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Christie Administration Admits Errors, But Stands by Developer's Record on Affordable Housing

Blaming the Housing Market Crash, Boraie Development Reneged on Plan to Offer Affordable Downtown Condominiums in Exchange for $15 Million Government Loan
29 Charles Street
29 Charles Street, one of two "affordable" housing buildings owned by the company that received $4.8 million in Sandy relief. Charlie Kratovil

NEW BRUNSWICK, NJ—Christie administration officials admitted there were two errors in a press release touting the credentials of a politically-connected developer that received $4.8 million in Hurricane Sandy recovery funds to help fund a luxury apartment tower going up on Somerset Street.

New Brunswick Today broke the story earlier this week that the administration's claims about Boraie Development LLC's track record of producing affordable housing were highly suspect.

In exchange for a $15 million, zero-interest loan authorized by the NJ Housing and Mortgage Finance Agency (HMFA) in 2004, Boraie had promised to offer up some of the city's most prime real estate as affordable housing: 12 downtown condominiums a short walk from the city's train station.

And if you believed the official statement released to reporters in September, you would believe Boraie had done exactly that.

Boraie Development "has worked successfully in the past to construct and sell Spring Street Plaza, a 120-unit condominium project that provided affordable housing opportunities to NJ residents," read the September 23 press release.

Lisa Ryan, a spokeswoman for the Dept. of Community Affairs (DCA) took issue with our article published on Wednesday, but admitted that the controversial developer has never before constructed affordable housing from scratch.

"Honestly, the press release as written is not accurate," said Ryan. "However, what you will see is that... affordable housing units were not created in the Spring Street Plaza, the company did provide them in other neighborhoods of the city."

Instead of selling a portion of the luxury condominiums at affordable rates in 2005 and 2006, documents show that Boraie Development waited until October 2010 to propose an alternative solution to meet his obligation to the government.

CHRISTIE ADMINISTRATION LET BORAIE OFF THE HOOK
The Christie administration's HMFA, led by a relative of the spokesman for Mayor James Cahill, officially let Boraie off the hook for their obligation to offer newly-constructed, for-sale housing at affordable rates.

"One of the reasons it didn't make sense to have affordable housing there is... affordable housing families would have to pay the condo fee for like parking and other amenities," said Ryan, the DCA spokeswoman.  "And the fee was like in some cases $700-$750/month."

The affordable condominium units were originally supposed to be sold for between $149,555 and $196,440 and buyers would have been entitled to 100% financing from HMFA.

Instead, the first 103 units at Spring Street were sold for an average price of $524,448, as we reported in 2012.  None of the units were ever sold at the affordable rates.

"So it ultimately didn't make sense to have affordable housing units there and the company realized that and came to the HMFA and proposed a different way of providing affordable housing in the community," said Ryan.

Ryan provided documents that show, in leiu of building new affordable housing, Boraie promised to spend $740,000 to fix up two run-down apartment buildings that they had already owned for years, and to rent them to people with lower-than-average incomes over the next 20 years.

That promise came nearly seven years after the original loan agreement with HMFA.

The HMFA approved the modified deal in October 2010, calling on Boraie to rehabilitate 212 Baldwin Street, located roughly a dozen blocks from the ritzy condo tower, and 29 Charles Street, a two-story building known for frequent flooding and located 1.4 miles away from Spring Street.

The request for action said, "The two buildings need moderate to substantial rehabilitation work, including cleaning/repainting of all common walls and ceilings, replacement of all bath acoustical ceiling tiles, toilets, and other fixtures, new common hall lighting, all new kitchen cabinets, and all-new energy-efficient windows, installation of emergency lighting and a new apartment call system and new solid core entry doors."

The rehabilitation work was supposed to be completed by the end of 2011.  Ryan did not provide any documentation showing that the work had been done.   It is not immediately clear what work was done to rehabilitate the apartments.

The Charles Street building has flooded at least three times since 2011, as we have reported previously.

An analysis of rents paid at 212 Baldwin Street and 29 Charles Street show that the average monthly rents in the buildings have increased by $100 over a ten-year period. The units are not priced differently than comparable units in the city.

For example, rents in the flood-prone Charles Street building, which contains 14 one-bedroom units, average $921/month, according to the documents provided by Ryan.  In 2001, the average rent at 29 Charles St. was $651/month.

