Co-op Owners Face Sell-Out Issue

New York's supply of middle-income apartments is threatened as government contracts expire. AFFORDABLE HOUSING

PENN SOUTH was built for people like Sylvia and Leo Bilander. He's a retired labor union editor. She was a union administrator. They met 50 years ago, right across the street, in what was then a garment factory and is now the Fashion Institute of Technology. The Penn South project is a middle-income cooperative on Manhattan's West Side, built in 1962 under a program designed to keep middle-income people in the city.

The Bilanders had their name on the waiting list for 15 years. Last fall they finally got in, and now they are happy as pups. Their apartment is airy and spacious, and the terrace looks out at the Empire State Building.

``I feel so secure. It's like a dream come true,'' says Sylvia, who is sunny and spry. ``Where else can a middle-income person go in New York?''

Pretty soon, the answer could be, ``Nowhere.'' Until now, Penn South and many other New York co-ops built in the late '50s and early '60s have stayed in the middle-income range because of contracts with the state and city. Now those contracts are running out, leaving tenant-owners free to sell to the highest bidder on the private market.

Residents of Penn South voted four years ago to resist that temptation, forego huge potential profits, and hold to their founding mission. But at least one co-op has already succumbed. If the trend continues, and if legislators don't act, New York could lose more than 200,000 middle-income apartments at a time when these units are already scarce.

In the view of many, the loss would be the nation's as well. Quietly, co-ops such as Penn South have shown a way to use private ownership to solve one of America's most vexing problems: how to provide affordable housing when the real-estate market keeps pushing prices up. ``We need to stop this bleeding to death of a vital program,'' says Manfred Ohrenstein, the Democratic minority leader in the New York State Senate.

Middle-income co-ops in New York go back at least as far as the Great Depression, when the Amalgamated Clothing Workers began building such housing for their members. The big boom came in the late '50s, when the state passed the Mitchell-Lama program. Put simply, Mitchell-Lama was based on a bargain: Developers (often nonprofit) kept prices low, and the city granted tax breaks and other concessions in return.

The original idea was to blend private ownership with social idealism. Co-op residents own their building jointly (in condos, by contrast, people own only their own apartment). They elect the management and pay a monthly fee to cover utilities, taxes, and the like. In so-called ``private'' co-ops, owners can sell their shares for whatever price they can get. In real co-ops like Penn South, however, they can get back their investment, and no more.

In New York, this co-op ideal has dimmed at some projects, and lax city administration is partly to blame. Safe, spacious, and low-priced, Mitchell-Lama apartments soon became choice plums in a housing-starved city. Waiting lists typically run from 10 to 15 years. Residents are supposed to move if their income goes above a certain level, but the city has never enforced this requirement. Monthly surcharges for these higher-income residents have been so paltry that the apartments are still a steal.

Not surprisingly, few Mitchell-Lama residents move, no matter how wealthy they become. At Jefferson Towers, a 189-unit co-op on Columbus Avenue, about one apartment per year becomes vacant. (Maintenance fees for a one-bedroom apartment there are about $350 a month.) ``There are tons of [city-housing] officials and judges in some buildings,'' says Julian Barnes, a board member at Jefferson Towers. When he was elected New York City mayor, David Dinkins was paying $700 a month - including surcharge - for a three-bedroom Mitchell-Lama apartment. His salary as Manhattan borough president was $95,000.

Mr. Dinkins gave up that apartment, reluctantly. But most tenants don't. These financially sophisticated, upper-income residents have emerged as leaders in efforts to make their buildings private.

Going private isn't an unmixed blessing. Without city tax breaks, for example, monthly charges would be substantially higher, which is especially tough on retired people. Also, in today's slack real-estate market, the anticipated windfalls may be slow in coming (see related story). Regardless, people get passionate with so much money at stake. Edwin Gunther, who is fighting a go-private movement at Lincoln Guild on West 66th Street, gets threatening calls at night. At one Brooklyn co-op, residents fighting a buy-out move found their cars vandalized.

To opponents like Mr. Gunther, the real issue is one of principle. The apartments were built for middle-income people, they argue, and current residents have no right to convert millions in public subsidies to their exclusive personal gain. ``What right do we have that no one else in the world should ever have the good deal we had?'' Gunther says.

Proponents counter that cashing out in 20 years was part of the original deal. Actually, few gave the matter much thought when Mitchell-Lama was enacted, legislative sources say.

The buy-out contest at Penn South was a war of leaflets and official debates. Residents say this is typical. With its 10 stolid-brick structures, Penn South looks like many city housing projects. But its political culture is unique. ``I love meetings at Penn South,'' says Marian Rothman, head of the Council of New York Co-operatives. ``When they call a meeting, you can count on 600 people coming out.''

Penn South was financed by the garment workers union under a renewal program similar to Mitchell-Lama, and many residents once walked to work in the city's garment district. President John F. Kennedy came to dedicate the project in 1962, and long-time residents still speak of the event as an ``annointing.'' ``There's an honor to this co-op and we always felt we had to live up to it,'' says Ruth Vogel, a retiree who lives there.

This spirit has helped turn a development of more than 6,000 people into a real community.

The co-op needed to draw on every bit of this community spirit to fight the buy-out. It was a rare opportunity to get rich overnight. Residents, most of them retired, were hearing prices like $200,000 for apartments they paid $8,000 for in 1962. ``It was an invasion of the barracudas and the sharks,'' says David Smith, a Penn South resident and board president since 1972.

The debate was intense and sometimes bitter. But in the end, Penn South residents surprised just about everybody by deciding to remain in the co-op program.

Penn South seems reasonably safe for another 25 years. But other co-ops don't have its political cohesion. A bill to rescue them by extending Mitchell-Lama has been languishing in the state legislature. Complicating things further, the financially strapped city stands to gain millions in new property taxes if the co-ops go private.

Yet some residents are worried about the future of Penn South. Newcomers who didn't experience the labor wars and JFK's speech just don't have the same co-op spirit. ``It's lost on the younger generation,'' says Arthur Vogel, a playwright and Ruth's husband.