Report: Businessman Duped City Hall Into Flipping AIDS Hospice for Condos

In the latest of a series of investigations on the conversion of a Lower East Side nursing home into luxury  condos, a report from City Comptroller Scott Stringer released yesterday turned its focus away from City Hall’s ineptitude, and towards the businessman who city officials claim duped them.

Village Care sold Rivington House to Joel Landau, a principal of the for-profit Allure Group, for $28 million in February of 2015. Since 1992, the AIDS hospice had been bound by two deed restrictions that required it to be used for non-profit health services. Allure then paid the city $16.1 million to lift the two deed restrictions and flipped the property to the Slate Group, luxury condo developers, for $116 million in February.

Speaking at a press conference yesterday, Stringer said Landau was “plotting a payday from the beginning,” citing several misrepresentations he made to city agencies.

The Comptroller’s report says Landau initially told City Hall he didn’t need either restriction lifted because he planned to continue operation as a not-for-profit nursing home, while he was simultaneously lobbying the Department of Citywide Administrative Services (DCAS) to lift at least one of the restrictions.

Stringer also cited Landau’s claim to City Hall that he needed the deeds lifted in order to secure financing to buy Rivington House, even after he’d already secured funding. Landau also reportedly said that union jobs could be saved by listing at least one of the restrictions, promising the continuation of health care to Community Board 3 and Local 1199, the union Rivington House workers belonged to.

“Too often those misrepresentations were taken at face value by the city. As a result, Landau was able to secure the approvals he needed to eventually earn a massive pay day,” said Stringer.

In May 2015, two weeks after the deed restrictions were lifted, Landau signed an agreement to sell Rivington House to a housing developer. To be eligible for a 20 percent tax rate on the building’s sale, as opposed to the standard 39.6 percent, Landau had to own the property for at least one full year. He delayed closing the sale by 10 days. When the sale was finalized, he’d owned the property for exactly 367 days, saving an estimated $17 million in taxes to the Internal Revenue Service, according to the report.

Landau mused in an email to his business partner about his plans to sell before he even owned the building, advising against investing in technology if they did not plan to reopen as a healthcare facility, according to Stringer’s report. One of Landau’s lawyers advised the housing developers to “KEEP THEIR MOUTHS SHUT. The deal is all over the street from their investors and it could FFFF up the deed restriction being lifted amd [sic] union if they know sales price.”

Stringer’s report echoes the DOI’s, finding that despite claims of ignorance of Landau’s plans from Mayor Bill de Blasio, senior City Hall staff, including three deputy mayors, knew well before the building’s sale that it would likely become luxury condos.

In July 2014, DCAS, tasked with overseeing deed restrictions, put a hold on the removal of Rivington House’s restrictions so City Hall could run an analysis. First Deputy Mayor Anthony Shorris ultimately decided his preference was that it be maintained as a healthcare facility. A City Hall memo clearly stated that the building would be most useful as a for-profit healthcare facility, for both the public it served and the unionized health care employees who worked there. But there is no evidence that this determination was ever communicated to DCAS, according the Stringer.

In the absence of clear directions, Landau was able to lobby interested community members, including the healthcare workers’ union and the community board to support the removal of the deeds, promising to build a healthcare facility. Additionally, Landau told City Hall he needed the deeds removed to secure financing to purchase the property after he’d already received several offers for financing — his lawyer wrote that he could have come up with the cash to make the sale “if push comes to shove”.

“Because of poor communication — and the passive and unquestioning execution of established protocols designed to protect the public interest — Mr. Landau’s plan to lift all restrictions on Rivington House moved closer to reality,” Stringer wrote in the report.

Memos required to be written by City Hall staff — ones that contained details describing the likely fate of Rivington House—were routinely ignored. According to the report, Shorris said his staff understood that important matters should be communicated by phone or direct email and that, at the time, he did not view Rivington House as an urgent issue. A public meeting regarding the issue was attended by a single person: Landau.

When outraged community members got wind of the sale in December 2015 and contacted the mayor’s Community Affairs Unit, City Hall again missed its opportunity to intervene. It was 72 days before anyone told Mayor de Blasio the deeds had been removed, and the report found no evidence that anyone spoke with Landau about the pending sale until after it was complete.

While community and city officials have called for major overhauls to the deed removal process in response to the scandal, Stringer’s report curiously says no reforms are needed, and that the city is already equipped to prevent this from happening again. “Rivington House was allowed to slip away not so much because of poor City processes, but because of poor execution of those processes in a manner that undermined both public input and the interests of the City,” reads the report.

“Look, the lifting of this deed restriction was highway robbery, for sure. And there’s no question that people on the Lower East Side who valued and needed a healthcare facility are outraged. And they should be,” said Stringer, speaking at a press conference on Monday.

In a statement, Andrew Levander, an attorney for Allure, said, “The Comptroller’s report confirms that Allure never lied to or misled City officials about the potential sale of Rivington House. To the contrary, the report acknowledges that Joel Landau told City officials that if Allure had to pay $16.15 million to remove the deed restrictions, it would be forced to develop housing or flip the property.”

The mayor’s office has promised to invest $16 million back into the community, the amount the city earned to lift the deed restrictions, and significantly tighten the process of lifting deed restrictions. Stringer’s report echoed Manhattan Borough President Gale Brewer and several community members’ claims that the appraisal was based on severely outdated numbers. DCAS appraised the building at $604 per square foot, but a private lender valued it at $770 per square foot.

Brewer, Councilwoman Margaret Chin, and City Council Speaker Melissa Mark-Viverito recently asked the City Planning Commission to make deed restrictions part of the city’s routine Uniform Land Use Review Procedure (ULURP), the process that has guided shifts in land use for decades.

Read the Comptroller’s full report here.