Crain’s New York Business: City’s biggest landlord lender cuts breakthrough deal.

At The Surreal Estate, we raise our glasses to the Mutual Housing Association of New York for for their successful negotiation with New York Community Bank on a preservation note sale. Congratulations to the 29 families who are now looking forward to renovations and long term affordability.

New York Community Bank, which has been targeted by housing advocates and city officials for selling off distressed mortgages to the highest bidders, has for the first time agreed to a discounted sale of notes to a nonprofit housing developer.

The bank has sold the debt on a portfolio of four foreclosed residential buildings in Bedford-Stuyvesant to the Mutual Housing Association of New York Management, Inc., a Brooklyn nonprofit that is funding the purchase by tapping a new city loan fund designed to preserve affordable housing.

The housing group got the $2.4 million worth of mortgages on the dilapidated buildings at a nearly 50% discount. The size of that price cut signals a big potential thawing in a protracted battle between housing advocates and the bank over how the institution is disposing of mortgages on properties in both physical and financial distress.

“It’s been a constant negotiation all along, figuring out how we get to the middle ground,” said Christopher Beck, vice president and business relations officer at New York Community Bank. He said the sticking point had been reaching deals “that allowed for the preservation of the underlying property for affordable housing while maintaining a reasonable economic outcome for the bank’s shareholders.”

It’s the first time the New York City Acquisition Fund—launched in 2006 with foundation and public money—has been used to acquire distressed debt. Before this deal, the fund had only facilitated the purchase of buildings, but a second facility established in 2010, a $60 million fund led by Citi Community Capital, made possible the purchase of debts on buildings as well. Mutual Housing, which got a $1.35 million loan from the fund, is also the first nonprofit group in the city to purchase a distressed note.

“I give [Mutual Housing] a ton of credit for cutting a deal that works on both sides—that fits into an affordable housing program and that the bank can agree to,” said Abby Jo Sigal, a vice president at Enterprise, an affordable-housing group that is a managing member of the acquisition fund.

Once the four Brooklyn properties wind their way through the foreclosure process, Mutual Housing plans to use a loan from the city’s Department of Housing Preservation and Development to buy them. Three of the four properties, which contain a total of 29 units, are in the city’s Alternative Enforcement Program, an initiative aimed at improving conditions in the worst 200 buildings across the five boroughs.

“All the money we didn’t give to the bank we’ll put into rehabbing these buildings that are really, really needy,” said Mutual Housing Executive Director Ismene Speliotis. She said three of the buildings would likely require gut renovations and that tenants would be relocated while the work is done.

New York Community Bank is by far the biggest lender to landlords in the city. In all, the bank provides financing for more than 3,000 buildings housing 85,000 apartments, twice as many as anyone else in town. A study by a housing group last year found that New York Community Bank finances the owners of nearly 9,000 distressed apartments, more than the next three banks combined.

The lender has come under fire from activists and city officials for selling distressed mortgages on rundown properties at prices that would make it tough for new owners to repair the buildings. Last year, the city backed an $8 million bid by Mutual Housing for a portfolio of eight dilapidated buildings in the Bronx, but New York Community Bank sold the mortgage to investors for only a slight discount on the mortgage’s $16 million face value.

“When we discussed the notes last year, maybe we had to go through this process to figure out a way to work together,” Mr. Beck said. “It was a first attempt and we were very far apart. All the pieces weren’t in place to make it happen. The encouraging part about this transaction is it’s proof we can get there. We hope it’s not a stand-alone transaction, but a future model for preserving affordable housing.”

City Council Speaker Christine Quinn, who had criticized the bank, said, “I’m thrilled these four buildings will be preserved and I look forward to continued collaboration with New York Community Bank to protect tenants and their homes.”

After battling each other on the streets and in court, the bank and advocates have finally reached a détente in which nonprofit developers will be given a first look at any distressed mortgages the bank is looking to sell.

“There is at this point an open line,” said Peter Madden, director of distressed asset financing programs at the Department of Housing Preservation and Development. “New York Community Bank has shown a willingness to work with the city, to sit down at the table with the city and tenant organizing groups. They still have their fiduciary goals they need to meet, but the fact that this deal happened speaks for itself. We look forward to future deals with them.”

Tenant advocates applauded the deal and hoped it could serve as a model for the growing number of buildings in financial and physical distress across the city.

“It’s great, but we have to figure out how to do it on a much bigger scale,” said Dina Levy, director of organizing and policy at the Urban Homesteading Assistance Board. “It sets the tone for what needs to happen again and again.”


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