July 24, 2012 1 Comment
Yesterday, Crain’s New York published a story on the 10 buildings purchased by Steve Finkelstein last spring. Loyal readers of our blog should be very familiar with these buildings – the Milbank buildings – as we were deeply involved with the preservation campaign and tenants associations in the properties. For those who aren’t in the know: these buildings, which fell into foreclosure in 2009, were so dilapidated that HPD Commissioner Raphael Cestero called them the worst buildings he had ever seen. HPD was so shocked by how conditions had deteriorated that they were moved to create a new program – Proactive Enforcement – to ensure that no buildings in the City of New York ever got as bad as the Milbank buildings. This is all to say that tenants in the Milbank portfolio have been through hell and back again, and they deserve a great landlord.
When Steve Finkelstein bought the buildings, we were concerned that he had paid far too much money for the portfolio. However, we were satisfied that tenants and HPD had successfully executed a deal with the buyer that protected existing tenants from MCIs and guaranteed repairs of underlying conditions issues. Even though we believed that the price he paid was too high, we hoped that Finkelstein would successfully bring these tenants’ homes back from the horrible conditions they were in. He swore his financing was sound and that he had done enough underwriting to make this deal work. We were happy about the deal he struck with tenants and with HPD.
Last week, however – as the Crain’s story notes – we noticed that landlord Steve Finkelstein has been refinancing these properties and increasing the debt level by $14M dollars. The new lender is Cantor Fitzgerald Real Estate Investments. Finkelstein tells Crain’s that he took out this debt to cover the cost of repairs – so we guess his initial underwriting wasn’t as solid as he first indicated.
We believe that this level of debt – which is higher than the Milbank mortgages that went into foreclosure – is highly unsustainable. Even if vacancies are filled, as Finkelstein claims, market level rent in the Bronx is still far to low to cover mortgage payments on the more than $100,000 worth of debt-per-unit that some of the buildings carry.
Something else fishy is going on. Steve Finkelstein has Contracts of Sale on four of the Milbank properties to A.M. Feurman and Marc Winston of MJA Financial. These deeds of sale take place in the future: September 2013. We have never seen a future-dated deed before, so we’re not quite sure what it means. But we have seen A.M. Feurman before, lending on properties in the Bronx since the 1980s. These properties generally have one thing in common: they are related to notorious “phantom landlord” Frank Palazzolo.
While violations have certainly gone down and vacant units are nearly all renovated and rented, long-time tenants aren’t thrilled with their new landlord. It’s been typically much more difficult for old tenants – who are paying less rent – to get their landlord to address their concerns. And violations aren’t LOW either – as of today, 1576 Taylor has 229 open violations (on 73 units) and 3215 Holland (52 units) has 226.
Finkelstein has not only refinanced and added debt with Cantor Fitzgerald at the Milbank buildings, he has done it on many others as well, including 1055 Grand Concourse. So, to put it mildly, we’re suspicious. We know that the Milbank tenants have fought long and hard for their homes, and that whatever happens they have the stamina to keep the fight going. But this indication that the building is headed for another round of predatory equity is distressing — tenants could certainly use a break. As the buildings have just recently come back from the brink and the memory of the Milbank foreclosure is still fresh, we’re fear they may begin to slip back again. We hope we’re wrong.