The Surreal Estate

Perspectives on Tenant Organizing from the Urban Homesteading Assistance Board

Tag Archives: Tenant’s Rights

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



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.

Putnam Portfolio and Stuy Town: Preservation Opportunities for Affordable Housing Once Lost to Speculation

Metro North Residents at Putnam Rally, photo courtesy of Tenants & Neighbors

In recent years, speculation in the affordable housing market is an accepted fact. Real estate investment targets the homes of low income families with the express intent to make financial profit from exploiting the residents who live in these buildings. This practice has failed. Over and over again. However, this hasn’t stopped the perception that massive profits can be gained by gambling on NYC’s affordable housing stock. The question in front of our policy makers now is how will we respond to this continuing and destabilizing crisis?

Stuyvesant Town is likely the most famous affordable housing complex that was victim to the overleveraging crisis of the early to mid-2000s. This is because both it is the largest housing complex with over 11,000 apartments and the fact that in 2006 it was purchased for an astronomical price of over $6 billion. This deal was in default within 3 years. Due to the complex nature of the financing, the buildings have been in limbo since 2009, but as was reported by the New York Times, the properties are back on their way to auction, and unfortunately, there are already willing bidders preparing to speculate on the buildings again.

Although, Stuy Town is the largest and most recognizable portfolio, it is hardly the only large complex on the edge of another critical moment. The Urban American Putnam Portfolio is a group of five former Mitchell Lama projects in upper Manhattan and Roosevelt Island that comprises nearly 4,000 units of what used to be protected, affordable housing. This portfolio is, similar to Stuy Town, at risk of being flipped again. Last week, Bloomberg News rendered an accurate and clear explanation of the history of the properties and the risk the portfolio is currently facing.

To give a brief history, in the height of the housing boom the portfolio was flipped twice under business plans to remove the affordability from the project, push out lower income residents and raise rents as high as possible. Urban American purchased the buildings for $918 million, taking out an $800 million mortgage financed by Fannie Mae. Fannie Mae also took the opportunity to invest at least $60 million in equity in the portfolio (although they won’t admit it) something which seems to be in direct conflict with their mission to protect affordable housing. It should come as no surprise that this isn’t the only time they’ve invested in these types of deals. To complicate matters further, it was discovered that the City Investment Fund partnered with Urban American in this predatory deal. The City Investment Fund includes money from the New York City and New York State retirement systems; a bitter irony considering many of the residents in these Mitchell Lama projects were public workers.

This $800 million mortgage is now due, which has inspired a flurry of activity around the portfolio. Urban American is looking for a new investment partner that would help them refinance. Brookfield Properties has expressed interest in buying a stake in a $1.1 billion refinancing. This is a $182 million increase over the last purchase price, which has stretched the rents to the highest level and allowed the conditions of the properties to decline. In the event of this refinancing both the City Investment Fund and Fannie Mae would be paid off, fulfilling their fiduciary responsibility at the expense of thousands of New Yorkers’ having an affordable place to live.

It DOESN’T have to be this way. We as a City can decide that we are going to fight to preserve these homes, as well as other buildings that are victims of this crisis. We can do this without creating diminution in value to the bondholders. Here’s what we need to do:

Fannie Mae: The mortgage was due in early May. As a deal has still not been completed, Fannie Mae is in a position as holder of the defaulted debt to push for a quicker preservation deal. Fannie Mae could also commit to finance a preservation deal that would protect the affordability and commit to improving the conditions. Additionally, Fannie Mae should take responsibility for the fact it invested in this portfolio and use its equity stake as additional leverage to push for a better outcome.

City Investment Fund/Comptroller Scott Stringer: The Comptroller should support the tenants and the preservation of affordable housing by taking a stance that doesn’t ignore the impact of his predecessor’s actions. Pension funds should never have been used in a deal that puts low and moderate income tenants at risk of losing their homes. However, there is no reason why the City Investment Fund couldn’t explore the opportunity to remain invested in these properties as long as an owner steps in who commits to affordability and decent housing.

HPD and other City Agencies: This portfolio represents a substantial amount of affordable housing in Upper Manhattan and Roosevelt island, and it should have never been allowed to lose its affordability protections. HPD and the other City Agencies should explore ways to once again tie rent restrictions to these buildings through the use of tax abatements or subsidy that would (a) provide much needed capital towards repairs and (b) add regulatory agreements that would keep the buildings affordable for the residents who call them home.

