U.S. & World

NEW YORK (CBS) ― Housing and Urban Development Secretary Alphonso Jackson formally announced Friday that HUD has denied approval for the $1.3 billion sale of the nation's largest federally subsidized rental housing complex, Brooklyn's Starrett City.

The proposed sale of Starrett City is one of the richest real estate deals in New York City history - and one of the most criticized, reports CBS station WCBS-TV in New York.

The announcement came one day after sources familiar with the proposed deal's regulatory process leaked word of Jackson's decision to The Associated Press.

The decision comes after HUD lawyers met Thursday with deputies of New York state Attorney General Andrew Cuomo to discuss government worries about the purchase of the 6,000-apartment complex by real estate company Clipper Equity LLC.

HUD notified Clipper Equity on Thursday that the agency will 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, according to two people familiar with the notification who spoke on condition of anonymity because Jackson had yet to make a formal announcement.

The notification from the U.S. government also indicated the sale could be salvaged 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.

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 officials issued a statement saying they "look forward to the opportunity of correcting certain underlying misinformation and to providing the secretary with the appropriate assurances he seeks."

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

Many tenants in the 30-year-old Starrett City development 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, which since the 1950s has provided land and lucrative government financing to developers in exchange for building low- and middle-income housing that is subsidized by the state.

Starrett City straddles Brooklyn's East New York and Canarsie neighborhoods. It has its own shopping center, schools, churches, synagogues, power plant and armed security force.

State officials hold its $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.

(© 2007 CBS Broadcasting Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.)