updated 3/2/2007 11:47:37 AM ET 2007-03-02T16:47:37

The federal government said Friday it had rejected a developer's $1.3 billion deal to buy the nation's largest federally subsidized rental housing complex, Brooklyn's Starrett City.

The real estate developer said it would try to find a new way to buy the property.

The secretary of the Department of Housing and Urban Development, Alphonso Jackson, announced Friday that the deal was denied.

In a letter sent to Clipper Equity LLC, Jackson said the prospective buyer had not provided sufficient information to demonstrate its financial and managerial capabilities for preserving Starrett City as affordable housing on a long-term basis.

Clipper Equity said in a statement prior to the announcement that it looked "forward to the opportunity of correcting certain underlying misinformation and to providing the secretary with the appropriate assurances he seeks."

The proposed sale of Starrett City would be one of the richest real estate deals in New York City history — and has been one of the most criticized.

The would-be deal came amid a historic residential real estate boom in New York City and follows last year's $5.4 billion sale of Stuyvesant Town and Peter Cooper Village in Manhattan. Some residents there now face rent increases of more than 30 percent.

With about 6,000 apartments, Starrett City has about half as many as Stuyvesant Town and Peter Cooper Village. The Brooklyn complex has its own shopping center, schools, churches, synagogues, power plant and armed security force. Some tenants pay as little as $200 a month in rent.

HUD lawyers met Thursday with deputies of New York Attorney General Andrew Cuomo to discuss government worries about the purchase of Starrett City.

HUD notified Clipper Equity on Thursday that the agency would not approve the sale because of a lack of certain information the agency believes is critical and because certain details of the transaction, such as the sale price, lead them to believe the complex may not remain affordable housing.

The notification from the U.S. government also indicated the sale could be approved if Clipper Equity can provide more information about its credit standing and answer some of the challenges posed by critics, according to the two people familiar with the notice.

New York Sen. Charles Schumer, who had vowed to block the deal, said he was happy to hear of Jackson's decision.

"HUD is doing the right thing. Now we can get back to the drawing board to craft a deal that preserves middle-class housing and supports the tenants," Schumer, D-N.Y., said in a statement.

However, Cuomo said he did not believe there was any way Clipper Equity could revive its purchase.

"The information we gave HUD precludes this purchaser," said Cuomo, a former HUD secretary during the Clinton administration. He added that HUD's denial was "exactly the right decision."

The Starrett City sale has come under attack from many different levels of government in recent weeks.

Mayor Michael Bloomberg has called the sale problematic, members of Congress have demanded hearings and Jackson had already publicly threatened to block it.

Cuomo raised concerns about a partner in Clipper Equity, David Bistricer, who already owns 71 other buildings with 8,792 outstanding violations.

Since 1998, Bistricer has been under permanent injunction from offering or selling cooperative buildings and apartments — a statewide ban Cuomo said he intends to enforce.

Cuomo has said Bistricer's background should ban him from the Starrett City deal — and may be grounds to block it entirely.

Clipper Equity has argued that many of the past violations were inherited when it bought another Brooklyn housing complex, Flatbush Gardens, 18 months ago.

The 30-year-old Starrett City complex straddles Brooklyn's East New York and Canarsie neighborhoods.

Many tenants pay between $200 and about $400 monthly for federally subsidized apartments. The families live on annual gross incomes of about $20,000 to $40,000 and fear the whopping purchase price for the complex means their rents will rise dramatically.

About 2,000 tenants pay up to $1,200 in rent under the state's Mitchell-Lama program. Since the 1950s, the program has provided land and lucrative government financing to developers in exchange for building low- and middle-income housing that is subsidized by the state.

State officials hold Starrett City's $234 million interest-free mortgage and can approve or reject any new owner, but a buyer could withdraw the complex from the Mitchell-Lama program by paying the balance of the mortgage.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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