Past New York City Federal investigation left corruptly-negotiated real estate contracts intact

Without a legal determination that the Rivington House sale was illegal, the office of Deputy Mayor Alicia Glen tried to reverse the sale.

What legal authority did her office have ?


Mayor  Ed Koch  giving interview to WABC-TV in 1981. During Mayor Koch's administration, not even the Federal racketeering prosecution of a senior administration official,  Alex Liberman , led to the nullification of real estate contracts that had been corruptly negotiated by Mr. Liberman, according to the muckraking book, "City For Sale." Source : Wikipedia/CC BY-SA 4.0 by Bill Golladay

Mayor Ed Koch giving interview to WABC-TV in 1981. During Mayor Koch's administration, not even the Federal racketeering prosecution of a senior administration official, Alex Liberman, led to the nullification of real estate contracts that had been corruptly negotiated by Mr. Liberman, according to the muckraking book, "City For Sale." Source : Wikipedia/CC BY-SA 4.0 by Bill Golladay

As with the pattern of the City of New York property leases reportedly corruptly negotiated by Alex Liberman in the early 1980’s, the City is today standing by several real estate transactions that have been questioned.

Some of the real estate transactions that the City has defended include the sale of project-based, Section 8 housing developments formerly owned by the New York City Housing Authority and the sale of the Brooklyn Heights branch of the Brooklyn Public Library.

The sale of Section 8 housing was transacted with politically-connected developers selected in secret by City officials, including by an agency headed by a former executive of one of the investors, and the sale was negotiated without public input in a process that sidestepped the rules applicable to the disposition of city real property under the City Charter.

Despite questions raised in a report published by The New York Post and a report broadcast by the cable news network NY1 about the sale of the Brooklyn Heights branch of the Brooklyn Public Library, the de Blasio administration has made no indication of unwinding that real estate transaction.

The failure by the de Blasio administration to examine the legality of the City real estate transactions mirrors the pattern by past officials in the administration of then Mayor Ed Koch (D-New York City), when questions were raised about contracts that were approved by Mr. Liberman, a senior City real estate negotiator.

Despite standing by the controversial disposition of City real property, the City had attempted to reverse the sale of Rivington House

One real estate transaction, which the administration has made a failed attempt at reversing, related to the controversial sale of a former AIDS nursing home, Rivington House. The sale of the former nonprofit nursing home took place after the New York City Department of Citywide Administrative Services, or DCAS, agreed to receive a $16 million payment from the seller in exchange for having lifted deed restrictions that resulted in a $72 million profit for the seller.

The lifting of the deed restrictions were not made clear for the public to participate in the City’s determination, even though Manhattan Community Board 3 had expressed their opposition to the sale on behalf of area residents.

An affiliate of the buyer of Rivington House had reportedly retained the work of the lobbyist James Capalino. A politically-connected campaign contribution bundler, Mr. Capalino has emerged as the City’s top-grossing lobbyist during the de Blasio administration. Mr. Capalino was also the former commissioner of New York City Department of General Services, or DGS, who had installed Mr. Liberman as director of negotiations at DGS during the Koch administration, conveying authorities that allowed Mr. Liberman to reportedly negotiate leases that provided him with corrupt kickbacks, according to “City For Sale,” the 1988 muckraking book by Jack Newfield and Wayne Barrett.

In 1996, some functions of DGS was merged with some functions of another City office and renamed DCAS.

Although Mr. Capalino had once been retained to lobby for the lifting of the deed restrictions by a prior owner of Rivington House, Mr. Capalino has asserted that the nature of his recent work for an affiliate of the current owner had nothing to do with the final flipping of Rivington House.

Involvement by the office of Deputy Mayor Alicia Glen

After community outrage and a media firestorm erupted over details of the Rivington House sale, an aide to Alicia Glen, the deputy mayor for housing, briefly attempted, and failed, to reverse the sale. The aide, James Patchett, reportedly contacted the seller of Rivington House, offering to refund the $16 million payment to the seller, according to a report published by The New York Post.

