“Affordability” Loophole Caught

City officials flagged a loophole in a land development deal worth at least $240,000, just in time to change it before construction begins.

The deal involves a lot at 1198 Chapel St. Since 2005, Chapel Lofts II LLC, a partnership led by Shneur Katz, has been saying it’ll put up housing on that vacant lot.

Back then, Katz bought the land for $80,000 and promised to build two retail shops and nine condominiums, but a real-estate downturn foiled the deal.

Almost a decade later, the city has been reviewing the land disposition agreements (LDAs), which allowed developers to take over city-owned land, and offering a second chance to get construction underway. Under the terms of a revised LDA, hashed out last December, Katz agreed to get going on the commercial space and, instead of the condos, two dozen small apartments above — with a few set aside for low-income tenants.

In return for another shot, Katz agreed to designate four of the units as affordable for the next 20 years. But as soon as the alders signed off on the renegotiated deal, an employee at the city’s anti-blight agency, the Livable City Initiative, started thinking about all the ways Katz (or a subsequent owner) could get out of the subsidy.

The employee, Evan Trachten, LCI’s acquisition and disposition coordinator, presented tougher language to the agency’s board of directors at a meeting this past Wednesday evening at City Hall. Applauding him for catching the mistake, the board unanimously passed the new terms, which must now go to the alders for approval.

“We felt that [affordability requirement] wasn’t strong enough on our final review. We talked about coming up with a solution where we could quantify a dollar amount per unit, so that we could actually see the public benefit for affordable housing,” Trachten explained to the board. ​“We strengthened that language by adding quite a bit to that paragraph.”

At 1198 Chapel St., city officials calculated Katz had accrued $150,000 in value just by sitting on the property for 11 years, money that he’ll now have to effectively give back by discounting some of his units. The problem, Trachten found out, is how to make sure the developer does that over the next two decades.

Under the current agreement, Katz is bound to make four apartments affordable for low-income tenants. But as commenters on the Independent well know, what’s considered ​“affordable” can vary widely.

The current LDA defines a low-income tenant as someone who makes 80 percent of the area’s median income. According to the federal Department of Housing and Urban Development (HUD), that means an ​“affordable” rent for a single person in the New Haven area is $1,233. One problem: Also according to HUD, the fair market rent for a one-bedroom on the local market is only $1,093.

In other words, the contract actually gave the developer room to jack up his prices in a booming downtown market.

“We are the housing department. We live and breathe medians and percentages. Our gut instinct was to tie it to 80 percent [of the area’s median] income, with no more than 30 percent [of that income going toward rent]. That’s the rule of thumb on deals,” Trachten explained. ​“And then I’m having a scholarly discussion with other city officials and someone said, ​‘Let me ask you, before we send this to the board, what if?’ And then they had another, ​‘What if?’ When we got to a couple of those, where we might not get the public benefit in true dollars, I threw out, ​‘Why don’t we tie it to a dollar value?’”

With the amendment that Trachten proposed, Katz will be locked in at a set dollar amount. He must deduct at least $250 from whatever the fair market rent might be. This year, that means an ​“affordable” one-bedroom would have to rent for under $843.

Over two decades, between four apartments, that amounts to a $374,400 difference for one-bedroom units or, more likely based on the way Katz has described the apartments’ size, a $494,000 difference for studios.

Even if Katz doesn’t exceed fair market rates, the new language guarantees at least a $240,000 benefit.

(The income eligibility requirements haven’t changed. The units are open to any tenant who makes 80 percent of the median income, up to $59,840 for a couple and $74,800 for a family of four.)

The board thanked Trachten for discovering and closing the loophole.

“I commend the staff of LCI for making this little extra effort to make it so much more readily accessible and addressing the concerns,” said Timothy Yolen, the board’s chair. ​“This one is completely fleshed out. It’s iron-clad. There’s no questions, no ambiguity.” He added, ​“This protects the people we want to protect.”

“Plus, it’s applicable over a long time,” added Patricia Brett, another board member.

Trachten’s new formula will guide city officials as they revisit 16 defunct LDAs, including a six-story building at 433 Chapel St., owned by Peter Chapman’s LaSaraghina LLC, that is slated to become 23 apartments above a commercial space.

HUD, meanwhile, is trying to become more precise in how it calculated a fair market rent. The federal agency is transitioning calculating rents for big metro areas to individual zip codes. Asked whether he’d thought about using a smaller area’s benchmarks, Trachten said he’d considered it but figured the area’s rates would still work for now.

Plus, he’d added another clause to the contract about that issue. If HUD ​“discontinued” the area’s fair market rents, Katz would have to use ​“a comparable index.” And if he couldn’t find that, he’d have to subtract $250 from his standard charges to calculate an affordable rent, ensuring a $240,000 benefit to tenants no matter what.