The Surreal Estate

Perspectives on Tenant Organizing from the Urban Homesteading Assistance Board

Tag Archives: Interim Facility

Innovative First Look Program Sparks Another Exciting Victory for Bronx Tenants!

For over two years, tenants, organizers, advocates and elected officials battled with New York Community Bank, New York’s largest multifamily lender, to determine a path to preservation for the thousands and thousands of units of distressed and at risk affordable housing, damaged by Predatory Equity. The result, as we detailed last summer in “Breaking the Banks,” is a revolutionary “First Look” Program that allows HPD approved landlords a better opportunity to purchase overleveraged and physically damaged affordable housing in foreclosure.  The details of the program were first hammered out between NYCB and advocates, including UHAB, in the Spring 2012, and currently there are at least three participating banks.  

Today, HPD, Speaker Quinn, Workforce Housing Advisors (WFHA), the Community Preservation Corporation (CPC) and UHAB are pleased to announce the beginnings of a gut renovation of some of the the earliest multifamily residential buildings to be transferred to an approved affordable housing developer through the First Look program. WFHA purchased the mortgages at a discount from NYCB in October 2011, and after a comprehensive relocation process (which assured tenants the opportunity to return home following renovation), closed on a $4.7 million financing package.  This package will allow the properties to be fully repaired while also ensuring that they remain affordable for the current residents for years to come.

“The deal is an example of what the City can accomplish when we work together to protect tenants’ homes,” said Speaker Christine C. Quinn. “The ‘First Look’ agreement we reached with New York Community Bank ensures the City and good developers get first crack at purchasing loans and preserving buildings, and I thank Workforce Housing Advisers,  UHAB, and HPD for their hard work to save these homes.”

In her recent State of the City address, Christine Quinn proposed created a housing fund “to make bulk purchases of over leveraged housing. The city will make sure repairs get made while properties make their way through the foreclosure process. Then, we’ll transfer them to an approved developer who will keep the buildings affordable and in good condition.” This proposal is the result of collaboration between the City and housing advocates for the past year. Our idea, which we have called the Interim Facility, will build upon First Look by setting up a framework for large scale preservation of distressed housing.

539-541 E. 147th are the first two buildings in the First Look program to begin the long renovation process, but there are other buildings purchased through the program and are slated for future development. WFHA purchased mortgages in foreclosure from NYCB on 1380 University, also in the Bronx. As recently reported, Banana Kelly and Wavecrest Management also reached a deal on three properties on College Avenue. Tenants in both 1380 University and the College Avenue properties are working closely with CASA (Community Action for Safe Apartments) to ensure that they have a voice in the future of their buildings.

Another exciting victory for the First Look program took place in March 2012 when Mutual Housing Association of NY (MHANY) purchased mortgages from NYCB  on four extremely distressed properties in Brooklyn. These buildings, organized by UHAB, are still winding their way through the foreclosure process. MHANY expects to become the deed holder in the next few months. Once that happens, tenants can look forward to extensive repairs and a cooperative relationship with their non-profit landlord. In the meantime, tenants, UHAB organizers, and MHANY have been meeting regularly with architects to collaborate on a plan for renovation.

The addresses of buildings that have entered the preservation pipeline  through the First Look program thus far are 539-541 E. 147th Street, 1380 University Ave, and 1259, 1265, and 1269 College Avenue in the Bronx, and 230-232 Schenectady Ave, 266 Malcom X Blvd, 896 Madison Street in Brooklyn. Combined, these properties are home to over 250 families. As the Interim Facility gets off the ground and the First Look program continues to grow, we expect this number to multiply!

To read more about the upcoming renovation at E. 147th Street, read today’s press release here.

Exciting Win for Affordable Housing Preservation in the Bronx!

nycb

photo: NYTimes

Last year, a coalition of organizations including UHAB negotiated with three banks (New York Community Bank, Valley National Bank, and Chase) to establish the “First Look” Program.  As we mentioned in previous posts, this program allows community development organizations a two week grace period to make an offer on distressed housing.  This two week period minimizes competition, and ideally gives nonprofits an advantage over other developers to purchase and preserve affordable housing.

