Cuomo's Sandy Charity Benefits Private Equity Investors

Email a Friend
Sea Rise apartments in Coney Island, Brooklyn.

While Sandy victims in New York wait anxiously for government assistance to rebuild their homes, a charity organized by Gov. Andrew Cuomo in the wake of the storm to aid homeowners has steered millions of dollars to two troubled state-sponsored housing developments in Brooklyn.

The complexes are partially owned by funds managed by a private equity giant, the Blackstone Group, that also employs a powerful state housing official who has authority over spending from the charity.

The Empire State Relief Fund, established by the governor weeks after Sandy hit, committed in April to grant up to $3.5 million to two housing developments in Coney Island deluged by the storm. The Sea Rise and Harbor View projects are part of the state-supervised Mitchell-Lama program, and much of their financing comes via investors with Blackstone, an asset manager specializing in turning around distressed property.

The Empire State Relief Fund raised about $15 million from the public through television ads featuring celebrities such as Robert de Niro and Brooke Shields, showing photographs of damaged houses and asking New Yorkers to donate to rebuild the “tens of thousands” of homes Hurricane Sandy had “destroyed.”

At the time, the relief fund drew criticism from disaster relief experts for its leadership — a board made up of Cuomo’s top donors and his campaign treasurer — and its unusual structure, which uses the Housing Trust Fund Corporation, a division of the state’s Homes and Community Renewal super-agency, instead of an established aid group to oversee the disbursement of donor money.

The Housing Trust Fund Corporation has just two board members: Chairman Darryl Towns, who is the state’s commissioner for Housing and Community Renewal, and Housing Finance Agency Chairman William J. Mulrow, who is also senior managing director for investor relations and business development for the Blackstone Group.

The fund began distributing grants to homeowners through an automated process in December 2012, delivering checks to New Yorkers if they had received the maximum amount of state Homeownership Repair and Rebuilding Fund and Federal Emergency Management Agency assistance. Most homeowners with losses covered by flood insurance were ineligible to receive money. What’s more, the relief fund had no application process. By June the fund had given out $8.8 million to 1,345 households hit by the storm.

Then the charity abruptly changed course. In April, the relief fund’s board members — who include James Simons, a billionaire investor who chairs a firm with a large stake in Blackstone — voted to direct the majority of remaining charity donations to Sea Rise and Harbor View.

Grenadier has not yet received funds from the charity but the aid to Sea Rise and Harbor View is designated to replace roofs, install generators, place new lights in hallways and stairwells, redo landscaping and rebuild basketball courts and playgrounds. It’s also going to pay insurance deductibles, according to relief-fund records.

A spokesman for Homes and Community Renewal, Chris Browne, said that the relief fund had deferred to the Housing Trust Fund for guidance on the use of some grant money.

“The Empire State Relief fund received a large single donation on the condition it be used on a single project related to Sandy recovery," Browne wrote in an email. "The Housing Trust Fund identified three close-together Mitchell-Lama properties in Coney Island that were damaged by the storm and in need of repair. The HTF forwarded these recommendations to the Relief Fund’s board."

Browne added: "This was a process that enabled the fund’s board to receive informed, expert recommendations on how to best use this funding in a way that would help thousands of residents in a community that was badly hurt by Superstorm Sandy."

The state has not named the donor of the $3.5 million. Simons is among the publicly identified contributors to the foundation, but a spokesman said he was not the one behind the gift and had no idea of his own financial connection to the buildings that the charity was helping out. 

"He owns dozens of funds including Blackstone," the spokesman, Abe Lackman, said in a statement, "and when he made this decision he had no clue that Blackstone had some relationship to one of these properties whatsoever."

A spokesman for Blackstone Group said Mulrow’s role at the firm had nothing to do with the charity aid. “He works in investor relations at Blackstone, not our real estate group,” said Peter Rose.

“Bill [Mulrow] was not asked by anyone at Blackstone or anyone connected with Blackstone to get Sandy relief money for any property connected with Blackstone. Bill had no knowledge that any of the three properties at issue here had applied for Sandy money. He didn’t know. He had no influence on any of the decision-making process by any Sandy relief funds.”

Mulrow told him personally on Thursday, Rose said, that “he had not heard of the three buildings” and was unaware that Blackstone had any interest in them.

Homeowners in Need

The Empire State Relief Fund’s commitment to help state-sponsored buildings was a departure from early promises by the charity to zero in on homeowners in need.

In a November 2012 presentation posted to its website, the relief fund said it would “develop a program focused on single-family home repair and rebuilding.” The charity said that administering the fund through the state’s housing agency would ensure aid money was spent on storm victims instead of overhead.

A public service announcement released late last year to solicit funds from the public for the Empire State Relief Fund featured Edie Falco, Al Pacino, Robert De Niro and others.

Thousands of Sandy victims have since applied for federal aid through the state’s New York Rising and city’s Build it Back programs, which are distributing billions of dollars from the U.S. Department of Housing and Urban Development. Many are still waiting for insurance and government assistance to come through. Yet they were ineligible for the Empire State Relief Fund aid.

In Wantagh, Long Island, 34-year-old Christa Higbee and her husband waited months after the storm struck before deciding to raid her husband’s 401k and other funds to pay for substantial repairs to their home.

“We’re using every penny of our savings,” she said. “This is our absolute last resort.”

