Yale Balks At 9th Square Bailout

The city will send a $1.39 million tax bill next week to the developers of the Ninth Square project, rather than send the developers a new deal they had sought: to keep a lower tax bill for years to come and to secure new loans and $9.9 million in forgiven debt payments.

That was the latest development, or non-development, in the quest for a deal to pump new money into the downtown mini-neighborhood southeast of the Green, to renovate buildings and keep the current owner in control of the property.

At stake is the future of the Ninth Square, a successful building project that helped spark a continuing downtown renewal.

The owner of the Ninth Square project — a partnership of McCormack Baron Salazar and Related Companies — has sought that deal since last fall. It requires approval by all three original lenders to whom the partnership owes millions of dollars: The quasi-public Connecticut Housing Finance Authority (CHFA), New Haven city government, and Yale University.

That quest grew more complicated over the past months. The parties failed even to hold a meeting. One of the leading candidates for mayor, Toni Harp, has expressed increasing skepticism about a bailout. And now Yale has signaled that it has no interest in participating in a bailout for McCormack Baron/Related.

“We feel as a non-profit educational institution, we have done our share to make this project work,” said Yale Vice-President Bruce Alexander.

Yale was one of the lenders that enabled McCormack Baron/Related to build up the Ninth Square in the first place in the 1990s.

In the Ninth Square, the city used public money and state-issued tax credits to help McCormack Baron/Related fix up historic but neglected three- and four-story brick buildings and construct some new brick ones throughout the district, which 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.

Now the developer says it’s in trouble. And needs more help. (Click here and here for background stories on the request and initial public reaction.) The developer has asked all the project’s lenders (CHFA, New Haven, and Yale) 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 says its needs $10 million for building renovations. Pending a deal, CHFA agreed to grant the developer a six-month moratorium on payments on a $13.7 million outstanding loan, with all late fees waived, while a restructuring deal is worked out.

As part of its request, the developer has also asked the city to forgive $9.9 million in unpaid interest.

And it is asking for a new tax-abatement deal from the city freezing its annual bill at $750,000. The city froze the project’s taxes for 15 years; the project paid $756,538 in taxes last year rather than the full $1,315,862 it would have otherwise owed. The original goal was to have a new deal in place by July 1, when new tax bills go out.

“No Deal”

Not only is there no deal. There hasn’t been a meeting to discuss a deal.

So the city is sending the owners a $1,388,690 tax bill this week for the new fiscal year, according to city spokeswoman Anna Mariotti.

McCormack Baron/Related’s local lawyer, Susan J. Bryson of of the power law firm Wiggin & Dana, sent a distress signal about the lack of progress following a series of email messages in April. Her messages were among more than 100 pages of correspondence about the project sent to and from CHFA since last fall, obtained by the Independent under a Freedom of Information Act request.

(Click here to read emails sent in April. And Click here to read the most recent financial audit of the Ninth Square project, also obtained under the FOIA request.)

The correspondence shows CHFA Vice-President Dara Kovel, New Haven Livable City Initiative (LCI) chief Erik Johnson, and Bryson trying, without success, to line up a meeting to move the proposed deal forward. At first, individual scheduling conflicts seemed to be the problem. Then Bryson noticed a distinct lack of response from Yale.

“It looks like Yale may have disinvited themselves from the Ninth Square meeting entirely,” Kovel wrote to CHFA chief Eric Chatman on April 11. “… I believe another conversation between Eric and the Mayor may be in order.”

“You ok?” Bryson wrote in an email message to Kovel at 8:15 p.m. on April 17.

“Yup. Just frustrated.”

Bryson returned with a firmer conclusion in an April 26 email message to Kovel.

“There is no deal with Yale — and not likely to be,” she wrote.

“We don’ t know if the Mayor ever spoke with Yale, but we do know that both [Yale Investments Office Director] Alex Banker and Bruce Alexander have declined to attend a Ninth Square meeting and we believe that the relationship is not as smooth as in prior days. Clearly, in any case, the Mayor is not able to control the Board of Aldermen.

“[CHFA chief] Eric Chatman was told that the Mayor was under the impression the developers were not coming to the table. We don’t know where this came from, but you believe that this has been straightened out. That said, you think someone on the development side might want to get in touch with Eric [sic] Johnson. …

“You and your staff do not want to seek an extension of the [CHFA] Moratorium Agreement unless there is a somewhat feasible Plan B.

“I will relay this to the developer team and inquire as to whether they want a call with you and with Eric Johnson to explore the possibility of a Plan B.

“Right?

“Have a good weekend.”

Asked Thursday about the ongoing negotiations, Mayor John DeStefano said the city and CHFA haven’t yet made an ​“ask” of Yale — but the city and CHFA have ​“not come to a point of resolution on how to proceed on the deal.” He said he and CHFA’s Chatman have no meetings scheduled at this point. ​“Both of us need more time to think about it,” DeStefano said.

“I’ve discussed it with Bruce [Alexander]. I don’t foreclose them participating or not participating.”

Alexander said Thursday that Yale originally purchased $10 million in bonds for the project. It also invested $3.5 million in equity — ​“on which Yale has received no return.”

When’s Enough?

A larger question hovers beneath the talk about interest payments and tax abatements — how, and under what terms, government should pay to include affordable housing in development projects. It usually costs a builder more to include housing for low-income and working-class renters in otherwise market-rate projects. Government often helps in the form of federal Section 8 rent subsidies, loans, grants, and/or tax breaks.

The Ninth Square deal, like many urban ​“mixed-use” projects of a generation past, relied heavily on tax credits and loans that — despite what was said in public hearings — deal-makers expected the developer might never pay back; they relied on tax abatements that might never ever truly phase out. Rather, it was expected that the developer would seek to have those terms renewed to keep the project going.

McCormack/Baron has succeeded in keeping about 57 percent of its attractive Ninth Square apartments rented to low-income families, according to LCI Executive Director Erik Johnson. In seeking its new deal, the developer promises to keep 40 percent of the project ​“affordable”: 20 percent rented to ​“very low-income families” who are below 50 percent of area median income, and another 20 percent rented to families who earn up to 60 percent of area median income. (One requested change: Right now some tenants have ​“portable” federal Section 8 program vouchers that follow them if they leave the Ninth Square. The developer seeks to have the housing authority approve ​“project-based” Section 8 coverage that stays with the apartment no matter who lives there.)

Two of the Democrats running to succeed DeStefano as mayor this year — Henry Fernandez and Matthew Nemerson — have expressed support for reaching some form of a deal with McCormack Baron/Related in order to keep affordable housing in the Ninth Square and keep an important project on its feet. Click here to read about that.

Another Democratic mayoral candidate, Toni Harp, initially expressed skepticism about the deal. Speaking after an unrelated press conference on Thursday, she expressed growing skepticism.

Harp voted to approve the original Ninth Square deal as a city alderwoman. Now she’s a state senator. She said she worries about the precedent of striking deals with developers with promises to pay full taxes and pay back debt — only to extend those deals instead. She also said she has doubts about the developer’s financial claims, given the high occupancy in the buildings.

“I don’t think we should do it,” Harp said. ​“There are ways they can refinance and let the private sector support it.”

“I want to find out what they did between the time they made the agreement with us and what happened that made the project fail so much they can’t afford to pay their taxes.”

In a broader sense, Harp said, ​“we’ve got to get to the bottom of [how] the way that we provide housing and housing subsidies encourages investors to not take care of their properties or [else] constantly refinance or abandon them.”