The Surreal Estate

Perspectives on Tenant Organizing from the Urban Homesteading Assistance Board

Tag Archives: The Real Deal

Is Gentrification in Bushwick Inevitable?

east willy b

What do you think of when you think of Bushwick?  If you think of hipsters and loft parties, you’ll understand why the older residents of Bushwick are rallying to make sure that the neighborhood will remain an affordable place to live in the future.  In attempts to limit gentrification and displacement in the neighborhood, Community Board 4,  St. Nick’s Alliance, and Councilwoman Diana Reyna are working to re-zone the neighborhood.  According to Councilwoman Reyna, the re-zoning is necessary to keep out speculative developers who are interested in turning Bushwick  into “the next Williamsburg.” Just East of Williamsburg, Bushwick (or Bourgwick- “bourgie Bushwick”) has seen the influx of young gentrifiers, many of them artists, and residents’ fear of spreading gentrification is real and warranted.  So far, it has been difficult for luxury developers to get their grubby hands on prime Bushwick real estate because the majority of Bushwick is currently zoned for manufacturing.  As a result, it has been difficult to convince the city to allow them to build luxury apartments and condos within the neighborhood borders.  But that doesn’t mean they haven’t tried.

According to the Real Deal and industry experts, “Developers are salivating over sites in Bushwick.” Already, there has been a 144-unit luxury rental built in the neighborhood, catering specifically to artists.  And it’s fully occupied. Speculators, meanwhile, are trying all sorts of tricky maneuvers to skirt the zoning laws and convince current property owners to sell.  Sometimes it means offering buyouts, and sometimes it means schmoozing their way in. As Ian Lester, an attorney who represents commercial developers, tells Real Deal reporters:

“A lot of these sellers are old-school, meaning they are literally old,” he said. “The key is listening to a bunch of stories about the old country…they won’t sell to you unless they like you,” he added.

Groups like MySpace who cater to young (mostly white) people moving into gentrifying neighborhoods certainly don’t help things.  MySpace works with landlords (no matter their record of housing code violations or HPD litigation) to bring in higher paying tenants.  Their neighborhood is primarily Crown Heights, but they have expanded in the past several years to Bushwick and Bed-Stuy. (Check out Crown Heights Assembly’s campaign to halt MySpace’s negative impact in their neighborhood!)

Meanwhile, Rolando Guzman, Deputy Director of Community Preservation at St. Nick’s Alliance, tells reporters:

The last thing Bushwick needs is high rises. It needs affordable housing…And there needs to be some rule to prevent the displacement of local businesses and residents.

That is why St. Nick’s and others are working to prevent the same type of luxury apartment boom as what happened in Williamsburg, as well as to “preserve the unique character of Bushwick.”

In addition to working on zoning laws, community members and activists have produced incredible social commentary about the gentrification phenomenon in Bushwick.  Check out East Willy B: The Changing Face of Bushwick, a hilarious online series on about how gentrification, race, and community interaction plays out in the neighborhood.  Check it out here.

Finally, for your comic relief, check out this on point video (also produced by East Willy B) commenting on real estate agents in Bushwick.

Banks Walk Away?

3-01251-0045.BeiFMWIz

1153 St. Johns Place, Photo via Property Shark

Last night, tenants at 1153 St. Johns Place brainstormed ways to organize in order to improve conditions in their building. Even though their tenant association is active and they are represented by South Brooklyn Legal Services, tenants are in a tight spot. Their building has been in foreclosure for many years, and is currently being managed by court appointed receiver Scott Nunnally. The Plaintiff, Flushing Savings Bank, claims to have sold the mortgage over a year ago to someone named Alex Varveris.  However, he has neither substituted into the foreclosure case nor registered a mortgage transfer with the County Clerk. The court is also not moving the foreclosure case forward. It seems that it’s up to tenants to try and do that themselves – which is what they decided to do last night.

With an absentee landlord and an open foreclosure case that is dead in the water, it seems that 1153 St. Johns Place tenants are in indefinite limbo. And, the plight they are facing is not unique. According to The Real Deal, “some banks are deciding that in some judicial foreclosure states – like New York – it is more lucrative to walk away from distressed homes.” And Ed Jacob, executive director of Neighborhood Housing Services of Chicago, told CNBC:

What we’re finding in those neighborhoods is in judicial states [where a foreclosure case has to go before a judge], banks are making a decision that it’s going to take two years to complete this foreclosure, and increasingly cities are enforcing things on codes and vacant buildings. Banks are looking at what the residual values will be and then the costs they will incur and essentially saying it’s not worth it for us to go through the entire foreclosure process.

