Landlords Get a $173 Million Deal From City as Their Lawyer Raises Funds for de Blasio

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Two years ago, the administration of Mayor Bill de Blasio decided to buy 17 buildings, which it planned to use for affordable housing, from a pair of notorious landlords with an extensive record of violations.

City officials first estimated the total value of the buildings at about $50 million. A private appraiser later hired by the city determined the value was $143 million. The city has kept the appraisal secret; no other appraisal was commissioned.

This week, the city is expected to close a deal to pay the landlords $173 million for the buildings. City officials said the purchase price for the buildings rose during the normal course of negotiations.

At the center of the deal was Frank Carone, the lawyer for the landlords, and an influential figure in the Brooklyn Democratic Party and a longtime ally of Mr. de Blasio’s.

As negotiations were continuing with the city over the buildings’ sale last fall, Mr. Carone donated the maximum $5,000 to the mayor’s federal political action committee, Fairness PAC, which Mr. de Blasio is using to explore a run for president.

Then, as the parties prepared to close on the deal, Mr. Carone turned to others to boost the mayor’s PAC.

Mr. Carone acknowledged through a representative that he had helped Mr. de Blasio solicit donors for Fairness PAC, which the mayor has used to pay for his travel this year to early primary states like Iowa, South Carolina and New Hampshire; he plans to visit Boston on Thursday and Nevada this weekend.

In his first term, Mr. de Blasio repeatedly came under scrutiny for blurring the line between city business and political fund-raising. Several state and federal investigations examined his ties to donors, two of whom pleaded guilty to corruption-related charges.

The investigations were closed without Mr. de Blasio facing charges, but federal prosecutors released a statement citing “circumstances in which Mayor de Blasio and others acting on his behalf solicited donations from individuals who sought official favors from the city.”

Both Mr. de Blasio and Mr. Carone said that they had not discussed the real estate deal that calls for the city to pay the landlord, Stuart and Jay Podolsky, $173 million for the buildings in Brooklyn and the Bronx.

The city comptroller, Scott M. Stringer, wrote to the mayor’s office on March 25 to express concern over the purchase price, and asked to see the appraisals of the properties, which have been used by the city to house the homeless.

But Steven Banks, the commissioner of the Department of Social Services, replied three days later, saying that the city’s policy was not to release appraisals because they might contain information that could affect the city’s negotiating position in future transactions. Mr. Banks said the city was paying an average of $237,000 per apartment, a price he said was in the range of the median price for rent-stabilized units in Brooklyn and the Bronx.

A spokeswoman for the comptroller, who oversees city spending, said that his office did not have the authority to block the deal that is expected to close as early as Thursday.

Eric F. Phillips, Mr. de Blasio’s press secretary, said that Mr. Carone’s association with the mayor did not influence the real estate transaction.

“This deal is about improving and securing affordable homes for 2,000 people,” Mr. Phillips said in a written statement. “The personal political activity of one of the many lawyers involved never entered into the equation.”

Referring to the mayor and Mr. Carone, he added, “They’ve never spoken about any details of the deal.”

Mr. Carone, a lawyer at Abrams Fensterman and counsel to the Brooklyn Democratic Party, said that it made sense for him to represent the Podolskys because he had known the “family for more than 30 years.”

Frank Carone, a lawyer and influential figure in the Brooklyn Democratic Party.

“It was only natural for myself and my team to represent the family in its eminent domain negotiations with the city,” Mr. Carone said in a statement provided by a representative, George Arzt. “Ultimately, all parties came to an agreement on what an amicable settlement would look like.”

For years, hundreds of the apartments in the Podolskys’ buildings have been used by the city to house homeless families, as part of what is known as the cluster-site program. Under the deal, the city will pay for the buildings but nonprofit groups will convert them to permanent affordable housing, own and operate them.

The deal had already attracted questions because of the Podolskys’ history. Along with their father, Zenek Podolsky, the brothers were indicted in the 1980s by the Manhattan district attorney’s office for allegedly using a “terror” campaign to drive tenants out of three Upper West Side buildings, which they filled with drug dealers and prostitutes. The Podolskys pleaded guilty but were spared a prison term by agreeing to turn the buildings over to a nonprofit that worked with homeless families.

More recently, the buildings they are selling, like others in the cluster-site program, have been plagued by violations and subpar conditions. City officials, however, refused to identify the buildings involved in the sale, citing privacy concerns of the homeless families living there.

The Podolskys also operate single-room occupancy hotels used by the city to house homeless people. The city began contracting with the Podolsky companies as early as 2001; from July 2013 through June 2018, the Department of Homeless Services paid companies controlled by the Podolskys a total of $189 million for use of the cluster-site apartments and the single-room occupancy locations.

The city announced in December that it was in the process of buying 17 cluster-site buildings. It was later revealed by The Daily News that the buildings were owned by the Podolsky brothers. Mr. de Blasio said then that the negotiations would be delayed while the deal was reviewed; the city later determined that it could proceed.

The city at first said it might use eminent domain to seize the properties but ultimately worked out a deal for their purchase.

A review in 2017 by the Department of Housing Preservation and Development first set the total value of the 17 buildings at about $50 million. But Mr. Banks said that review was not suitable for an eminent domain proceeding, which is intended to capture the value of the properties’ highest- and best-use potential, and a professional appraisal by Metropolitan Valuation Services later estimated the value at $143 million.

City officials said that a “reputable independent appraiser” had prepared an “evaluation for potential condemnation that was consistent with the correct legal standard, so there was no need for another appraisal.”

But Jonathan Miller, the president and chief executive of Miller Samuel, a real estate appraisal company not involved in the transaction, said that it was typical in comparable situations to get more than one appraisal.

“We do a lot of litigation, arbitration, mediation, and there’s almost always multiple appraisals,” Mr. Miller said, adding that if two appraisals are far apart then a third would typically be called for, to ensure that “no money was left on the table, or that a party ended up paying much more than what something is worth.”

He said that the large gap between the Housing Preservation Department estimate and the professional appraisal was a cause for concern, and “with that kind of disparity I would think that would necessitate more than one alternative valuation.”

Mr. Banks said the $173 million purchase price was justified because if the city were to take the buildings through eminent domain, the process could have dragged on for years and could have ended up costing the city even more money.

Mr. Banks said that Mr. Carone’s ties to the mayor did not influence the outcome. He said that the buildings have a total of 729 apartments, of which 468 were used as cluster housing.

All of the families in the cluster units, which include about 1,200 people, will now get affordable leases to their apartments. About 2,000 people live in the buildings, when noncluster apartments are included.

“There’s 1,200 human beings here, children and adults, that are getting permanent housing at one fell swoop,” Mr. Banks said.

Mr. de Blasio has vowed to end the cluster-site program because it is costly and because it is often difficult to provide services to families placed in the apartments. Mr. Banks said that negotiations were continuing with the owners of other cluster-site buildings, and similar deals could be announced soon. He said that Mr. Carone was not involved in those negotiations.

Mr. Carone said there was nothing untoward in his financial support of the mayor. (He and his wife, Diana, each made the maximum donation of $4,950 to the mayor’s 2017 re-election campaign.)

“I am a Brooklynite and an attorney representing the Kings County Democratic Organization, and I am proud to say I regularly support people from Brooklyn,” Mr. Carone said in a statement. “So it should be of no astonishment why I am supporting our Brooklyn mayor as he explores a run for president.”