Information about the frantic efforts by the office of Deputy Mayor Glen to reverse the Rivington House transaction came to light after repeated expressions by the de Blasio City Hall that senior administration officials had not informed him about the controversial sale. In addition to the office of Deputy Mayor Glen, it has also been reported that First Deputy Mayor Anthony Shorris was also informed about the Rivington House sale in the time prior to when Mayor de Blasio has claimed he first learned of the sale.

Since the office of Deputy Mayor Glen was reported to have been urgently involved in attempting to privately reverse, again with no public input, the Rivington House sale one month before information about the controversial sale was exposed in a report published by The Wall Street Journal, the actions of Deputy Mayor Glen’s office may make her more than just a reluctant participant in activities that may be portrayed as a failed attempt at a cover-up of a corrupt real estate transaction. According to an editorial published by The New York Post, Mr. “Patchett told the developer the reversal was ‘what the Mayor’s Office wants’ and called the situation ‘important to us,’” seemingly contradicting the impression that for such an important issue Mayor de Blasio would have been kept uninformed.

Furthermore, the Rivington House project has been reported to be a luxury condominium conversion, meaning, that project was not slated to create any affordable housing. Because Deputy Mayor Glen has reportedly focused on affordable housing, the lack of affordable housing in the Rivington House conversion project would raise questions about her involvement in that project.

Although the sale of Rivington House has been described by area residents and the media to range from unfair to scandalous, there had been no official, public determination that the transaction was illegal. Yet, in the time before information about the transaction became public, the office of Deputy Mayor Glen had been reportedly offering to undo signed business contracts that had already been closed. It is not known where the office of Deputy Mayor Glen would have obtained the discretionary power and authority to undo such business contracts.

Because there has been no determination of illegality, it is also not known where the office of Deputy Mayor Glen would have obtained the discretionary power to offer to refund the $16 million payment that DCAS had received from the seller in due course.

Since Mayor de Blasio has defended the actions of his senior administration officials, it is not known if Mayor de Blasio was, in effect, ratifying the failed cover-up by the office of Deputy Mayor Glen of the Rivington House sale.

Requests for both information and interviews made by Progress Queens to Mr. Patchett and to the City Hall press office were not answered.

A spokesperson for the U.S. Attorney’s Office for New York’s southern district, which is reportedly investigating the sale of Rivington House, would not answer several questions submitted by Progress Queens about the alleged actions by the office of Deputy Mayor Glen.

In the face of corruption investigations, de Blasio continues to dispose of NYCHA real property in secret

Selection of the developers to construct new buildings of affordable apartments on NYCHA real property was announced last week, and the selection of the developers was made by officials at three municipal housing agencies, according to one-sheets distributed by NYCHA to the press. However, the process by which the developers were selected was not made public.

Like with the 2014 sale of project-based, Section 8 housing developments by NYCHA, no information about the ownership structure for the new apartment buildings being developed as part of Mayor de Blasio's infill plan was released by the municipal housing authority. In apparent response to past criticism that de Blasio administration housing officials have awarded ownership and development rights to politically-connected developers in an opaque process, NYCHA released a one-sheet providing a glimpse of nominal threshold requirements and selection criteria, but critical information about how the bidders were graded was not released.

As with some of the real estate-related official acts by then Koch administration officials, as documented in “City For Sale,” activists have charged that de Blasio administration officials bestow official acts related to real estate based on the appearance of a “pay to play” culture. Such a charge about the de Blasio administration was made by activists, who demonstrated last Wednesday on the steps of City Hall, according to a report of the demonstration published by The New York Daily News.

The anti-corruption activists, working under the umbrella group, New Yorkers for a Human Scale City, produced a 25-page report, and the activists cited as examples of troubling real estate transactions the disposition by NYCHA of the Section 8 properties and the de Blasio administration’s approval of the sale of the Brooklyn Heights branch of the Brooklyn Public Library.

For example, BFC Partners, which was selected as an investor in the consortium that bought into the portfolio of the Section 8 properties, was also selected to develop a new building at the Ingersoll Houses as part of Mayor de Blasio’s infill plan for NYCHA. Gary Rodney, the president of the municipal Housing Development Corporation and whose agency helped to select the new round of developers, was a former official at BFC Partners. BFC is headed by Don Capoccia, who is a member of the advisory board of a real estate think tank at New York University where Deputy Mayor Glen was a former director.