Though this article is primarily about single-family foreclosures, the emerging pattern is consistent with what we have been seeing in New York City’s multifamily housing. And it has serious implications for tenants, particularly in buildings like 1153 St. John’s Pl, where the borrower has also walked away.  This begs the question, who is responsible for the upkeep of their homes?

The practice also has implications for New York City taxpayers. As The Real Deal points out:

[Borrowers] who walked [on the property] before the bank mailed out notice of its plans to abandon the property  may have no idea that they still own their homes – or that they are liable for upkeep and property taxes.

At 1153 St. Johns Place, someone owes both property taxes and massive HPD fines. If responsible parties continue to walk away from this building, these fines will never be collected.

It’s bad policy and negligent for banks to simply walk away from distressed assets, particularly when it goes hand in hand with a note sale to a questionable party — like Alex Varversis. However, it could be an opportunity for a responsible developer – or tenants themselves – to recapture this affordable housing stock. To stop such patterns and preserve affordable housing, creating  more innovative practices is imperative.

836 Faile St: Still Dealing with Same Old Thing, but Tenants Continue to Organize!

Mural in Hunts Point, Bronx

Mural in Hunts Point, Bronx

836 Faile St. is located in Hunts Point in the Bronx.  This neighborhood has been historically cut off from the rest of the city, suffering from extreme environmental injustices as a result of the highway that runs through it and the high levels of pollution from buses and trucks.  There is also amazing activism and organizing taking place out of organizations such as The Point and BAAD.

When I first visited 836 Faile St. (it was in foreclosure with Astoria Federal Savings Bank), I didn’t know what to expect.  The neighborhood’s reputation made me nervous to see what type of conditions the tenants were living in and sadly, when I arrived at the building, it was a pretty frightening scene.  Tenants complained of not having consistent heat/ hot water, horrible rat infestations, a lack of a live-in super (which is against the law), and an aggressive landlord.  Even more, tenants told us the water in their apartments had to be filtered or boiled, otherwise it made them sick. Seriously? In New York City?

Asher Neuman was and remains the landlord of the building, even though it was in foreclosure for years, and it is still uncertain about who will be the owner moving forward (he filed bankruptcy but now it appears he has withdrawn his case). At the time when we started organizing, the Work Advantage program had just ended.  People were being evicted left and right.  Asher Neuman was aggressive about eviction, and there was a real sense of fear in the building that they could be next. He would threaten tenants that if they called 311, they wouldn’t receive any repairs in the future. Mr. Neuman would choose favorites and repair exclusively their apartments, while ignoring others.  (All these tactics continue today).

In March of 2012, Stabilis Fund II, a private equity company, bought the debt on the building from Astoria.  When I spoke to Joe Tuso from Stabilis Fund, he admitted to me that someone had simply driven by the building to make sure it existed.  No one had stepped foot inside the building to see the atrocious conditions tenants were living in- clearly Stabilis Fund II is about making money, not about stabilizing and preserving affordable housing for tenants.

Currently, 836 Faile st. has 127 violations in 36 units, though probably only a third of the units are occupied.  Tenant leaders have been evicted, other tenant leaders have moved out, but many dedicated tenants remain and are committed to organizing and improving their living situation.  Tonight, we will be meeting with tenants and filling out papers to file a group HP Action against MHM Equities, Asher Neuman’s entity which owns the deed to the building.  Stay tuned for continued organizing efforts against Asher Neuman and Stabilis Fund II!

UHAB Organizers Embark on Vantage/Lone Star Foreclosure Campaign

In March, the Real Deal reported that Vantage Property’s Normandy-Vantage Washington Heights portfolio fell into foreclosure, after Anglo-Irish Bank folded and Lone Star Funds took over the loans. Vantage Property, notorious for harassing tenants, owed $42.2 million on the four rent-regulated properties, which– as you may imagine – are highly over-leveraged.

At the same time, Lone Star has also opened three other foreclosure suits against Vantage Properties.  These foreclosures include a 10 building portfolio in Inwood where Vantage owes Lone Star $44.4 million, and at 730 Riverside Drive and 344 Fort Washington Avenue where Vantage racked up nearly $22 million in debt, according to ACRIS.

On top of that, Vantage is in hot water with a third upper Manhattan portfolio where debts total to $70 million, and has been in foreclosure since October 2011. The eight buildings in this portfolio are securitized and we believe are serviced by Torchlight Loan Services.