Mayor de Blasio and other Elected Officials: Mayor de Blasio, Speaker Melissa Mark-Viverito and the other Elected Officials should support the residents of these properties and the need to protect these units of affordable housing, a much needed resource of affordable housing in upper Manhattan and Roosevelt Island. They also could call all the above mentioned parties to the table with the tenants to negotiate how to preserve these properties.
This is not an easy task, in fact it will be difficult and tedious and with no assurances that we can win. However, the tenants are ready to stand up and take on this fight, the only question is who will stand with them?

This is not an easy task, in fact it will be difficult and tedious and with no assurances that we can win. However, the tenants are ready to stand up and take on this fight, the only question is who will stand beside them?

Three Borough Pool Press Conference

A few weeks ago, tenants from all across New York City came together in front of City Hall to demand that the Three Borough Pool, a group of 44 buildings in the Bronx, Brooklyn, and Manhattan, be taken over by a new, responsible owner.

The current owners (David Kramer, Normandy Real Estate, Vantage Properties, and Westbrook Partners) failed at paying their mortgage, landing all of the buildings in foreclosure. They’ve also failed at maintaining the buildings, resulting in horrific living conditions in apartments. If the lender, LNR, sells the buildings to a responsible developer who commits to rehabilitating the buildings and including tenants in decisions about their homes, this foreclosure can be an opportunity to preserve the nearly 1,600 units of rent regulated housing that are at stake.

UHAB created this video from our footage of the press conference. Follow the link at the end of the video to watch the tenants’ full speeches!

Friday News Round Up!

Made it through another week. Here’s some things that happened in New York while nothing good happened in Washington. 

  1. Big developers and the Department of City Planning are rushing to finish up their final projects before Bloomberg leaves office. Its looking very likely that the next mayor will be a little bit less friendly to big ticket development (and ideally in favor of more affordable housing.) 
  2. Speaking of development: Greenpoint is currently facing a debate that underscores all debates around affordable housing in New York. What does affordable mean? Affordable to who? How much “affordable” should developers provide? Is the AMI even a useful measure of income? 
  3. What does Tish James as Public Advocate mean for the race to be the next City Council speaker? 
  4. Glenn Beck claims that the media focus on Anthony Weiner was simply a distraction, a communist plot to take over the government. It’s funny. 
  5. A coalition of tenants have been fighting against their notorious Predatory Equity landlord, Pinnacle, for years. They charge their landlord used widespread practices to illegally raise rents and push out low income tenants. Though tenants will now be able to seek compensation from their landlord for this malfeasance, tenants are disappointed. This week, a federal judge turned down tenants attempts to appeal an earlier settlement which excluded certain types of claims that Pinnacle could be liable for. We know they’ll keep fighting. 

Predatory Equity in 2013: New Organizing Tools

Since 2008, UHAB and our allies have learned a lot about how financial malfeasance in the rent regulated housing market puts low income tenants at risk. As Wall Street rejoices over the “rebound” in housing prices, we know the truth: the rebound goes hand in hand with a rebound in speculation and overleveraging. Last year, we created the Life Cycle of Predatory Equity that reveals that Predatory Equity to be a cyclical process: an overleveraged mortgage, harassment, neglect, foreclosure, and overleveraging again. Unfortunately, since 2008, we’ve seen many buildings enter their second cycle.

Buildings entering the second round of Predatory Equity often are faced with a new speculative landlord who will use familiar tactics to try and “improve the underperforming asset.” (i.e., Landlord speak for “increase rents by pushing regulated tenants out.”) One common tactic that’s  particularly popular in gentrifying neighborhoods is a “buy-out,” where landlords offer tenants seemingly large sums of money to vacate their units. The money is never very much – hardly even enough to move. (One tenant we work with was offered $6,000 and a bus ticket to Philadelphia where, her landlord said, “housing is more affordable.”)

Fighting these buy-outs is important: when tenants opt to leave, landlords are automatically able to raise rent by 20%, contributing to the erosion of affordable housing stock in New York, and potentially even bringing the unit out of rent regulation.  If a tenant decides to stay, landlords can only raise rent by 4% to 7.75% depending on length of lease.

We developed a fact sheet on these kinds of buy outs while working with tenant groups at 1153 and 1159 President Street in the rapidly-gentrifying neighborhood of Crown Heights. Check it out here.

News isn’t all bad: in the past few years, we’ve seen some buildings get preserved for long term, quality affordable housing. We’ve seen tenants successfully organize to reclaim their buildings from predatory banks, and are currently in the preservation pipeline

Finally, with the help of graphic designer/artist Donna Choi, we developed an organizing tool that we’re using to engage tenants fighting to break the cycle of Predatory Equity. The infographic, available in English and Spanish, explains how developers buy buildings that are in foreclosure and illustrates how tenants can organize and to demand that the building is sold to a developer of their choosing.

We encourage you to these resources and use them!


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