The Surreal Estate

Perspectives on Tenant Organizing from the Urban Homesteading Assistance Board

Tag Archives: bad conditions

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.

Evict the Landlord

Tenants and allies 1058 Southern Boulevard made this video documenting the handwork they did to bring direct pressure to slumlord Miriam Shasho. Check it out, and be sure to check out RIPPD, whose support to tenants of 1058 Southern Boulevard is invaluable.

HPD Releases FY 2013 AEP List

Each year, HPD releases a list of the 200 most physically distressed buildings in the city. These are the 200 new buildings that will enter the Alternative Enforcement Program. Because buildings are not discharged from AEP until conditions have been rectified, about 500 buildings remain in the program from previous years. You can read more about AEP in the City’s report on the first 5 years of the program, released in July 2012.

Last week, HPD released the list of AEP buildings for FY 2013. Check it out. The buildings are overwhelmingly located in low income areas of Brooklyn, Upper Manhattan and the Bronx. There are only a few properties located in Queens and Staten Island. Many of them have active Lis Pendens – the first step in a foreclosure case – indicating that distressed buildings are experiencing financial troubles.

There are some familiar addresses on the list. In 1054 Southern Boulevard, tenant leaders, are asking HPD to replace their negligent landlord with a city-approved manager (the 7A program.)  The Tenant’s Association of 3 buildings in Sunset Park are on rent strike with the assistance of UHAB and South Brooklyn Legal Services.

The Alternative Enforcement Program is an excellent example of the ways that HPD has been effective in intervening in dangerous housing situations in New York City. That’s why we were excited last month when the program was expanded to take into account underlying conditions and to enable the City to work with more buildings.

Hazardous living conditions, like the kinds identified for targeted enforcement through AEP, put already-vulnerable families at an even higher risk. It is a public health concern, a housing concern, and a human rights concern. We hope that these identified buildings will improve over the next year as HPD oversees extensive repairs.

Does This Building Look Repaired to You?

The 10 Milbank buildings purchased by Steve Finkelstein are now just 9: 2264 Holland Avenue was sold in February 2012. But the smaller portfolio hasn’t stopped Finkelstein from loading up on debt. The outstanding debt on the portfolio is now $45.5M with lender Cantor Commercial Real Estate, up from $30M with Signature Bank at the time of purchase.

According to a legally binding agreement made at the time of purchase, Finkelstein should have corrected 80% of B and C violations in the 10 buildings by October 2011.  The Westchester based landlord claims that the buildings are now managed well, repaired, and approaching full occupancy. He claims the additional debt is sustainable. We’re not sure he’s right, or that he is in compliance with the agreement executed in April 2011. Check out photos from 1576 Taylor Avenue, last night:

Tenants from the Milbank portfolio are angry, to say the least. Their landlord has pocketed an additional $15M, and they’re not getting the repairs they deserve. 1576 Taylor is riddled with water damage, electrical problems, sagging floors and leaking faucets. Many of the newly installed sinks and toilets are barely clinging to the walls already. One rent-paying tenant’s bathtub was “repaired” without a shower option. Common quotes from last night: “He’s never been in my apartment.” “He said he’d fix my apartment in the spring, but the workers left in January and they never came back.”  And, of course: “The intercom doesn’t work.” “I have things crawling in through the hole in the wall.” But Milbank tenants are resilient, and they’re organized, and they’re ready to fight back.

A Green Future for Formerly Distressed Buildings

Workforce Housing Advisers, the group that helped save 1520 Sedgwick , the Birthplace of Hip-Hop, is upping their ante in the Community Development world in the Bronx by moving beyond developing and preserving decent, safe affordable housing and starting a project that will benefit not only the tenants but the whole community in the Hunts Point area of the Bronx.

This was all started by a group of horribly distressed basically abandoned buildings located at 16, 920, 924, 928, and 935 Kelly Street. These buildings were all put in the city’s Alternative Enforcement Program (AEP) in 2007, meaning they were among the 200 worst buildings in NYC. The properties only continued to decline from there. But now, Workforce Housing stepped in, bought the debt, finished foreclosure and has begun a $16 million renovation of the properties with financing that ensures they will remain affordable in the future.

Considering their past exploits, this is merely par for the course for Workforce Housing. However, with Kelly St. they are taking a step further and initiating a project that will benefit the tenants as well as the greater community. The project is called Kelly Street Green, and its goal is to provide support for a healthy, fresh food purveyor in a commercial space in the Kelly Street buildings. The project is currently requesting proposals from interested parties, and a committee (that includes yours truly) will help determine who will ultimately run the space. The store will sell produce from local farms as well as the community garden adjacent to the properties. This project will be a huge gain for the community of Hunts Point which is often considered a “food desert” meaning it is extremely difficult for people in the community to acquire quality groceries.

Even better, as the Daily News reports, the space will be leased at a substantial discount and will receive up to $150,000 in start up grants. The person/group selected will also receive a rent free apartment in one of the buildings.

If you are interested in submitting a proposal, or just want to find out more about this project visit kellystgreen.com. We’re excited to participate in this innovative project, and are looking forward to hearing about your ideas!

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