Sale of Brooklyn Housing Complex Would Benefit Trump

The longtime owners of Starrett City, the sprawling Brooklyn housing complex overlooking Jamaica Bay, are selling the development for more than $850 million, and among those who stand to benefit is President Trump, a partial owner.

Starrett City is the largest federally subsidized housing development in the country, and the sale will require the approval of the federal Department of Housing and Urban Development and state housing officials, raising potential conflicts of interest for Mr. Trump and his family. Mr. Trump owns a 4 percent stake in the complex, according to his federal financial disclosure forms; other members of the Trump family also own stakes in the partnership.

The buyer is a joint venture of the Brooksville Company, a recently formed residential real estate firm, and Rockpoint Group, a private equity firm that invests in real estate. The pending deal, which is expected to close early next year, was announced to tenants, employees and elected officials on Wednesday.

Representatives Hakeem Jeffries, whose district includes Starrett City, and Elijah E. Cummings, a member of the House Committee on Oversight and Government Reform, highlighted the potential conflict of interest in July when rumors circulated in New York that Starrett City would be refinanced.

“The president is on both sides of the negotiation — he oversees the government entity providing taxpayer funds and he pockets some of that money himself,” they wrote in a July 7 letter to the Donald J. Trump Trust, which holds the president’s business interests, and Ben Carson, secretary of the Department of Housing and Urban Development.

Mr. Trump’s share of the proceeds — after the partners pay off their mortgage, transfer taxes and other transaction costs — could be about $14 million, according to real estate executives familiar with the details who spoke anonymously because they have no authority to disclose them.

Carol Deane, the managing partner for the sellers, Starrett City Associates, said that the sales agreement “provides stability for our residents, and guarantees their apartments will remain affordable for many years to come.” Under previous agreements with the state and federal governments, the owner of Starrett City is locked into rent-regulated housing programs for at least another 22 years.

Andrew MacArthur, the founder of Brooksville, said that he and Rockpoint were “committed to preserving the original vision of the complex as stable, quality affordable housing.”

Providing affordable housing in a city where rents have climbed outside the reach of many has been a major focus of both Mayor Bill de Blasio and Gov. Andrew M. Cuomo who have struggled to keep pace with the loss of units converted to market-rate rents.

Everything about Starrett City is supersized. It sits on 145 acres between the East New York and Canarsie neighborhoods, with 5,881 apartments in 46 buildings and 15,000 residents, as well as its own power plant, schools, shopping center, houses of worship and ZIP code.

All of the apartments are rent regulated for low, moderate- and middle-income tenants. In 2016, HUD provided the owners of Starrett City with nearly $80 million in rent subsidies and a tax break worth more than $16 million.

Starrett City rose on the site of a landfill in the early 1970s and it was originally designed as a union-sponsored housing cooperative called Twin Pines Village.

With rising costs and a weak economy, the unions asked Starrett Housing Corp., a private real estate company, to take over construction.

Disque Deane, an irascible real estate investor who kept a stuffed white Alaskan timber wolf in his office, led the partnership that owned the complex.

“They put together a group of investors, 200 if I recall, of the richest people in the country, including Trump’s father,” said Robert C. Rosenberg, a former city housing commissioner who later ran Starrett City for many years.

President Trump’s father, Fred, acquired as much as a 20 percent stake. His interest was later split among his children and several corporate entities.

The investors collectively put in $22 million, or roughly 6 percent of the $382 million cost of building the project. The state housing agency provided $360 million in financing. The investors benefited from existing tax laws that allowed them to use losses at one project to shield profits from other investments from taxes.

At the same time, the complex also participated in a variety of housing programs, including Section 8, under which tenants pay 30 percent of their income with the government subsidizing the rest of the rent. The government, in turn, set a 6 percent cap on profits.

“I generated so many tax losses for them that they did better than any other tax shelter in the history of America,” Mr. Rosenberg said. “Because of Section 8, I had enough money to keep the place in good shape.”

In a 2007 interview, Donald J. Trump called Starrett City “probably the greatest tax shelter ever made.”

The complex opened in 1974 in a city wracked by racial tension and fiscal and economic distress. Starrett promised the city that 70 percent of the tenants would be white and 30 percent minority and maintained separate waiting lists to ensure those goals.

Advertisements for Starrett City at the time offered an “invitation to better living,” with “amazingly low rentals” — $275 for a two-bedroom with a balcony and a “magnificent $3,500,000 pleasure dome,” or sports center.

The Open Housing Center challenged the quotas in court in 1979, resulting in a settlement in 1984, but no major changes to the waiting lists. A subsequent lawsuit forced the creation of a single waiting list for all applicants.

According to census data, almost half the residents today are black, a quarter are white, 21.8 percent are Hispanic and about 3 percent are Asian.

The complex was renamed Spring Creek Towers several years ago but few residents call it that.

At the height of the debt-fueled real estate boom in 2006, major real estate investors bought meat-and-potatoes housing that they had once ignored like Stuyvesant Town-Peter Cooper Village on the East Side of Manhattan and the Riverton Houses in Harlem.

They often paid exorbitant prices with cheap money from Wall Street and invested little equity. Often the new owners’ plan was to oust long-term, rent-regulated residents in favor of new tenants willing and able to pay higher rents. But many of the deals collapsed under the weight of enormous debts.

In 2007, Starrett City Associates sought to sell the complex to a partnership led by David Bistricer, who owned thousands of units across the city, for $1.3 billion. The partnership planned to convert the complex to market rate housing.

But city, state and federal officials blocked the deal, saying Mr. Bistricer was unfit because of his long record of clashing with tenants. In 1998, the state attorney general barred Mr. Bistricer for life from selling condominiums and co-ops because of financial improprieties, although the order was later modified.

Starrett City Associates refinanced the complex instead in 2009, allowing the partners to pocket $250 million in profit, while setting aside about $40 million for repairs and improvements. The owners in turn committed to maintaining the complex as affordable housing.

On Wednesday, elected officials, including RuthAnne Visnauskas, commissioner of New York State Homes and Community Renewal, largely took a wait-and-see approach to the sale, though Senator Chuck Schumer, a Democrat, said that he will be “watching like a hawk to make sure any new owner follows every iota” of the 2009 agreement on affordability.

But Assemblyman Charles Barron was dismayed. He said it was a “gross miscarriage of economic justice” that President Trump would profit from the sale. He was also concerned about the tenants. “We shouldn’t do this without a full vetting by the tenants,” Mr. Barron said. “There’s going to be a battle on this one.”

Brooksville and its financial partner Rockpoint say they will not be under the same financial pressure as buyers were during the last boom because they are putting up more than half of the $850 million sale price in cash.

Douglas Harmon of Cushman & Wakefield, a real estate company, helped put the deal together for Starrett City Associates. A decade ago, he said the deals were “high wire acquisitions” that were not sustainable investments.

The deals today are very different, Mr. Harmon said. “Their purchase is fueled by low leverage and in this historic low interest rate environment they can be satisfied with boring, bond-like investment returns.”