An exciting deal has been reached this week between Banana Kelly and New York Community Bank! (For the record NYCB has been the only bank which has successfully sold distressed buildings to nonprofits through “First Look.”) The New York Times published an article yesterday about 63 distressed units on College Ave in the Bronx which were previously owned by notorious landlord Eli Abbott.  We are thrilled that these buildings will be preserved as long-term affordable housing, and that tenants will get the repairs that they deserve!

While the “First Look” program has been successful a handful of times, the way the market has been recently, banks are selling debt, rather than selling deeds.  This means that in order to purchase a building, a developer must buy the debt from the bank, finish the foreclosure, go to auction, and then take over as owner of a property.  It is unusual for nonprofits to have the capacity to negotiate with banks and go through this lengthy process.

This challenge for nonprofits to purchase buildings (especially smaller buildings in foreclosure) is why we at UHAB continue to advocate for the creation of an Interim Facility.  The way we see it, an Interim Facility would take a great deal of pressure off the nonprofits, and allow for more deals like this one deal to take place.

To read the NYTimes article on the College Ave buildings, click here.

What Kind of Recovery Do We Want?

Across the country, crowed homeless shelters and dilapidated neighborhoods are testimony to just how painful years of the foreclosure crisis has been for families. The foreclosure crisis has been as persistent as it has been terrible: At six years, the housing market has been in its longest slide since the Great Depression.  However, in the past couple weeks housing experts have been reporting that the worst may be over. This cautiously optimistic talk of recovery is couched in phrases such as “prices are up,” or “sold for more than asking.”

Before we jump back into the feverish fray of home-buying (and mortgage-signing), it is important to think about what kind of “recovery” there has been so far, and what kind we really want. The foreclosure crisis – as terrible as it has been – has also been an opportunity to reject the practices that brought us to our knees in 2008, and to restart the housing market in a more sustainable, more responsible and more socially just way. Here’s what we’re warning against:

Multifamily Rent-Regulated Housing
Raising rents in the multifamily housing market have led some to believe that the rental market is booming. Demand for housing is high, and in New York City, the apartment vacancy level is very low. At the same time, buildings languish in foreclosure across the Bronx and Brooklyn, leading to condition deterioration and impact tenants’ quality of life. As banks seek to resolve these foreclosures, it is essential that they sell this housing stock at reduced prices that reflect actual conditions in the building. The renewed interest in multifamily housing investment could lead to a second round of Predatory Equity, which would be detrimental for tenants in rent-regulated buildings. In order to have the housing recovery that New York City tenants desperately need, this speculative cycle must be broken! This means that banks must take real rents and housing conditions into account when selling and making new loans.

Single-Family Housing
The past few years have seen an increase in our desire to live in high density neighborhoods, close to mass transit, and in neighborhoods with high walkability scores. This is a progressive step away from what Kaid Benfield of The Atlantic Cities calls the “Ponzi Scheme” of suburban sprawl. As the housing market recovers, there is increased growth on the edges of cities, so as the Wall Street Journal poignantly puts it:  “What’s Next for Housing? More Sprawl.” While the housing market recovers, familiar patterns of suburban growth at the edges of cities will reemerge. This movement away from more sustainable living is bad news for housing activists and for environmentalists alike.

Of course, this isn’t the first time that the media has prematurely heralded in a housing market recovery, so it could be just hot air. If it is true it, however, it’s important to think about the lessons we’ve learned – or should have learned – from the last six years of crisis. Like the fact that rent regulated multifamily housing is not an “under-performing asset.” Apartment buildings have real values that can’t be inflated without deferring services or evicting tenants (i.e. predatory equity). Or the knowledge that irresponsible lending fuels a speculative housing market that can lead to crisis, and that the burden of that crisis falls primarily on low income individuals.

A building in foreclosure is in limbo, between crisis and opportunity. When we organize in these buildings, we tell tenants that it is the optimal time to form a tenants association and demand a say in the kind of housing that they want. That’s why we believe that there is possibility, right now, to reclaim all of this distressed housing – single family and multifamily alike – in a way that preserves affordability and stabilizes neighborhoods.

Many of the buildings that remain in foreclosure in New York City are small and far apart. This represents a massive management and preservation challenge. That’s why the solution is for multifamily and single family housing advocates to work together to development one facility that has the capacity to buy distressed notes in bulk, with the intention of preservation outcomes. This bulk note sale must be done, before private equity groups swoop in and do it first — turning the buildings back into “investments” that don’t have residents’ interest at heart.