A FAR CRY FROM WHAT WAS ORIGINALLY PROMISED
On January 16, 2004, the state government approved the $15 million loan to help kickstart the Spring Street project.  The money came at a time when the Boraie family was hoping to take their real estate business to the next level, and seeking government help to do so.

"As part of Governor James E. McGreevey's Smart Growth Housing Policy, the Market Oriented Neighborhood Investment [MONI] Program was developed to sustain and enhance the housing markets in targeted areas by providing financing for affordable, well built, newly constructed or substantially rehabilitated homes to a mixture of eligible homebuyers," reads the original request for action approved by HMFA in 2004.

But the big loan also came with some conditions, and a requirement that the developer give progress reports to the HMFA every six weeks.

"If there is no identifiable progress made during any six-month period, the commitment may be rescinded by the Agency," reads the request for action.

But the HMFA appears to have exercised little authority to enforce their loan agreement with the Boraie company.  As we have reported, Boraie is one of New Brunswick's most powerful property owners and most generous political donors.

A few weeks after securing the loan, on February 9,  2004, Omar and Madiha Boraie sold 212 Baldwin and 29 Charles for $1 each to limited liability companies controlled by their family.

A decade later, the promise of affordable for-sale homes in the city's downtown remains unfulfilled and the rehabilitated buildings operate much the same as they did before the $15 million loan.

While the Spring Street building was going up in downtown, Governor McGreevey's administration was paralyzed by scandals, and he resigned in 2004, just months before Boraie Development first asked to re-negotiate their obligation.

Though the twelve condos would have represented only 10% of the units in the company's 25-story condo building, Boraie asked to cut the number of affordable units in the building sharply.

In January 2005, one year after securing the $15 million interest-free loan, Boraie asked for permission to cut the number of affordable units down to just four, citing rising construction costs.

"The Sponsor [Boraie Development] has now determined that due to the rising costs of construction materials it is not feasible to include the 12 affordable units in the Spring Street Plaza project," read the request for action approved by the HMFA's board on January 14, 2005.

In exchange Boraie would would still include four affordable units in Spring Street, and build twenty more "in areas that are acceptable to the City of New Brunswick."

The HMFA required a $700,000 guarantee that Boraie would not get back unless he built the additional 20 units promised.

According to the documents, although Boraie was able to pay back the loan, more than five years later the developer had still not provided a single affordable unit in the luxury building, or elsewhere in the city.

And with the deadline to return the $700,000 to HMFA fast approaching, Boraie made a new offer: fix up the two apartment buildings he already owned and accept a 20-year deed restriction on them that limited future rentals to individuals with below-average income.

"During 2008 and 2009, the residential home market experienced considerable drop in sale prices and values," read the 2010 request for action submitted by HMFA staff.  "Obtaining appropriate land and financing for development of 20 new housing units within the city was also much more difficult during the economic downturn," 

Once again, the HMFA board approved the revised deal, this time under the leadership of Executive Director Anthony Marchetta, a Christie appointee who is also the cousin of Russell Marchetta, spokesman for New Brunswick's Democratic Mayor James Cahill.

ANOTHER ERROR IN CHRISTIE ADMINISTRATION'S STATEMENT
Ryan also confirmed that the September 23 press release included an inaccurate amount listed as the "total development cost" of the Somerset Street project.

New Brunswick Today had pointed out that the total government assistance exceed the development cost listed in the release by some $3.6 million.

Ryan explained that the release inaccurately stated the development cost as $82.8 million, when it really should have said $88.2 million.

"Because of human error, those two numbers were transposed," said Ryan.  "It was literally just human error.  The people that were providing the information for the press release, they just transposed those two numbers."

The HMFA has approved an even bigger loan for the new apartment project that represents more than two-thirds of the total development cost of the project.

As part of the $60.5 million loan, the developer has promised to include 48 affordable rental apartments in the 238-unit building.  The building will also include a 237-space parking garage, a fitness center, and retail space.

The city government also granted the project a lucrative tax abatement in a 4-1 vote last year, excusing the developer from paying taxes into the city's troubled school system, even if the new building results in a larger public school student population.

Perhaps another error in the administration's press release indicates that the Economic Development Authority "awarded the project $15.3 million in funding through the Urban Transit Hub Tax Credit Program."  According to the Economic Development Authority's website, the project was approved for a total of $23.8 million in tax credits in March 2012.

The HMFA also signed off on $5.8 million in low-income tax credits for Boraie Development's project, and the most controversial piece of the funding, $4.8 million in federal disaster recovery aid.

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