An important, but underutilized, tool in the economic development kit is being the buyer of last resort for distressed property. This strategy isn’t frequently used because it requires equity capital (which many/most NGO’s don’t have) and carries the risks inherent in carrying debt and managing property. But it can be incredibly powerful. By purchasing (or long-term leasing), improving and repositioning an abandoned or derelict real asset, not only are the negative externalities associated with that parcel removed from the neighborhood and the market, but the purchaser now has an ownership stake in the community it is working to improve and will have the potential to reap some economic benefit from the success of its efforts. In addition, ownership of key sites gives the local development entity the power to influence what gets developed on the site. In my experience, this is one of the more potent forms of “nudge” to the local market that a not-for-profit can exercise in advocating for neighborhood improvement.
Community development organizations tend to shy away from the risks associated with property ownership. I’m not aware of any business improvement districts, for example, that actually own any property. But I would argue that this is a form of downtown revitalization that ought to be seriously be considered by more of the professionals who are working on downtown improvement.
Under the leadership of its long-time president, Carlisle Towery, Greater Jamaica Development Corporation (GJDC) employed this strategy extensively and it has played a major role in the revitalization of Downtown Jamaica. GJDC’s Executive Vice President Helen Levine, and its financial advisor, Susan Deutsch played key roles in obtaining and structuring the financing required for the execution of this program. Both worked for GJDC for decades. The midtown Manhattan BIDs also worked this way by leasing and developing the Bryant Park Grill and the Pershing Square Café. These organizations employed a range of financing and operating structures to improve these key sites.
GJDC’s office is in a building donated to it by the Trump family, who lived nearby the Downtown in Jamaica Estates. This 80,000 square foot, art deco structure was in poor physical condition and was nearly empty when the Trumps transferred title to GJDC. GJDC obtained a mortgage loan on the building from a major insurance company (which is much more difficult to do today, as financial services companies are rarely willing to make loans on vacant or non-performing assets), the proceeds of which it used to make repairs to the building and make it marketable to tenants. GJDC then sought out government and not-for-profit renters. GJDC tried to lead the market by providing a quality of space not otherwise available in this disinvested downtown. It sought landmark designation for the building. It restored the building’s attractive art deco features created by Rene Paul Chambellan, one of the period’s most noted artists. It upgraded the elevator system and installed air-conditioning in the office suites. The structure is now fully leased, one floor is occupied by GJDC and it produces net revenue that supports GJDC’s operations.
GJDC also purchased distressed properties for use by other organizations. As a New York State Local Development Corporation, it is legally empowered to accept property without bid from the City of New York. The City has turned over a number of parcels at low or no cost to GJDC. In a number of cases, it took title to derelict property (which, generally, the City had taken in tax lien proceedings), borrowed money secured by a mortgage lien on the building, improved the building to working order, and transferred title to another neighborhood not-for-profit along with the mortgage lien. In that way the NFP acquired a building for its use and occupancy – with occupancy costs limited to the costs of operation and the servicing of the mortgage. As the local market improved, it then had the benefit of the increased value of its equity in the building. The neighborhood lost an eyesore and gained an active use of a previously abandoned property. Both Community Mediation Service and Neighborhood Housing Services of Jamaica were the beneficiaries of this strategy. Other properties that have been owned by GJDC in the Downtown at one time or another include the Jamaica Market, the former Firehouse on 162nd Street, the sites of Yorkside and Norman Towers, the home of Graf & Lewent Architects and the El Casino Building on 160th Street. All have been successfully redeveloped or adaptively reused.
As in many downtowns, parking was a major issue for Jamaica. Competing suburban retail centers provided free parking to their customers. The City of New York owned several flat lots and parking structures in Jamaica. Through the 1990’s the City parking facilities were seen as dark, poorly maintained and dangerous. From early in its history, GJDC was involved in working with the City to provide high quality low-cost parking to shoppers, office workers, residents and other visitors to the Downtown. In the early 00’s it bought two structures and two lots from the City, using tax-exempt industrial development authority bonds (of about $15 million) to pay half the appraised value of the property to the City and provide working capital for the upgrading of the facilities. GJDC created Jamaica First Parking (JFP), a separate entity, to operate the parking, and contracted with Edison Parking to operate them.
JFP improved the lighting of the lots and garages, upgraded the elevators and provided high quality security services. It shoveled the walks and plowed the lots. In time, it also added a horticulture program. Using the cash flow from the parking system, it built an additional garage. For years, it worked to keep rates low, in order to encourage economic activity. Ultimately, the parking operation became a reliable source of income for GJDC; just as the Bryant Park Grill and Café now provide substantial financial support for the programming in Bryant Park. In fact, as a result of its real estate operations (including periodic transactions) GJDC is largely self-supporting – which has some irony attached to it.
Around 2010, the City revoked the property tax exemption that had earlier been granted to the parking facilities. GJDC challenged the revocation, winning relief in the Appellate Division of the Supreme Court. The City appealed that ruling to the State’s highest Court, and won a reversal (http://law.justia.com/cases/new-york/court-of-appeals/2015/108.html). Now the system supports GJDC to a lesser degree, but also provides almost $1 million a year to the City’s general fund. GJDC’s revenue generating capacity is a victim of its own success! But because of the increasing interest in development in Jamaica, in no small part due to GJDC’s work, GJDC now controls these key development sites – which have substantial economic value and a very low degree of financial leverage.
GJDC also used property ownership as a tool to take control of key development sites around the transit hub on Sutphin Boulevard. This was a risky and expensive project that ultimately paid substantial rewards to GJDC. Site acquisition began with the excessing of a Chemical Bank branch to GJDC when, through merger activity, the branch became redundant. Over a period of almost fifteen years, using Port Authority funds, New Market Tax Credits, mortgage loans from banks (using the property’s value and cash flows for security) GJDC assembled two important sites. There were years of high interest rates when the parcels had negative cash flows. One of the two assemblages was ultimately sold at a loss, but to a high quality developer for an important hotel project. The other site was sold at a substantial gain. Both projects will ultimately be of great benefit to the economic health of the Downtown.
Buying and selling property requires skill and patience. It carries significant financial risks – particularly from interest rate fluctuations and tenant defaults. But, ultimately, its success is tied to a development organization’s attainment of its central mission of neighborhood improvement. Economic development entities in Buffalo and Cincinnati appear to have employed similar strategies with great success. The recent inability of banks and other lenders to loan on undeveloped and non-performing properties makes this a more difficult strategy for not-for-profits just starting out. It might present an opportunity for large philanthropies and government economic development agencies to make program related investments. In its forty-plus year history, GJDC has never missed a payment (although it did on more than one occasion violate the terms of loan covenants and need to seek forbearance from its cooperative and understanding lenders). GJDC has been an excellent client to a number of financial services organizations and law firms – who have made handsome profits from its work. GJDC program of property ownership and management has perhaps been its most significant tool in the revitalization of Downtown Jamaica, and I would suggest it is one that might well be emulated by other organizations engaged in similar work.