Who Does This?
The board-approved terms gave Hudson/Related thirty years, no vacancy deadline and a larger share of profits if the land became more valuable
At the June 18 meeting of the Roosevelt Island Operating Corporation’s Real Estate Development Advisory Committee, President and Chief Executive Officer B.J. Jones acknowledged that there had been no progress finding a tenant for the long-discussed medical space on Main Street. Hudson/Related Realty LLC had told him that filling the space, along with other vacant storefronts, was proving more difficult than expected.
Judy Berdy, the only member of the public in the room, asked the question that reduced the entire arrangement to three words:
“Who does this?”
To answer her, you have to go back to 2011.
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Eight Yes Votes
In 2011, RIOC controlled 100,414 square feet of commercial space across 34 Main Street units. More than 22 percent of the above-grade space was vacant. Vacancy was not a problem that emerged later. It was the problem the transaction was supposed to solve.
Jones Lang LaSalle, advising RIOC, recommended transferring the portfolio to Hudson/Related, citing its commitment to address all the retail space and its experience developing Southtown. The Board was told Hudson/Related would invest at least $2.365 million over five years. RIOC would receive approximately $929,100 in annual guaranteed rent, with scheduled increases, and half the remaining profit after Hudson/Related recovered its capital plus interest.
Vice President and Chief Financial Officer Steven Chironis called the deal “above market rate.” President and Chief Executive Officer Leslie Torres said she was satisfied. Michael Shinozaki raised the only concern recorded, asking why individual requests for retail space had stopped reaching the Board. Chironis said they were being saved for the future master lessee.
Eight directors voted yes: Darryl C. Towns, Meghan Anderson, Fay Fryer Christian, Dr. Katherine Teets Grimm, Jonathan Kalkin, David Kraut, Michael Shinozaki and Margaret Smith. Howard L. Polivy was absent. The agreement passed without a dissenting vote.
The Capital Account That Ate the Profit
Vacancies were not harmless to Hudson/Related. Empty storefronts produced no rent while the company still owed RIOC its guaranteed payment. But there was no additional vacancy penalty, and Hudson/Related had thirty years, plus its own option for ten more, to recover its costs.
Those recoverable costs extended beyond storefront improvements. Guaranteed payments to RIOC, operating deficits, brokerage expenses and management fees could all become Hudson/Related invested capital. Hudson/Related also received a management fee equal to 4 percent of gross revenue. Its accumulating capital balance accrued a 9 percent annual return before RIOC could share in the remaining profit.
The financial structure therefore made time Hudson/Related’s ally. Weak income or operating losses could delay RIOC’s participation while adding to the balance Hudson/Related recovered first. RIOC expected participation income in year seven. The first payment arrived in 2022, another remains unpaid for 2024 and a reported loss eliminated any payment for 2025.
Vacancies still cost Hudson/Related money. The bargain gave it decades to turn much of that cost into capital accruing a 9 percent return every year before the public received its share.
Everything Except Empty Stores
The 2011 Board approved an arrangement requiring Hudson/Related to revitalize the older Main Street storefronts, improve lighting and wayfinding, attract anchor tenants and maintain inviting storefronts. After five years, Main Street was supposed to reach a standard comparable to Riverwalk Commons, Hudson/Related’s own Southtown retail. Southtown was the model. It was not part of the bargain.
The division was financially selective. Hudson/Related’s stronger Southtown retail remained outside the agreement, while the Main Street portfolio included dependable rent-paying tenants such as the post office, supermarket, Public Safety and RIOC’s own offices. Their rents provided reliable revenue while other storefronts remained empty. RIOC supplied the stable tenants. Hudson/Related kept its stronger portfolio separate.
Yet the Board approved no required occupancy rate, deadline for filling vacancies, vacancy penalty or clear termination right if revitalization failed. The arrangement anticipated violations inside occupied storefronts but did not regulate whether the storefronts became occupied, even though vacancy was the central reason for transferring the portfolio and already stood at 22.2 percent.
RIOC was protected against a pool hall it never received. It was less protected against an empty window.
At the June meeting, Board Member Melissa A. Wade made the separation explicit. Chief Financial Officer and Vice President Dhruvika Patel Amin confirmed that RIOC receives no Southtown retail revenue. President and Chief Executive Officer B.J. Jones confirmed that Southtown cannot be added under the present arrangement. Fifteen years later, Southtown remains the standard Main Street was supposed to reach and the profitable portfolio the public bargain never included.
The Year-Fifteen Switch
Year fifteen triggers a new rent based on 6 percent of the current land value. If that calculation exceeds Hudson/Related’s existing payment, RIOC receives more. But the same reset can increase Hudson/Related’s share of remaining profits from 50 percent to 60 or 70 percent, depending upon the size of the increase.
Hudson/Related also receives a management fee equal to 4 percent of gross revenue, whether the portfolio makes money or not. That fee, along with operating deficits and other cash outlays, can be added to its invested-capital balance. That balance accrues a 9 percent annual return before RIOC participates in any profit. Beginning in year sixteen, half the tax-equivalency obligation also becomes a portfolio expense, further reducing the income available to share.
The structure therefore protects Hudson/Related first. It does not protect the storefront tenants. A higher payment to RIOC does not automatically increase their rents, but it creates pressure for Hudson/Related to recover the added cost from businesses already struggling with the incomplete revitalization it promised.
At the June meeting, Board Member Melissa A. Wade asked whether anything besides rent could change. Chief Financial Officer and Vice President Dhruvika Patel Amin answered no. President and Chief Executive Officer B.J. Jones said stronger performance requirements would require Hudson/Related to renegotiate voluntarily. RIOC can collect more, but it cannot use the reset to demand fewer vacancies, better management or the inclusion of Southtown.
The Leverage RIOC May Still Hold
The current Board is not powerless. Most residential owners want ten-year ground-lease extensions. Only Westview and Island House have provisions requiring negotiations now. Southtown’s extensions remain optional. Related therefore wants something RIOC is not required to give.
That may be leverage, but only if RIOC can lawfully connect the Southtown extensions to retail reform. Before granting another decade, the Board should publicly establish whether it can seek Southtown’s inclusion, enforceable occupancy standards or a new financial structure.
RIOC should also disclose the unpaid 2024 participation amount, publish the appraisal and release the executed master sublease. Residents deserve to compare what was promised with what was delivered.
Judy asked, “Who does this?”
The May 18, 2011 minutes answer the first part. Eight directors did, unanimously. The current Board’s answer will be found in what it demands, what it publishes and what it refuses to give away before adding another decade.
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Let's add context here. A huge factor is that, in the year before conversion to Hudson-Related, RIOC budgeted $1.6 million in revenue from Main Street leases. Although Hudson president David Kramer told the Wall Street Journal that H-R would "shock and awe" the community with its Main Street revitalization, the revenue never came close to meeting even what RIOC was already getting in 2011.
(I hate aggressive military memes in civilian contexts.)
The community was cheated, but RIOC never explained or acknowledged it. Interestingly, in a disgusting way, the webpage that previously hosted that 2011 budget was swept out when RIOC set up its new website. The evidence is now officially tampered with. Will RIOC ever tell us why it destroyed an important public record? Yet another transparency cover-up?
Also missing from the discussion is the deal-making RIOC/Rivercross insiders handled behind closed doors. The H-R Main Street Retail conversion was voted in as a tradeoff for votes when Rivercross went public, leaving its Mitchell-Lama roots. The board members voting for this public corruption all received windfall profits as their once bargain-rate condos went public. Not one of them recused in the vote, although all of them pocketed thousands of dollars in value.