Connecting Predatory Equity and the Need for a Rent Freeze

The movement for a Rent Freeze for the one million rent regulated units in New York City is the largest its ever been. Over 300 tenants gathered at both the Bronx and Brooklyn Rent Guidelines Board Public Hearings. That’s more than 600 tenants from every walk of life standing up and having their voices heard. Each of the hearings went way past 10pm even though they were scheduled to end at 8pm — tenants refused to leave while they still had testimonies to give.

It was an incredibly empowering sight to see.

The difference in narratives that tenants told between the Bronx and Brooklyn is worth noting. Bronx tenants told harrowing stories of utter neglect by their landlords and supers who were totally unresponsive. They told the RGB that their landlords did not deserve a raise after another year of refusing to provide heat, hot water, and proper repairs. For them a Rent Freeze would be a welcome economic relief as well as a signal to landlords that they don’t get more money for doing less work.

In Brooklyn however the stories were different. Tenant after tenant talked about “being forced out” of their apartments, homes, and neighborhoods. With a full understanding of our backwards rent laws, they told the RGB that every time that there is a rent increase, it gets their apartment a tiny bit closer to being deregulated. This in turn gives their landlord more incentive to harass them into leaving in order to raise the rent in the hopes that the unit can soon be at the market rate levels. For them, a Rent Freeze would also be a welcome economic relief and would be a moment where they are no longer simply reacting to their landlord’s actions but going on the offensive in this battle for their homes.

Both of these narratives — of utter neglect in the Bronx and purposeful harassment in Brooklyn — are part of the cycle of Predatory Equity that we’ve seen sprout up in New York City and beyond in the lead up to the foreclosure crises of 2008. Its happening all over the city and until we strengthen our rent laws when they are up for renewal in 2015, it will continue to happen. We can put a bandaid on the damage with a Rent Freeze this year, but in the end, its about what happens in Albany next legislative season.

Below is an article that our Deputy Director of of Organizing and Policy at UHAB, Cea Weaver wrote for the Metropolitan Council on Housing’s Tenant Newspaper about the connection between stronger rent laws and predatory equity:

In the years leading up to 2008, private equity firms with access to large pools of privately raised capital worked together with lenders to grossly overleverage multifamily housing. Assuming that they’d be able to increase revenue and make a financial windfall, “predatory equity” companies took out enormous mortgages to purchase rent-regulated buildings. When tenants refused to be pushed out of their rent-controlled and rent-stabilized apartments, these new landlords took a more aggressive approach: they increased harassment and reduced spending on maintenance. Buildings deteriorated and went into foreclosure across New York City.

As the housing market heats back up, predatory equity is returning to rent-regulated buildings. Meanwhile, tenants and advocates are still reeling from the first round of speculation, harassment, deferred repairs, and foreclosure. Last month, the owners of the Three Borough Pool, a group of 42 buildings in Manhattan, Brooklyn and the Bronx that contain almost 1,600 rent-regulated apartments, were able to get a rescue loan from a private equity company called Ladder Capital. The Three Borough Pool is the largest portfolio of multifamily buildings to go into foreclosure since Stuyvesant Town.

 Normandy Real Estate and Westbrook Partners, the co-owners, are also private equity companies that were some of the most notorious actors in the first round of predatory equity. Their obtaining refinancing is a sign of the dangerous return of pre-2008 lending practices to the city.

Thanks to tenants’ organizing, State Attorney General Eric Schneiderman began investigating harassment complaints from tenants. This investigation led to a deal with Normandy and Westbrook, announced April 15, that significantly increases oversight over maintenance and management in the Three Borough Pool. Tenants will get $600 each in rent rebates, a total of $1 million, and a new management company. While this ensures that the negative effects of such predatory and irresponsible real-estate deals will fall squarely on the private equity companies and landlords who chose to make them, we still need policy changes that address the root problem of speculation on rent-regulated housing and that address predatory equity at a systemic level.

New York’s rent laws are a key tool in our struggle against speculation and predatory equity. By limiting rent increases and insuring the right to a renewal lease, rent stabilization provides organized tenants with the protections they need to stand up to landlords who see their homes as gambling chips. We need rent laws that further limit landlords’ ability to drive low-income and working-class families out of their homes. We need to limit major-capital improvement increases, individual-apartment improvement increases, and the sneaky tools that landlords use to make bad financial deals work to the detriment of tenants. For too long, predatory equity landlords have profited by thwarting regulations. By strengthening existing laws and closing loopholes that favor landlords, we can change the predatory atmosphere that pervades the city’s housing market.

The final RGB vote is just a few days away…Monday, June 23rd! Join us as we stand up for a Rent Freeze in the lead up of the campaign for stronger rent laws.

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