What we need is an interim facility.  We need to be able to scoop up the distressed, affordable housing stock, stabilize it, and allow tenants the time and space to make their own choices and have those choices be real options on the table. It’s their home; shouldn’t they be the ones making the decisions?  To learn more about our vision of a NYC interim facility, click here.

California Investors Experiment with Eminent Domain to Solve the Housing Crisis

A few days ago, MSNBC reported on a partnership between Mortgage Resolution Partners (MRP) and several California local governments that would aide in the solution of the persistent housing crisis. San Bernardino and its neighboring cities have set up a joint authority that would use the power of eminent domain to forcibly purchase distressed mortgages. Rather than evict homeowners through foreclosure, the public-private entity would offer residents fresh mortgages with reduced debts. Tom Braithwaite, who also covered this story for The Financial Times writes,

If rolled out nationwide, the biggest losers could be the largest US banks, who hold loans on their books at more than their current face value. People involved with the plan believe it could be disastrous for big mortgage lenders like Bank of America.

MRP is paying for the program by soliciting institutional investors, who will be repaid when local governments re-sell the modified loans to long term lenders. The first targeted group of loans for the program is made up of 5,000 mortgages with debts totaling near $740M. Because they are buying in bulk, we speculate that local governments will likely be able to purchase mortgages for deep discounts that they will then be able to pass on to individual homeowners. This is a creative means of intervening in the foreclosure crisis by allowing a local government to work as an interim note holder (ahem, interim facility) to stabilize financially distressed housing stock.

The program has not yet been given the green light, and there is plenty of reason to suspect it might not get off the ground. Bank of America and other large mortgage lenders are powerful lobbyists. And the use of eminent domain is endlessly controversial in the United States, where we tend to be sensitive to government encroaching on our near-sacred right of property ownership.

But as controversial as it is, the practice of forcibly taking over distressed properties is embedded into the history of New York City affordable housing.  It is through eminent domain law that many cities, including New York, were able to carry out the large scale “slum clearance” programs that characterized urban renewal era housing. It is also is typically used to clear land for large scale public works projects — if you read yesterday’s post, Atlantic Yards and Willet’s Point are both examples of this.

New York City has also directed a takeover of distressed housing without invoking eminent domain law at all, through the Third Party Transfer program. Third Party Transfer allows the city to foreclose on outstanding property taxes and subsequently transfer title of tax delinquent residential properties to responsible developers (or building residents themselves.)

All in all, we believe that there is great opportunity in New York City for a program similar to that being implemented in California. Much of the infrastructure is already in place, including the quasi-public non-profit Neighborhood Restore that administers TPT and would be a logical body to run a mortgage program such as this.  Of course, it would look different in our world: mortgage modifications would be intended for new, responsible developers rather than the original owners. But the California model is an exciting idea that could potentially stabilize massive amounts of housing stock for struggling homeowners. We’re excited to watch it play out – and, hopefully, to bring something similar here.

Opportunities for Large Scale Preservation: The Interim Facility

Negotiating a note sale on a distressed multifamily building is a long and complicated process and is associated with a significant amount of risk for note buyers. By the time a responsible developer has become a note holder, they have already completed months of work: of due diligence, of negotiating the originating lender down on price, of securing subsidy and financing from HPD.  Up until this point, we have only been successful in completing building-by-building preservation through note sales, and only in a very few number of cases. But a portfolio by portfolio approach does not take into adequate account the severity of the foreclosure crisis, and a programmatic response is needed to secure large-scale preservation. In order for the New York City affordable housing community to accomplish this, we will need to greatly enhance our development capacity. We believe we have developed a tool to do just that.

We now believe that this can be done through the creation of an “Interim Facility” that would have the capacity to conduct a bulk note sale, manage properties in the interim of the foreclosure, and secure permanent, community minded disposition for the buildings. In some cases, the Interim Facility would work with tenants to develop a limited equity cooperative. In all cases, the entity would practice the tenant-choice model of ownership and engage residents in final disposition.

Click here to view the Interim Facility, a graphic we developed to demonstrate one way we have envisioned such a entity capable of bulk note purchases. We are also playing with other ideas, such as a joint venture between several neighborhood groups. Stay tuned for how this exciting idea plays out, as it represents a real opportunity to exit the foreclosure crisis with a strong tool for preservation and the possibility for long term affordability for NYC tenants.

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