new requests to refinance debt or extend tax breaks. That was considered the price of including affordable housing in urban developments. Also, the requirements for the inclusion of tax credits in some of those deals called for other government assistance to take the form of debt, not outright grants. Mayor DeStefano has suggested reexamining that approach for future developments in favor of “transparent” up-front grants rather than unrealistic debt.
Striking the original deal “was the right thing to do” because of the way “this project stabilized that whole neighborhood,” argued Nemerson, a former Chamber of Commerce president. “It changed the whole nature of that side of downtown.”
“Without having access to the books, I don’t know what happened” to the financing since then, Nemerson said. “McCormack Baron may lose the project.” But he said the city should find some way to keep the project alive.
Nemerson recalled that the original Ninth Square deal fell apart in the late 1980s. In the early ‘90s, “Yale, [then] Gov. [Lowell] Weicker, and the city were scrambling at the very last minute [to save it]. It is inevitable in those situations you create some financing instruments that have balloon payments in the future without any idea of the relative value of the property [to generate enough revenue to meet those payments]. You’re basically guessing. What you’re getting in return are hundreds of millions of dollars of improvements to the city. Those are risks you have to take. You’re making a public policy decision.”
Fernandez, a former city development administrator, struck a similar theme. He also suggested that the city might be able to negotiate a plan that keeps McCormack Baron/Related in the project under terms different from the original request.
“If a developer says the sky is falling, it doesn’t mean the sky is falling,” Fernandez remarked.
Whether or not the city reaches a deal with McCormack Baron/Related, it should find a way to keep the Ninth Square viable with affordable housing included, Fernandez said. Even if that means the government putting more money in.
The way these projects are funded, “after 20 or 30 years always end up in this situation, where they need to be refinanced,” Fernandez argued. “I’m completely comfortable with refinancing low-income housing developments that are this successful.” He ruled out the option in the TrueVote poll, “let the market find the solution.” That would mean abandoning the low-income renters, Fernandez noted. “You’re talking about hundreds of families losing their homes. The developer doesn’t get hurt.”
Harp, who as a city alderwoman participated in the original Ninth Square debates and votes of approval, offered a different analysis of the project’s funding.
The high percentage of subsidized Section 8 housing — accounting for an estimated 57 percent of the project — actually should boost the developer’s financial position, she argued. That’s because Section 8 tends to pay high rents, above market rate, she said. That in turn raises all rents in the area. She said she regularly hears from small landlords and renters in town about how Section 8 raises housing costs in a neighborhood.
“It’s really curious to me that they can’t make the project work,” Harp said. “Section 8 subsidies work. They do subsidize the cost of housing so much that it raises rents in the area.” She noted that Ninth Square apartment buildings have enjoyed high occupancy rates. That makes her skeptical of the developer’s request to the city and state, Harp said. So she said she’d need to hear a strong case before she’d consider the question “of whether or not we can afford to do it [the bailout] — and if we can afford it do it, how much we can afford.”
McCormack Baron failed to return requests for comment for this story and a previous one on the proposed bailout.
We simply can't continue to subsidize these developers on their money grabs. 99 Edgewood was an LCI disaster and Ninth Square threatens to be the same as long as the City gets involved in the deal. Let the market take care of the problem. Because this developer demands a bailout doesn't mean some other, more principled developer can't make it work financially. There's no need to throw tons more money at the problem like Fernandez and Nemerson want to do.