The Surreal Estate

Perspectives on Tenant Organizing from the Urban Homesteading Assistance Board

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Flipped Again: More Private Equity Groups Speculate on The Three Borough Pool Portfolio

PHOTO: JOHN TAGGART FOR THE WALL STREET JOURNAL

PHOTO: JOHN TAGGART FOR THE WALL STREET JOURNAL

On Saturday, the Wall Street Journal reported on the most recent update in the saga of the Three Borough Pool, a group of 42 buildings which over the last 8 years have been packaged together in one mortgage, speculated on, foreclosed on, refinanced and is currently being broken up and flipped again. This group of buildings is another example of the continuing cycle of predatory equity and is further proof that we have yet to come up with a solution to the problem of speculation in the rent regulated housing market.

UHAB has been tracking and organizing in this portfolio for several years. It is one of the classic examples of predatory equity. Three private equity companies (Normandy Real Estate Partners, Westbrook Partners, and Vantage Properties) partnered up with David Kramer, the president of Colonial Management, to package 42 buildings spread across the Bronx, Brooklyn and Manhattan. The investment group took out a mortgage with Barclays who then packaged the note into a Commercial Mortgage Backed Security (CMBS.) Securities like this were a common tool that many believe contributed to the 2008 financial crisis and are disastrous for affordable housing. In the Three Borough Pool, like other CMBS portfolios (Stuyvesant TownRiverton, Fordham Towers/Robert Fulton Terrace, and the Milbank portfolio) the owners eventually defaulted on their mortgages and the buildings fell into foreclosure. In 2013, UHAB and other housing advocates began working with tenants in the buildings to push for a responsible sale of the properties. However, two of the private equity companies that led the building to foreclosure were able to refinance and pull the buildings out of foreclosure. It is these companies who are now once again selling the buildings.

This weekend’s WSJ piece focuses on 8 of the 42 buildings; these 8 properties were recently sold to a real estate investment company called Black Spruce Management. According to Normandy & Westbrook, prior to the sale they made a lot of repairs to the buildings. This assertion comes as a surprise to the tenants who are facing major condition concerns on a daily basis. HPD code violations have actually increased over the past year, but the problem is actually deeper than that. These buildings have a long history of neglect and failing conditions, and they need more than patch work that could clear violations. The night before this story came out, one of my co-organizers received a call from a tenant in one of these buildings who was in tears because she found a rat in her living room in the apartment she shares with her grandchildren. Tenants in these buildings have suffered from systematic leaks, mold and lack of heat and hot water. These problems are deeper than code violation repair, they are problems which demand more extensive renovation, which would require a large financial commitment. Considering the amount that Black Spruce paid for these buildings, it is unclear if there is financing for this type of deep repair work.

The WSJ story claims that the new debt on these properties is considered low. First of all, the new mortgage of these buildings is an average of about $83,000/unit. This is the same average debt level as when the owners defaulted on the CMBS mortgage. Second, the mortgage does not tell the whole story. The full purchase price on the 8 buildings was over $57 million, or about $110,000/unit. This means about 25% of the financing is equity investment. As Black Spruce mentioned from the article, they are backed by investors: investors who are presumably seeking a return on the millions of dollars they gave to Black Spruce to purchase these buildings. Having a “lower” mortgage at the expense of putting more off the books equity into the deal does not solve the underlying problem: these are rent regulated buildings with low-income tenants and limited ability for rent increases. If the financial stability of the buildings is contingent on large rent increases, this portfolio will fail. Unless, of course, the plan is to either push the current low income residents out of their homes in order to raise rents, or to starve the buildings of money needed for maintenance in an attempt to keep costs down. This is not a new practice. This is Predatory Equity 2.0, the same kind of speculative financial venture that landed these buildings in foreclosure in the first place.

This type of speculation is particularly relevant as we approach June 15th, when the current rent regulations are set to expire. The current rent regulations are not strong enough. Advocates and tenants know that it is impossible for landlords to achieve their financial expectations when they over pay for buildings by continuing to rent to the low and moderate income families who have lived in these buildings for years. Predatory equity, like in the Three Borough Pool, makes rent regulated tenants the victims of harassment as landlords aim to push them out to achieve higher rent increases. It is vital that our legislators in Albany recognize the importance of strengthening the rent regulation laws. It has become a business practice for landlords to buy buildings with the intention of violating our laws and we shouldn’t allow it to continue. The only way we will be able to put a stop to these illegal practices is for our elected officials to reinforce the original intentions of the stabilization laws: to protect tenants in these buildings from being held hostage by greedy landlords who seek to make a profit off the suffering of our neighbors and our communities.

