April 27, 2012
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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.