She recently learned that New York Rising will deliver $85,000, much of it toward elevating their house. But meanwhile her family is paying the cost up front, and even with insurance proceeds will likely have to spend about $50,000 of its own money.

Some co-ops and condos are in similar straits. Brightwater Towers, a 734-unit condominium near the Coney Island aquarium, saw its electrical and heating systems savaged by Sandy.

“Fish were swimming in our lobby,” said board president Cynthia Reich. Now the complex is wrestling with its insurer over millions of dollars in claims and slogging through an “excruciating” Build it Back application. The board ultimately may have to raise maintenance fees for residents, many of whom are elderly.

“We’re in need as well,” Reich said of the charity aid going to the Mitchell-Lama projects. (Brightwater was built under Mitchell-Lama but later left the government program.) “It really begins to feel like you’re getting discriminated against.”

By contrast, Sea Rise and Harbor View were singled out for help. Both are managed by Grenadier Realty Corp., a subsidiary of the developer Starrett Corporation, in which Blackstone is also a stakeholder.

Homes and Community Renewal contacted Grenadier and asked it to apply for the charity’s assistance, said Peter Rose, the Blackstone spokesman.

“Several months ago, someone from HCR came to us and said, came to Grenadier and said, ‘Your properties may be eligible for Sandy relief,’ and Grenadier filed a preliminary application,” Rose said.

This month, Rose added, the state agency followed up to request documentation of storm-recovery costs not covered by insurance.

Experts in philanthropy say that any departure from fundraising promises made to the public can be problematic for a charity.

“If they’ve told donors they were going to use the money for one thing and they’re using it for something else, that’s definitely troubling,” said Sandra Miniutti, vice president of marketing and CFO for Charity Navigator, a national evaluator for philanthropy.

“They need to make a case to their donors why they want to go down this other road.”

Even when it is a donor who determines a shift in direction, if the charity they are donating to is set up by a political leader, the potential for conflicts and lapses only deepens, says Rick Cohen, a philanthropy expert and national correspondent at Nonprofit Quarterly.

“This is the problem of a politician creating a nonprofit, where by virtue of the politician’s involvement there’s obviously a potential benefit to a donor,” said Cohen. “What’s the quid pro quo that I might want as a result of making this donation?” If nothing else, he noted,,a donor buys the promise of access to the official.

Decaying Before Sandy

Both Harbor View and Sea Rise are nearly 40 years old, and, like many Mitchell-Lama developments, were in deteriorating condition long before Sandy.

City building inspectors warned that crumbling façades at Sea Rise were in such poor condition that pieces of the concrete could slough off the towers and hurtle earthward. A HUD inspection report from 2010, the most recent issued, classified the Sea Rise I half of the complex as harboring “life-threatening” conditions.

The Sea Rise complex was also in a financial death spiral. It cost more to operate than it  reaped in income from rents and subsidies, state records show, and had plunged into deep debt — more than $38 million owed to the state on two mortgages, whose interest rates are subsidized by the U.S. Department of Housing and Urban Development, on top of $41.4 million in past arrears. Sea Rise sends the state just $12,000 a month; at that rate it would take nearly 270 years to pay off the mortgages. In 2011, the Board of the Empire State Development Corporation authorized foreclosure proceedings.

Then came Sandy.

The water filled the first floor, nine, ten feet at least. The Sandy damage was “extensive,” said Grenadier spokeswoman Devorah Fong. “All the apartments on the first floors of the two buildings, including the management office, were destroyed.”

Grenadier used insurance proceeds to bring those units back online. Had the Empire State Relief Fund followed the same rules it had set for individual homeowners — which required application for government aid first — the projects would have not have been able to receive aid. The Housing Trust Fund Corporation board approved the Empire State Relief Fund assistance nonetheless.

Mitchell-Lama affordable housing developments have a special place in Gov. Cuomo’s agenda, with the charity in a key supporting role. At the beginning of 2013, with Coney Island and other waterfront areas still crippled by Sandy, Cuomo announced in his State of the State address a new $1 billion House NY affordable housing program, centered on the rejuvenation of three dozen decaying Mitchell-Lama buildings — including Sea Rise and Harbor View

At an April 2013 committee meeting chaired by Mulrow, the state Housing Finance Agency laid out its game plan: it would use the Empire State Relief charity funds to start tackling an estimated $8 million in Sandy damage not covered by insurance, then borrow more money to upgrade other state-supervised Mitchell-Lama developments as part of the governor’s billion-dollar campaign.

Mulrow waxed enthusiastic about the Mitchell-Lama revival project, charity funding and all. “It’s a huge task but it’s an important task,” he told board members. “This is government trying to make things better, and this is a huge way for us to be of huge assistance to the older projects.”

While Sea Rise and Harbor View are still awaiting the promised Empire State Relief Fund charity money, the work has already begun. On the grounds, 10 infant evergreen trees, recently driven into the ground and secured with stakes, dot a bare lawn. New sod is being planted in one corner. The only visible evidence Sandy was here is a new coat of pale green paint that circles the buildings as high as the flood line.

This story was produced by The New York World and WNYC.

UPDATED: At 8 a.m. Friday, with statement from spokesman for charity board member James Simons.

CORRECTION: An earlier version of this story erroneously stated that all households with flood insurance were ineligible for aid from the Empire State Relief Fund, when in fact some were eligible. The number of recipients of the charity's aid has also been corrected.