Tenant Harassment Prevention Task Force: A Collaboration for Affordable Housing

On Friday February 19, 2015 Mayor Bill de Blasio alongside attorney general Eric T. Schneiderman announced the tenant prevention task force. The city and state agencies are coming together to protect rent stabilized tenants from harassing landlords. The mission of the task force is clear, as the attorney general stated “…it is designed to investigate, sue and, when appropriate, prosecute abusive landlords to stop the harassment of tenants.”

Mayor Bill de Blasio and Attorney General Schneiderman on Friday February 15, 2015.

Mayor Bill de Blasio and Attorney General Schneiderman on Friday February 19, 2015.

This task force came to light due to the dramatic increase of harassment complaints from tenants. Tenant complaints have been increasing over the past year due to the harassing tactics landlords are using. An issue the tenants of Crown Heights are well aware of. The Crown Heights Tenant Union, the growing coalition of tenants, has been underway for over a year now, working together to make sure that all residents know these tactics. Landlords all over Crown Heights have taken tenants to courts for frivolous reasons, used construction to affect living conditions, and ignored tenant’s complaints of building and apartment repairs.

The announcement of the task force shows that the city is listening to the tenants of New York and as well to the work that the Crown Heights Tenants Union is doing. Also present this past Friday at the conference, was Donna Mossman from 1159 President St, owned by BCB Realty, she highlighted main tactics that landlords used to harass tenants, such as removal of boilers, blockage of entrances, lack of garbage pick-up and sending management to personally harass tenants.

 “I have watched predatory landlords push working-class people out of their homes,” said Donna.

Donna Mossman speaking on predatory landlords and their harassment tactics on February 15, 2015.

Donna Mossman speaking on predatory landlords and their harassment tactics on February 19, 2015.

Landlords are stopping at nothing to push out long-term residents from their home of over 20 or even 30 years. The increase in real estate market, the loopholes in the rent laws and the gentrification of neighborhoods has allowed for many working families to be displaced, families who cannot afford the astronomical rent hikes of New York.

De Blasio stated, “The landlords “believe ‘if we made life unacceptable they would leave,” but tenants from all boroughs are fighting back, fighting to stay in their homes. Donna and her neighbors from Crown Heights now have another resource supporting them in this fight. The tenant harassment prevention task force; where city and state agencies meet, will keep landlords accountable, and assist tenants in the long fight of making sure there is affordable housing in New York.

Renaissance Realty and 3 Boro Pool rank in highest number of code violations for December

Last Monday, Capital New York released results from their Housing Code Violation Tracker for December 2014. The tracker reports the buildings in the five boroughs that list the most housing code violations monthly. Not surprisingly, multiple buildings we work with made it on these lists. 285 Schenectady Avenue had the third highest code violations in New York City for that month. 1646 Union Street is reported to be one of the twenty buildings with a comprehensive litigation case issued by H.P.D.

What do these two buildings have in common? They are both owned by Renaissance Realty and they share a mortgage. Renaissance Realty bought both buildings at once in April of 2014. Over 60 long-term Crown Heights residents live in these two buildings and Renaissance Realty is doing their very best to push these families out of their homes. Not only are these buildings in terrible condition but Renaissance is exploiting a complicated loophole in the rent regulation laws to increase tenant’s rents anywhere from 30% to 120%.

Most of these tenants moved into their apartments based on their income eligibility – the buildings were subsidized by the federal government and the City until 2009. Renaissance’s neglect of building conditions along with their blatant attempt to displace low income people is reflective of the pattern of real estate development in Crown Heights right now. As the neighborhood gentrifies, speculators are pulling out all the stops to bring in new, higher paying residents.

Last November, residents of 285 Schenectady and 1646 Union Street organized an action in front of 285 Schenectady attended by Brooklyn Borough President Eric Adams, City Council Member Laurie Cumbo and over fifty community supporters from the Crown Heights Tenant Union. They plan to have another action next month and are currently working with Brooklyn Legal Services to address the unjust displacement Renaissance is attempting.  Despite Renaissance’s best efforts, none of the members of the tenant association have agreed to leave the two buildings. They are determined to stay and fight.

UHAB Organizers are also working with another set of buildings which made Capital New York’s violation tracker. The story is equally infuriating. The 3 Boro Pool includes 1221 Sheridan Ave —  ranked as the building with the second highest code violations in New York City for December 2014. In April 2014, The Attorney General made an agreement with the owners, Westbrook and Normandy to clear all code violations in one year. Ten months later, 1521 Sheridan Ave still has 252 open violations.  Other buildings in the portfolio include 2401 Davidson Avenue which was so cold last week that the leaks froze in tenants houses, and  [link to the most recent blog post with the horrible Davidson video before this] and 709-715 Fairmount Avenue, where just this week tenants showed UHAB Organizers mold, leaks, and floors that are anything but structurally sound. The fact that 1221 Sheridan Avenue made the Capital New York violation tracker affirms what we already knew. Westbrook and Normandy, along with management company Langsam, are not complying with the Attorney General’s agreement and are not respecting tenants rights.

