This commentary will describe some of the trends in housing now taking place on Roosevelt Island. These trends, if continued, point to a more affluent, higher-income population of tenants and apartment owners, and a concomitant decrease in lower-income units. How these trends play out over time will affect the overall community significantly.

To start with, according to The Main Street WIRE, Eastwood is "privatizing," which simply means that its owner has filed a notice of intent to leave the Mitchell-Lama system. There will not be any change in management or ownership; nor does the owner propose to sell the 1,000 units to the tenants as coops or condominiums. Leaving the system is permitted to owners after 20 years of limited profits and does not require the tenants' consent and, if procedures are followed to give notice and hold public meetings with tenants to inform them of its plans, it also does not require more than the pro forma consent of DHCR, the supervising State agency. But leaving Mitchell-Lama means giving up its benefits: thus, it requires the owner to pay off the State mortgage (usually accomplished by obtaining a new one from a private institution) and ends real-estate tax exemptions (which are scheduled to end in any event over the next few years). In exchange, once they leave the system, owners are not limited by law in their profits or returns and they no longer have to submit operating budgets to the State to obtain approval for rent increases.

In Southtown, there is a new building going up whose apartments will be sold as condos at market value, thus bringing in higher-income owners. The two existing Southtown buildings were sold off by the developers to Cornell Medical College and the Memorial Sloan-Kettering Hospital, respectively. This November will mark the first anniversary of their occupancy by the medical and other staff of those institutions, but some apartments remain vacant.

Island House and Westview management has recently changed, and its ownership may also be changing. Its owner is apparently exploring leaving the Mitchell-Lama system, as well, and may consider selling off apartment units to the existing tenants and newcomers as part of a coop or condo plan. Since the land under the buildings on Roosevelt Island is leased by the State to their respective owners under ground leases, a new mortgage to replace the State one will require an extension of the lease term. (No lender will grant a new mortgage for a term that expires after a ground lease ends.) To sell off units will also require an extension of the ground lease, since buyers will want to be sure of a long-term investment. An extension requires the lessor's consent (RIOC as successor to UDC) and will presumably result in higher ground rent being charged by RIOC.

Rivercross shareholders own their Mitchell-Lama apartments, but are restricted from profiting from their resale. It has been studying becoming a private coop and leaving the Mitchell-Lama system and thus allowing its shareholders to sell their apartments at a profit. Doing so would require a new mortgage to pay off the State one; that, in turn, requires a ground-lease extension by RIOC. And new buyers will want a longer-term ground lease.

Finally, no changes appear to be in the offing concerning the four market-rate rental buildings at Manhattan Park or in its one subsidized building.

One of the factors driving the changes noted above is the current speculative real estate market. Another is that the original 30-year tax exemptions of the four original Mitchell-Lama buildings are coming to an end. Hence, each of their owners (Eastwood, Island House, Westview and Rivercross) will soon face substantial real-estate taxes to replace the much lower payments in lieu of taxes (PILOTs) they have been making. The only remaining advantage to staying in the Mitchell-Lama system is the State mortgage but, with interest rates near historically low levels, some owners would rather pay off the State one and obtain a private mortgage, even if it costs more. Those additional costs can be recovered through higher rents, particularly at free-market levels.

Faced with these developments, Island residents may be wondering what to think and do. For Eastwood's residents, upon leaving the Mitchell-Lama system, the owner will apparently invest funds to repair apartments, common areas, and building infrastructure. This is desirable if it wishes to attract new tenants paying market-value rents. The owner also faces annual additional expense to cover the new real-estate taxes and mortgage costs. The only way for it to recover those sums and pay its annual bills is to raise rents on some of the tenants or on new ones. Based on statements made in its first public meeting held last week, the owners are proposing a plan by which the existing subsidized tenants would instead receive enhanced Section 8 rent vouchers to cover any rent increases. Such rent levels would be established by a HUD-designated agency such as DHCR. Non-subsidized units might also be subject to rent increases. Neither their rights to renewal leases nor the rent levels will be governed by the Rent Stabilization Law, and increases could be more or less than those set by the Rent Stabilization Board. The owners promised an assistance program to help such existing tenants meet their increased rent levels. Details are not yet available as to how that would work. Important to the owners: upon vacancy of any of the 1,000 apartments, free-market rents will be charged to the new tenants.

For Island House and Westview residents, similar issues will arise if the owners file a notice of intent to leave the Mitchell-Lama system. What will the new rents be and will tenants be protected by rules like those under the Rent Stabilization Law? If the owners plan to sell off units to tenants as coops, that will require the consent of at least 15% of the tenants in a "non-eviction" cooperative plan. Hence, the tenants have some leverage not to buy units, and the owner has to deal with getting RIOC's consent to a ground-lease extension in order to refinance the mortgage and sell units to the tenants. RIOC will want an increase in ground rents and, perhaps, a part of the profit on sales of units under any coop plan.

Some of these considerations apply to Rivercross residents, although they already own their units. To leave the Mitchell-Lama system, the building must refinance its mortgage with a private one, and that requires an extension of the ground lease. In addition, without an extended ground lease, buyers will not readily purchase units from its shareholders. To get that extension will require higher ground-rent payments to RIOC and, perhaps, a part of any profits upon sale of units. In addition, a change of Rivercross' legal status to become a private coop requires the vote of its shareholders, one vote for each apartment, with a two-thirds vote required. For some, staying within the Mitchell-Lama system will be attractive since the existing mortgage will probably cost less than any new one, and ground-rent increases can be postponed until the current ground lease expires in 2028. But, with tax exemptions ending, there will be new real-estate taxes to pay, driving up everyone's maintenance costs. Faced with such an increase, some will feel the need to sell their units at market value, take their profits, and move to less expensive housing. Others who can better absorb the increases may want to sell at market values and relocate anyway. Still other shareholders who do not plan to relocate may wish to own apartments that have a market value to pass on to their heirs. Thus, once the real-estate taxes hit, added pressure to leave the Mitchell Lama system will build among these various groups.

Since its inception some thirty years ago, Roosevelt Island has had a General Development Plan (since amended) that envisions an experimental community in which low, moderate, and middle-income tenants would live together with seniors and the disabled. As the owners of the original four Mitchell-Lama buildings scramble to meet the new real-estate taxes and, with the speculative real-estate market of New York City driving the demand for more housing, there is pressure to leave the system and rent or sell units at market value to higher-income persons. The same applies to the new Southtown building, not part of Mitchell-Lama, where units will be sold at market rates. Manhattan Park's four market-rental buildings, also outside of the Mitchell-Lama system, are already rented to higher-income tenants.

If these trends continue they will result over time in a more affluent Island community, with more higher-income tenants, coop and condo owners, and fewer lower-income residents.