The de Blasio administration is in crisis mode over the growing Rivington House scandal. Two investigations are ongoing to find out whether it was incompetence or something more sinister that led city bureaucrats to lift a deed restriction on the former nursing facility. One individual pushing back against allegations made in news stories is James Capalino, New York’s most prolific lobbyist.
In a March 26 report, the Daily News reported that Capalino “steered $50,000 in donations to Mayor de Blasio after pressing the city for a deed change that allows one of his clients to turn a building restricted for use as a nursing home into luxury condos.” The story went on to mention that Capalino said he did not represent the client, Slate Acquisition LLC, in the Rivington House deal.
In a statement put out on Friday, Capalino asserted that news coverage in the past week has been factually inaccurate. His firm was hired on February 4, 2013 by VillageCare, which opened Rivington House as a nursing home for AIDS patients in 1995. The not-for-profit organization terminated the contract at the end of October 2014. Capalino wrote:
Our firm had no involvement in any aspect of the subsequent real estate transactions at 45 Rivington or the decision of the DCAS (Department of Citywide Administrative Services) decision regarding the lifting of the deed restriction, which occurred nine months after our contract with VillageCare ended… Regarding our work for Slate Acquisition LLC, we had no involvement whatsoever in their acquisition of 45 Rivington and are only representing them on unrelated matters for properties they own in Brooklyn.
In February of 2015, the Allure Group purchased the building for $28 million and operated it for a few months as a nursing home. In November, the firm paid $16 million to change the deed, removing requirements that the property be used as a not-for profit health care facility. Three months later, Slate and its partners announced a $116 million acquisition of 45 Rivington St., and a conversion to luxury condos.
In an interview with The Lo-Down on Sunday, Capalino sought to counter suggestions in the media of a possible link between his fundraising for de Blasio and the city’s baffling decision to remove the deed restriction. De Blasio has said he had no personal knowledge of the situation before reading news stories about it late last month. A spokesperson for the mayor declined to talk about Capalino with a reporter for the Wall Street Journal, saying only “The administration is interested in determining if anything inappropriate happened and will hold those parties responsible.”
It seems extraordinary in light of the current controversy in which a developer profited more than $70 million after a deed was changed, but the potential political fallout from the move was apparently never a preoccupation.
Capalino said there had been a vigorous debate within the board of directors about the future of the nursing home. While it served a critical role at the height of the AIDS crisis, advances in treating HIV had made the center less vital. Care was now focused on prevention and outpatient programs. The state health department, said Capalino, was saying it could not continue Medicaid reimbursements for Rivington House’s 219 beds. The facility had been about half full for quite some time.
The board looked at many different options before ultimately concluding that the building should be sold and the proceeds funneled into other AIDS treatment programs. VillageCare leaders, however, were concerned, about the deed restriction, which left in place, would have made the property less valuable on the open market.
Capalino was hired to persuade city officials (at that time in the Bloomberg administration) to drop the restrictive deed. An appraisal was completed in October of 2013 by Jerome Haims Realty. It put a value on the property of about $29 million, if the deed restrictions remained. But a “highest and best use analysis” found that “a conversion to a more appropriate hotel or apartment building” increased the value to $32 million. The appraisal also noted that almost $70 million had been invested to convert the building from a school to a medical facility (it was financed by state bonds).
Capalino said DCAS was amenable to the change, but in keeping with longstanding city policy, insisted on imposing what amounted to a penalty fee. There was a major push by VillageCare, through Capalino, to waive the fee. In an October 28, 2013 memo to Deputy Mayor Linda Gibbs, he wrote, “DCAS has now determined that it will remove… the deed restrictions.” The organization, Capalino explained, was convinced that its “mission would best be served if a reputable for-profit nursing home operator purchases the facility and continues to operate it.” He concluded, “I would like to meet with you as soon as possible to see how we can find a way to eliminate the taking of a huge portion of the sales price by DCAS. By allowing VillageCare to keep the proceeds, the funds could be used to continue much-needed programs.”
There were many obstacles along the way. After the de Blasio team assumed control in January of 2013, Capalino + Company had to start over, lobbying a new set of city officials. These were all people within DCAS, the Human Resources Administration and at the deputy mayor level. Capalino said he never broached the subject with the mayor himself. Following more discussions with bureaucrats, VillageCare became restless, said Capalino, causing “the board and the executive leadership to grow frustrated with my ability to get things done and they sent a termination notice.”
Recent news reports revealed that Joel Landau of the Allure Group sent an email to Assistant DCAS Commissioner Randal Fong on October 29, 2014, asking the agency to remove the deed restriction. The agency approved the request after a public hearing the following June, and after Allure agreed to pay the city $16 million. But Capalino, whose contract ended October 31, 2013, told us he had no idea that Landau was making overtures to the city at this time. “This is what’s amazing,” he said. “No knowledge whatsoever. I never heard of the Allure Group until I read the first article in the newspaper… DCAS never disclosed to me that they had been approached by somebody saying they were in negotiations with VillageCare about purchasing the building to turn it into a health care facility.”
Another issue has been raised about Capalino’s involvement in Rivington House. The city comptroller’s investigation of the matter is looking at, among other things, the appraisal. Given the high purchase price this past February, that $29 million appraisal in 2013 seems pretty suspect. But Capalino said he believes the huge disparity can be chalked up to the red hot real estate market in the past couple of years. “There was an extraordinary acceleration in property values on the Lower East Side in a period of 24-36 months,” he noted. Several buildings hit the market, he said, and “purchase price numbers for subsequent sales went through the roof.”
In 2015, Capalino was the top lobbyist in New York City, collecting nearly $13 million. The citywide media have not been shy about highlighting his ties to the mayor. But the Rivington House debacle has struck a nerve with this veteran power player, who’s been a New York City insider since the Koch administration. In the Wall Street Journal, he suggested a possible freeze on fundraising for de Blasio while Capalino + Company is lobbying the city. Asked on Sunday whether it’s something he’s still considering, Capalino replied:
If there are people out there, however misguided, who are prepared to insinuate that my raising money for a mayor who I have supported since he became a candidate, that it represents some question about my personal integrity or the integrity of my firm, it’s just not worth it. (As a) result of less than highly professional journalism over the course of the past week, I have been subject to grossly inaccurate and grossly unfair representations about the conduct of my firm and what our intentions were. If it’s necessary to create basically a Chinese wall between our role as lobbyists and my Constitutional right to raise money for a public official, I guess I might have to consider doing that.
Capalino concluded by saying that he has proudly advocated for AIDS programs, dating back decades. He served on the board of Gay Men’s Health Crisis, helping to stabilize that organization at a time in which it was on the verge of collapse. “I am proud of my personal role,” he said. “The notion that somehow we were dishonoring the role Rivington House played on the Lower East Side is just unfair.”
We contacted VillageCare yesterday for its perspective. Executives there have not yet responded.