Leaks Turn to Ice at 2401 Davidson Street in the Bronx

Last year, tenants who live in the Three Borough Pool cautiously celebrated a victory. With help from the Attorney General, organized tenants forced owner Westbrook Partners to fire Colonial Management and bring in a new property manager. The new property manager – Langsam Property Management – was charged with making repairs in the run-down buildings and giving every tenant a one-time $600 rent rebate to make up for the significant harassment tenants suffered under Colonial’s tenure.

The tenants’ woes haven’t ended, though. Many tenants still haven’t received their $600 check and Langsam Property Management isn’t treating the buildings well at all. As tenant leader Debra Cooper told the Guardian recently, “There was ice outside the building and drug addicts in the stairwells, she said. “They [the owners] are not doing anything. They’re just glossing over. When it rains in my kitchen, my sink backs up like a geyser – Old Faithful. There is no reason that I should have rain water from the roof in my kitchen sink. That’s nasty, that’s disgusting. I have to disinfect everything,” she said.

Today, one of the coldest days this winter, tenants in the Three Borough Pool fare no better. Check out this video from Liza Ash. A leaky pipe in her bathroom has caused her bathtub to flood. Her apartment is so cold that the bathtub is now filled with ice. After pouring anti-freeze on the ice-leak, the ice still does not go away.

Angry tenants are putting pressure on Westbrook Partners across the Atlantic: the company has recently come under fire from actor Russell Brand, who is decrying the groups efforts to privatize public housing in the London suburbs. After a long battle, London tenants forced Westbrook to sell their buildings. Last month, Brand reportedly visited Mayor de Blasio and called on him to speak out against Westbrook’s neglectful, speculative businesses practices. Tenants can’t stand another cold winter at 2401 Davidson. If Westbrook isn’t going to fix these buildings they should sell them to someone who will.

OUR HOMES OUR NEIGHBORHOOD !

Molly Hernandez - Long term Crown Heights tenant , Activist.

Molly Hernandez – Long term Crown Heights tenant of 50 years , Activist.

On Monday October 27th we gathered outside of Brooklyn Housing Court with Tenants, Elected officials, Crown Heights Tenant Union,PACC and Legal Services to call out BCB Property Management on there attempt to frivolously evict Molly. “BCB claims they ‘didn’t know’ Molly received Section 8. This is absurd, based on Molly’s many attempts to let them know. Below, Monifa Bishop, a fellow BCB tenant, stands together with Molly Hernandez and details her own problems attempting to communicate with BCB. Her testimony reveals that BCB clearly displays a pattern of not listening to tenant issues!

“I express my support today for Ms. Molly Hernandez. I also have experienced many issues with BCB Property Management and their various representatives.

Some of my interactions with BCB Property Management are as follows:

*Appointments scheduled that were not kept by BCB (even to the point that at a later date  I saw Ms. Michelle Leonardo and asked why no one showed for the appt, I asked her why I was not given the courtesy of a phone call.  Her response was “It is your responsibility to confirm an appointment”.  I reminded Ms. Leonardo that she has an assistant who surely could have contacted me to reschedule:

*An unwillingness to make repairs that are not required by HPD;

*Ms. Leonardo has stated to me “have it on good word that you attended the TA meeting at Union Street”, when in fact I had at that time never been to that building;

*blaming us for apartment issues that were clearly not of our making;

*It took Three (3) attempts on our part before the correct lease renewal was mailed to us;

*There have been several offers for a buy-out of our apartment, even though they were told “no” at the time of the first offer;

*Kendra Fidelis (Director of Property Management. previously emailed me stating, “so that there is no miscommunication” we should correspond via email, also asking that in my email state what are our issues of concern. As a result of the many appointments that BCB has not kept, I replied asking for a confirmation for today’s appointment.  I received no confirmation.  In a twist of fate, Zanum, showed today to paint a bedroom (only one of the several issues brought to the attention of Michelle Leonardo and Kendra Fidelis).  Because I received no confirmation, I made other plans.  Zanum then came back to the apartment saying that management would like me to send an email stating that I did not allow him entry into the apartment.  Seemingly, email communication is only needed when it works to the advantage of BCB. Many of BCB’s practices/tactics are subtle, some not so much.

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