Another politically-connected real estate developer, L+M Development Partners, was selected to invest in the consortium that bought into the portfolio of the Section 8 properties. L+M Development is headed by Ron Moelis, who who is a friend of Mayor de Blasio's.

Each of Mr. Capoccia and Mr. Moelis are members of the board of governors of the Real Estate Board of New York.

BFC Partners and L+M Development are members of a joint venture, Delancey Street Associates, which has reportedly attracted a record $500 million investment from the same Goldman Sachs unit formerly headed by Deputy Mayor Glen. The joint venture is developing a 2 million square foot project in the Lower East Side that will also include affordable housing, making it a project that would fall under Deputy Mayor Glen's influence.

According to information obtained by Progress Queens from a source, Federal investigators are examining whether any of these developers received preferential treatment from de Blasio administration housing officials.

In the past, the city has honored city contracts that were corruptly negotiated

In the early 1980’s, a senor Koch administration official, Alex Liberman, had reportedly extorted bribes and kickbacks from the making of leases by the City of New York. Mr. Liberman had been appointed to serve as the director of negotiations for DGS, which is now known as DCAS, by then commissioner James Capalino, but, despite escaping scrutiny by the New York City Department of Investigation for controversies in a housing loan program that resulted in the use of inferior materials, Mr. Liberman’s activities eventually caught the attention of Federal prosecutors, according to the muckraking book, “City For Sale.”

At an important milestone in that Federal corruption investigation, when the case was formally handed over to prosecutors by a Federal grand jury, Mr. Liberman’s control over the municipal leasing bureau was described to have transformed that city office into a “racketeering enterprise,” according to a Federal criminal indictment unsealed in 1984 against Mr. Liberman and recounted in “City For Sale.”

Despite documented proof collected by law enforcement agents and prosecutors showing that many of the leases negotiated by Mr. Liberman involved criminality, “the city made no move to cancel any of the leases that had been corruptly negotiated,” according to “City For Sale.”

What is more, the nation’s top Federal prosecutor for New York’s eastern district at the time, U.S. Attorney Raymond Dearie, had publicly said that there was a “likelihood” that the “coöperation of other public officials were essential” to the success of Mr. Liberman’s corrupt negotiation of leases, according to “City For Sale.”

In the face of the alarming public statement by U.S. Attorney Dearie and despite Mr. Liberman’s reported close ties to Brooklyn Democratic County Committee leader Meade Esposito, who had long been in the crosshairs of investigators and prosecutors, the Koch administration also took no action to review the qualification of other associates of Mr. Esposito, who had been referred for appointment to the Koch administration, according to “City For Sale.”

In times past, the chairmen of the Democratic Party county committees in New York City largely determined important administration appointments. Those appointees, in turn, largely steered valuable contracts to businesses, which had provided support to the Democratic Party county committee chairmen, according to "City For Sale."

Because the political power in the grasp of the Democratic Party county committee chairmen has been weakened, the new determinants of key political appointees have become the major campaign contributors, bundlers, and lobbyists, who act as the new gatekeepers of political power in City Hall and in the New York City Council. A Wall Street executive like Ms. Glen would make perfect sense under the new regime that determines key administration appointments, particularly of officials, who can exert influence over the awarding of valuable city contracts, such as those involving land use matters. Deputy Mayor Glen, overseeing housing, has the ability to influence the execution of Mayor de Blasio's plans to build or preserve 200,000 affordable housing units.

Before Deputy Mayor Glen was named by a still Mayor-elect de Blasio in December 2013 to oversee his housing policies and programs, she had been an executive for the investment banking powerhouse Goldman Sachs. In an article for Rolling Stone magazine, muckraking journalist Matt Taibbi famously described Goldman Sachs as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

Before being named as deputy mayor of housing, Ms. Glen had defended the actions of Goldman Sachs against accusations made by Mr. Taibbi that Goldman Sachs had engineered market turbulence for the sake of its own profit by saying during an interview with Crain’s New York Business, that, “We're not all evil squids. We're nice little calamari.”

It was also noted in “City For Sale,” that after Mr. Liberman was arrested, he was taken to the U.S. Attorney’s Office in Brooklyn, which had jurisdiction over the case. Mr. Liberman requested his attorney be present, and after the attorney, George Meissner, a personal attorney for Mr. Esposito, showed up, Mr. Liberman was released. Once free on bail, Mr. Liberman reportedly set out to contact witnesses and dispose of evidence in an attempt to obstruct the Government’s investigation, according to “City For Sale.” However, investigators were able to retrace Mr. Liberman’s corrupt lease negotiations from witness testimony and other evidence leading to the unsealing of a Federal criminal indictment that included thirty counts of criminality, according to “City For Sale.” At that time then, the U.S. Department of Justice announced that the criminal indictment against Mr. Liberman was “the largest extortion case ever brought against a public official” by the Government, according to “City For Sale.”

Contrary to the evidence that questioned the legality of the real estate contracts negotiated by Mr. Liberman, City and State agencies still honored their agreements with developers, who had been identified as having made payments to Mr. Liberman or his conduits at the time when Mr. Liberman had been reportedly negotiating leases with the developers. One of such developers was George Klein, who leased to Mr. Liberman on behalf of the City portions of a building Mr. Klein owned in Brooklyn. Although Mr. Klein ultimately refused to pay a $100,000 broker fee that Mr. Liberman had been seeking, Mr. Klein nevertheless made a nominal $5,000 contribution to Mr. Liberman’s synagogue, which, in turn, had agreed at one point to provide to Mr. Liberman kickbacks of donations that had been steered by Mr. Liberman to the synagogue, according to "City For Sale." Mr. Klein was also the developer of a large Times Square project, which proceeded without question, even though it had separately received from the City and State “one of the greatest grab bags of tax abatements ever assembled for a private project” at that time then, according to “City For Sale,” later estimated to amount to $1 billion, when including other benefits, according to calculations made by the Municipal Art Society.

Did the actions of the office of Deputy Mayor Glen rise to the level of a cover-up ?

When the office of Deputy Mayor Glen contacted the seller of Rivington House, her office attempted to undo signed business contracts that had already closed, and her office offered to refund $16 million in taxpayer monies received in due course by the City, in order to reverse the sale. It is not known if the activities by her office rose to the level of obstructing in the same way that the activities of Mr. Liberman were described to be obstructing, as noted in “City For Sale.”

Because the sale of Rivington House was not yet determined to be illegal, perhaps the belief by City Hall insiders that the transaction might have appeared unethical would have prompted the efforting by the office of Deputy Mayor Glen to reverse the transaction.

Given revelations that the de Blasio administration has been the target of a wide-ranging, Federal corruption investigation, including that its fundraising operation has been being run as a racketeering enterprise, the awareness that the sale of Rivington House would cause some form of trouble for the City Hall, definitely bad press if not questions of illegality, then senior de Blasio administration officials would have certainly been sufficiently sensitive about how the Rivington House transaction would have looked in order to have taken actions to cover their tracks. As was noted in a report published by The Wall Street Journal, aides to Mayor de Blasio have expressed concern about Mayor de Blasio's close relationship with the lobbyist, Mr. Capalino.

Despite the legal questions being raised about the disposition of City real property, the de Blasio administration has, its actions pertaining to Rivington House notwithstanding, appeared to move forward full speed with its plans to continue to dispose of City real property.

Two weeks ago, the de Blasio administration announced a plan to improve the finances of Health + Hospitals, the municipal hospital system, by converting real property owned by the hospital system into affordable housing, supportive housing, or other community uses. No details about whether the disposition of hospital property would be subject to the Uniform Land Use Review Procedure, or ULURP process, as required by Section 197-c of the City Charter.

Such a concern would be unnecessary, given that, in the past, the City has honored real property contracts, even if the contracts were corruptly-negotiated.

Reference Documents

2016-05-03 Pay-to-Play Report (New Yorkers for a Human Scale City) [Scribd]