I. Purpose of This Memorandum

This memo highlights fiscal and governance concerns in the financing plan for  Fulton Building 1 and the larger redevelopment of NYCHA’s Fulton and Elliott-Chelsea Houses , based on the December 11, 2025 HFA/HDC Board Book, supplementary financial analysis, and standard LIHTC underwriting.

Given the scale of public exposure—over $2.45 billion  and a loan structure that balloons to $143+ million at year 10,  we want to  respectfully bring these concerns to the fore. 

II. Summary of Key Financial Findings

1. Extreme Per-Unit and Total Project Costs

• Cost per newly constructed unit: ≈ $1.2 million
• Scaled total redevelopment cost: ≈  $2.45 billion (2056 units X $1.2 million/unit)
• One of the highest public-housing redevelopment costs in U.S. history.

2. Developer’s Minimal Financial Stake

• Developer equity: ≈ $33,000 per unit  (≈ $7–11M total)
• Represents less than 4% of total development cost.
• Developer receives NYCHA land for $1 (replacement buildings).

3. Rehabilitation Alternative Was Far Cheaper

NYCHA’s earlier estimate ( 2023 PNA) for rehabilitating the same buildings:

• ≈ $900 million—
  less than half the cost of demolition and reconstruction.

4. No bid contract

The contract and scope, in its current incarnation have not been put to competitive bid. Rather, the project valuation has been done solely by the developer, the very entity bound to gain from the project. According to NYCHA, the project is not subject to an Obsolescence Report, an assertion disputed by housing advocates (that may be challenged in court)

This raises questions about cost justification, procurement, and long-term fiscal prudence.

The SMRRT Loan Represents a Major Long-Term Public Liability

A. Loan Terms

• Principal: $61,239,608
• Interest: 8% annually, accruing and compounding
• Term: 40 years
• Repayment: capped at 50% of project net cash flow
• Not credit enhanced
• No recourse to the private developer (Related)

B. Ballooning Over Time

Because interest grows faster than repayment:

We respectfully request that the loan terms be modified as follows:

1. Interest rate / negative amortization
   That the interest rate be reduced to prevent excessive accrual and compounding of interest that would otherwise result in negative amortization and an unsustainable debt burden.
2. Use of ground lease / development proceeds
   That proceeds from the 99-year ground lease and from the conveyance of development rights on excess land not be pledged or used to repurchase or defease this loan, so as to avoid forcing NYCHA to deploy those proceeds to reacquire what would effectively be a toxic or unduly risky asset.
3. Cash-flow sweep / repayment cap
   That the current cap limiting repayment to 50% of available cash flow be removed, and that all available net cash flow (after operating expenses, reserves, and other senior obligations) be applied to debt service on both interest and principal, to mitigate further accretion and avoid a ballooning balance.
4. Credit enhancement / sponsor guarantee
   That the loan be credit-enhanced through a full and unconditional guarantee by Related, as the parent sponsor (or an equivalently creditworthy affiliate), so that the ultimate obligor is the sponsor rather than solely the project-level ownership entity.

The Capital Stack Is Over-Capitalized

A. Total Development Cost (TDC)

• $287 million for Fulton Building 1.

B. Total Capital Raised

Exceeds project cost by: ≈  $80M.

C. Over-capitalization risks

• Debt is layered beyond project need.
• Ensures higher developer fees (calculated as a % of TDC).
• Increases long-term public obligations.
• Reduces fiscal discipline in project budgeting.
• Does not represent true contingency: no private equity cushion.

Over-capitalization with public  debt, rather than private equity, exposes NYCHA and taxpayers to unsustainable liability.

Misalignment Between Contract Terms and Loan Terms

The RAD/PACT operating agreement (the HAP contract) is typically 20 years , renewable to 30 years.

• The HDC first mortgage and SMRRT loan mature over 40 years.

This mismatch means:

➤ The developer’s contractual obligations may expire  a decade before the debt does.

NYCHA could be left with:

• a publicly owned building,
• still carrying large debts,
• with no guaranteed private operator,
• and limited revenue options.

This is a structural governance risk that merits urgent review.

Lack of Reporting in LIHTC Equity and Partnership Structure

The HDC/HFA Board Book omits  critical LIHTC details, including the exact LIHTC equity amount

While such omissions are common, they prevent accurate public understanding,

LIHTC equity (~$80–$88 million) is  the single largest equity source and should be taken into account as part of the overall financing.

Public Risk vs. Private Risk

Public Sector Takes On:

• Nearly 96% of total capital
• A ballooning SMRRT loan
• 40-year debt maturities
• Responsibility for debt buyback
• Potential misuse of Speculative reliance on air-rights revenue
• Operational and financial risk after Year 20–30

Private Developer Takes On:

• Minimal equity (~$33,000 per unit)
• No recourse on subordinate debt
• Guaranteed fees, cash flow share, and long-term control
• Land for $1

We believe that this arrangement lacks standard risk alignment found in public-private partnerships.

in closing , the Fulton & Elliott-Chelsea redevelopment represents a  $2.45 billion public undertaking, with a $1.2 million per-unit cost, a  ballooning subordinated loan, over-capitalization , and a financing structure that places long-term risk squarely on the public sector while the private developer contributes minimal capital and obtains substantial benefits.

For the sake of fiscal responsibility, housing stability, and transparency in the use of public assets, I urge the Board to exercise heightened oversight and offer modifications to the financing and funding structure of this project and the ones that will follow to complete this project.

Respectfully,
Layla Law-Gisiko

District Leader AD75/A