If you haven’t been doing the math as you read this, no worries! We did it for you: Vantage has been taken to foreclosure court by various lenders for owing at least $178.6 million dollars. And it appears there’s even more to come.  In case  Facebook’s $16 billion IPO is still fresh on your mind, we would like to remind you that $178.6 million is a lot of money.

When it comes to Vantage Properties, we believe that the phrase “all your chickens coming home to roost” applies. Five years ago, Vantage made the wrong bet. They highly overleveraged these buildings, which directly led to tenant harassment: Vantage thought they could evict without justification, reduce services until people got fed up and left, and unlawfully raise rents until their loans made sense. They weren’t counting on New York City tenants and their unflagging capacity for fighting back; they weren’t counting on New York State Attorney General (now Governor Andrew Cuomo) taking them to task for their wrong-doing. Now their buildings are in foreclosure.

We spent much of the past week doing outreach in Vantage Property foreclosures where Lone Star has bought or inherited the mortgage, particularly in the Washington Heights and Inwood portfolios.  Until we begin to work with tenants and reach out to Lone Star to discover its plan for these properties, we are left with many questions. Does Lone Star plan to keep these buildings and become a landlord, or will they foreclose and sell them to the highest bidder? As of now, all we can tell you is that: 1. Lone Star is on a shopping spree. 2.  Vantage portfolios are embarking on their second round of predatory equity. 3. We are very suspicious.

The Real Deal: “Multi-billion dollar private-equity fund targets local appraisers in lawsuits”

Yesterday, the Real Deal published an article reporting that Lone Star, a Texas-based Private Equity group, is suing local New York appraisers. We are familiar with Lone Star as a lender on a number of large, Predatory Equity portfolios we have been tracking for many years. Now, Lone Star is arguing that during the housing boom, appraisers acted “fraudulently and negligently” when valuing properties, and as a result Lone Star mis-lent.

As we have previously asserted on this blog, we believe that banks have a pivotal role to play in breaking the cycle of Predatory Equity. Despite how we may sometimes feel, banks do not arbitrarily set a price for their distressed assets, nor do they arbitrarily decide how much they are willing to lend on a property.  As we understand it, third party building appraisers are hired by banks to determine the real value of a particular asset, and lending levels are supposed to reflect this value. It’s interesting that a major Predatory Equity lender is suing real estate appraisers for property evaluations during the housing boom. Though we are not appraisal experts, we certainly have a few thoughts.

  • According to at least one bank we work with, appraisers are not taking building conditions into account when determining value of a property. This is a huge problem.  How can buildings be bought and sold for the right price if the repair needs – potentially millions of dollars — are ignored?  To us, it’s a no-brainer that the cost to stabilize a distressed property must be taken out of the total value when determining the cost of acquisition. Otherwise, the building is doomed for shoddy repairs and another round of neglect.

Another aspect of this article which is particularly strange is that Lone Star is the group driving these cases. We haven’t seen specific examples, but would likely agree with them that pre-2008 home values were highly inflated.  However, it’s odd for us to uncritically side ourselves with a Predatory Equity company, so we have some follow-up thoughts:

  • The article quotes Matthew Parrott, an independent attorney. He says “the cases appear to be a way for Lone Star to generate revenue from distressed loans.”  We don’t fully understand how this works. Has Lone Star determined that they paid too much for a distressed asset, and are now trying to sue other parties to recoup their losses?
  • Banks hire independent appraisers but those appraisers do not hold a guns to banks’ heads commanding them to lend at a particular level. We believe that the lenders’ eagerness to maximize profit encouraged them to believe the perhaps-inflated appraisals. Lone Star still made the loan. It seems that Lone Star is attempting to place blame for their own mistakes on other parties.

The question of appraisal seems to be linked to how much faith one puts in the free market: do you believe that the value of an asset is what someone will pay for it? Or is the value linked to the actual income potential (in NYC: regulated rents) and conditions (cost of repair)? We certainly believe that it is the latter.  Any bank making loans should hire appraisers that know building details like rent roll, and have been inside of apartments,  and have checked out the boiler, the roof, and other systems.

We leave you with one last question: what would it take to reform the way that appraisers value buildings? We intend to continue to thinking about this issue, and flush out potential answers to that question. Stay tuned!

Follow

Get every new post delivered to your Inbox.

Join 1,167 other followers

%d bloggers like this: