One of the recent trends in Predatory Equity is something that we have not-so-eloquently been labeling a “debt dump.” (We need to come up with a better term.) Essentially, “debt dumping” occurs when financial entities (banks, private equity companies) trade on distressed, foreclosed mortgages in order to turn a profit, with no regard to homeowners or tenants. Private equity companies (read: speculative slumlords) buy up the debt on buildings in foreclosure hoping to finish the case and flip the property once the market improves. This has happened on SO MANY of the buildings that we work in, always to the detriment of the conditions that tenants face in their day to day lives.
DealBook at the New York Times published an article yesterday that underscores this practice. The article points out that while home prices are on the rise, this increase (due to an increased demand) is largely thanks to Wall Street buyers snapping up foreclosed properties. It does not reflect any increase in the ability of low income and working class Americans to buy homes at affordable prices. Rather, the practice is making homes more and more UN-AFFORDABLE to people who, for the most part, are still un(der)-employed.
The New York Times article follows a great article on Colorlines that essentially says the same thing. (“It’s not a Housing Boom, It’s a Land Grab.”, as featured in last week’s Friday News Round-Up.)
In multifamily housing, where we work, this problem has an interesting dimension. As Wall Street buyers buy up debt and stall the foreclosure waiting for the market to improve, court-appointed receivers continue to manage the building. The problems with receivers are well-documented and have been talked about on our blog — they just don’t have the capacity to make the repairs that tenants deserve. Wall Street speculators can wait on the bet they’ll make money; tenants can’t wait for repairs! This sort of predatory practice that leaves tenants in the line of fire is unconscionable.
The equity company Stabilis Capital Management presents an example. In December 2011, Stabilis purchased the debt on six very distressed buildings in Ridegwood, Queens, an up-and-coming (i.e., gentrifying) neighborhood just across the border from Bushwick. The buildings share an owner and mortgage, and have been in foreclosure since 2007. Tenants are stuck with a non-responsive management company, no receiver, and no one to call when the inevitable problem arises. Stabilis has no discernible plan for these properties, and have not returned tenants’ repeated requests for meetings. Tenants are organizing and hope that a nonprofit mutual housing group can step in, take the buildings, and rehab them at no cost to tenants. Stabilis will have to accept a discount.
In this day and age of rampant debt-dumping, it’s going to require a fight. It’s time for organized tenants to sound the alarm, loud and clear, that unless this practice is stopped, another housing bubble and bust is on the way.