The Surreal Estate

Perspectives on Tenant Organizing from the Urban Homesteading Assistance Board

Tag Archives: Overleveraging

Overvalued Appraisals Leads to Overleveraging

You might remember a few weeks ago we wrote a blog post about appraisers. Well, we haven’t dropped the issue, and we are continuing to think about appraisal standards and how they impact foreclosures, tenants, and predatory equity. Banks determine how much they will lend on a property based on an appraisal completed by a third-party appraiser. The appraiser uses factors such as size of the building or location but, as we are learning more and more, the report generally leaves out the building conditions and repair needs. According to an article published last Tuesday in the New York Times,

In general, appraisals overvalued the properties, the study found. Of the 2,076 properties it examined, 64 percent were appraised at values that exceeded the sale price, by a total of $1.4 billion, while 35.5 percent were appraised at less than the sale price, by a total of $661 million.

This means that when banks receive an appraisal–depending on how responsible the bank, the appraiser, and the incoming borrower are—the building is overleveraged and an unsustainable loan is slapped on. This situation often paves the road to future financial problems for both the property owner and the bank. Most importantly to us is the fact that tenants end up being the innocent victims of this process. When a borrower has trouble paying back the bank, conditions in a building tend to worsen and tenants suffer.

The article concludes with this statement:

As for the appraisal industry, “there needs to be some systematic way for appraisers to do their number crunching, but for the significance of the appraisal to be understood for what it is worth,” Mr. Neveloff said. “Appraisals give you a framework, and some level of comfort, but other market factors, like input from brokers, should also be incorporated when considering the overall value of a piece of real estate.”

To us organizers at UHAB, it is vital for the conditions and repair needs in distressed buildings be taken into account when judging how much money a building should be sold for. Responsible property owners and banks should determine the price for making real, sustainable repairs to bring buildings up to a quality standard. Without factoring repairs into the asking price of a distressed property, a property is destined for continued distress and financial instability.

New York Times: “For Birthplace of Hip Hop, New Life”

After a long struggle, ownership of a Bronx building known as the birthplace of hip-hop, which had fallen into neglect and foreclosure, was taken over on Monday by a group that specializes in preserving working-class housing.

The building at 1520 Sedgwick Avenue in the Morris Heights neighborhood was, in the early 1970s, the home of D.J. Kool Herc, whose community room parties were pivotal to the early development of hip-hop.

Read more at the NY Times.

WORKING TOGETHER: FIRED NYCB EMPLOYEES + ANGRY TENANTS

On October 18th, we posted “Just How Healthy Is NYCB?” . Many of you amazing readers have responded and we want you to know WE HEAR YOU and WE WANT TO JOIN FORCES!

Please contact Elyssa White at 212 479 3336 or ewhite@uhab.org if you are interested in acting together to make New York Community Bank regret its bad lending and employment practices! We are in this together and we should stand together to say something!

We have ideas, but we also want to hear yours. Get in touch!

Just How Healthy Is NYCB?

In the past months, we’ve met with New York Community Bank several times in order to discuss what we perceive to be a serious problem of overleveraging in their New York City multi-family portfolio. Each time, the bank has claimed that foreclosure housing is a merely a minuscule part of their overall healthy portfolio. In their 2010 Annual Report New York Community Bank claimed they had a successful year thanks to their conservative, risk-averse underwriting standards.

We know a different story: NYCB frequently makes unsustainable loans and their underwriting is shaky at best. They have many mortgages in default or in foreclosure. Many buildings that they lend on are in terrible physical condition. For months, we’ve been fighting to draw attention to the ways in which NYCB loans put tenants and low-income housing at risk. The bank has attempted to discredit our research, stating that they are a responsible lender with roots in New York City communities. They claim that their high underwriting standards have protected their portfolio and allowed them to be healthy and profitable throughout financial crisis.

But in late September, research analysts at Susquehanna downgraded NYCB shares. And last week, the Long Island Business News published “Mass Layoffs at New York Community Bank.” The article indicates that NYCB laid off 30 branch staff last week, a significant number for the relatively small bank that nonetheless is a major employer on Long Island. Typical of New York Community Bank, layoffs occurred in a barely legal and seemingly dishonest fashion. The bank’s compliance with the NYS Worker Adjustment and Retraining Notification Act was questionable. The WARN Act requires 90 days notice to workers if 25 or more employees of a certain company are to be laid off. New York Community Bank got away with their recent round of layoffs through a loophole: they fired employees at separate branches across Long Island and Staten Island.

All this begs the question: Just how healthy is New York Community Bank? Layoffs and lowered credit ratings are hardly indications of institutional health. It seems that there is a large discrepancy between their words and their actions.  Could they be getting ready to admit that they have made some mistakes? Are they ready to take responsibility for their non-performing loans?

Update, 10/20/2011:  Many reports now indicate that the number laid off was far higher than 30 employees, in the 300-500 area region-wide.

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