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NEW YORK CITY—Freddie Mac has purchased the $531.5-million loan on the 5,881-unit Starrett City apartment complex in Brooklyn. The refinancing, which grows out of a bill enacted by the state legislature this past summer, is intended to keep the complex in the Mitchell-Lama affordable housing program for another 30 years.

Freddie is purchasing the loan from Wells Fargo, which originated it. In a statement, Starrett City Associates president Robert Poll says the complex’s owners, an investors group, will use $40 million of the refi proceeds to fund a capital improvement program for the 140-acre property.

Poll describes the deal as “a large and complex transaction, which required cooperation among numerous government agencies and private companies to bring to closing.” Among others, he cites US Housing and Urban Development Secretary Shaun Donovan, US Sen. Charles Schumer, Gov. David Paterson, Mayor Michael Bloomberg, Assemblymembers Inez Barron and Vito Lopez, State Sens. John Sampson and Pedro Espada and state housing commissioner Deborah Van Amerongen. Mike May, SVP for multifamily at Freddie, says in a release that the refi “puts to rest current residents’ fears that the property would be sold, rents would increase and they would be forced to find alternative housing.”

The road to the refi did indeed appear to lead to a sale of the complex at one point. In December 2006, GlobeSt.com reported that Starrett City was on the block, and in the aftermath of the $5.4-billion sale of Peter Cooper Village/Stuyvesant Town, it was speculated that it could fetch more than $1 billion.

By March of the following year, a buyer had emerged in the form of Clipper Equity LLC, but then-HUD secretary Alphonso Jackson blocked the sale, on grounds that the buyer had not made clear how it planned to keep the complex affordable. “We are concerned the sale will rapidly change the Starrett City community,” Jackson said at the time. “We are concerned it will be dug open, paved and changed.” Jackson blocked Clipper’s second attempt in July 2007.

By the following June, Schumer and state officials had developed a memorandum of understanding on keeping the complex affordable, which it had been since its opening in 1974. Sources told GlobeSt.com that this considerably thinned the pool of potential buyers.

SCA took Starrett City off the block last February, blaming current market conditions and a lack of financing. Over the summer, both houses of the state legislature passed bills allowing SCA to refinance the complex while keeping it in the Mitchell-Lama program.

“This is something we’ve worked on for some time,” an SCA spokesman told GlobeSt.com when the Assembly version of the bill was passed. “We’ve always intended to preserve Starrett City as affordable housing, and this is another way to do it.”

Under provisions of the legislation, which Paterson signed into law in July, SCA was entitled to refinance the complex in excess of its actual project cost, provided that the group complies with Mitchell-Lama guidelines for 30 more years and does not increase rents to pay for “any subsequent debt produced by the project.” The bill created a $40-million dedicated fund for capital improvements to the residential tower structures and to individual units, which comes out of the loan proceeds.

Among the capital improvements that will be paid for out of the fund are replacement of apartment unit refrigerators, dishwashers, kitchen cabinets, counters and bathroom vanities; replacement of damaged and older vinyl floor tiles in common areas; tower and garage structure repairs; and replacement of substandard windows. Tenants at Starrett City will have input into how the capital improvement money is spent through a series of bi-monthly meetings between elected officials, the project’s owners and members of the residents’ association. In addition, SCA must obligate the funds dedicated to capital improvements within three years.

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