Financing of the Conversion of 17 Former Cluster Site Buildings

Dear Commissioner Banks:

I write to share my office’s analysis of the flawed processes the City employed in financing the
bulk purchase of 17 buildings in Brooklyn and the Bronx (the “Properties”) in April 2019 to
support their conversion from cluster site shelters to permanent affordable housing, primarily for
the tenants already in place. The City financed the entire $173.5 million purchase price, which
was well above the Properties’ appraised value, with little apparent regard for its own appraisals
or little thought to the cost of remediating some 400 building code violations present at the time
of purchase. I understand that the City recently financed a second purchase of an additional 14
buildings for the same purpose.1 In light of the City’s intention to continue to pursue such
conversions, I want to alert you to certain missteps we identified in the processes the City
employed and provide you with recommendations that could help prevent future overpayments.

I fully support the City’s efforts to phase out the cluster program and increase the supply of
affordable housing. However, given the acute need for low income housing and the limited funds
available for it, the City must ensure that any further conversions of cluster shelters are
completed at a reasonable cost to maximize the City’s ability to address its critical housing
needs.

In financing any future conversion it is imperative that the City rely on only sound, impartial
appraisals; avoid actions that diminish its bargaining power; and fully account for all related
costs, including necessary repairs and improvement. Unfortunately, our analysis shows
significant problems in each of those areas.