Livonia Developer Took Fee Cut

In a show of altruism spurred by Mayor Bill de Blasio's commitment to creating affordable housing, Dunn Development Corporation CEO Martin Dunn told City & State that he took a 15 percent cut to his typical developer's fee as part of his agreement negotiated with the city to construct the Livonia Commons housing and retail complex in East New York. 

"There’s standards in the affordable housing world on developer fees, we did take less than the standard, because...we had a goal of how much affordability we would do," Dunn said. 

Dunn was previously quoted in The New York Times criticizing the city as being too generous in granting subsidies for affordable housing to developers, and urging the government to make developers provide housing with less help from taxpayers. Dunn did say that the developer fee--which typically constitutes 10 percent of the cost for land acquisition and 15 percent of other development costs--was not, however, negotiated by the de Blasio administration, and was already agreed upon during the original life cycle of the Livonia deal, which started under the Bloomberg administration. 

"The kind of profit margins we make are a fraction of what market rate developers make," Dunn said. "The city drives a hard bargain with us, as they should, we want them to drive a hard bargain when big real estate taxes and inclusionary housing bonuses are being negotiated or being provided."

Dunn's comments are especially noteworthy given the other major housing deal negotiated by the de Blasio administration--the addition of 40 units of affordable housing to the Domino Sugar redevelopment in Williamsburg in exchange for building height--did not include a developer fee for Two Trees, the company developing the site. However, while it is natural to compare the two housing deals because of the timing of the announced affordable housing components, the financing structure is markedly different.

"It’s really apples to oranges," said Dave Lombino, a spokesman for Two Trees, of the Domino-Livonia comparsion. "[Domino] is privately owned, we own the site, we’ll own the apartments, so we wouldn’t take a developer’s fee because that’s something that a third party would pay us. In the case of [Livonia] that’s the city that’s paying him to build the affordable units. Our affordable units are being generated through the inclusionary program, which is a way to incent private developers to set aside affordable units."

Livonia on the other hand, is a much smaller-scale project in which all 270 housing units will either be affordable or deeply affordable--with half units available to individuals and families making below 40 percent of the Area Median Income. Because the city is asking Dunn to keep rents below market rate, the developer fee is what keeps the project profitable for the company, and solvent as it is being constructed. 

For Two Trees, only a portion of the Domino housing units will be affordable--660 to be exact--while the rest will be market rate, so the company's profit is derived from the rents from the non-affordable units and the value the property accrues over time, making a developer fee unnecessary.