The Surreal Estate

Perspectives on Tenant Organizing from the Urban Homesteading Assistance Board

Category Archives: Blog

Banking on Gentrification: a Stabilzing NYC report

Yesterday, UHAB and our allies in Stabilizing NYC released Banking on Gentrification, a report about banks who lend to Predatory Equity landlords.

Crown Heights Tenant Union Protests Landlords’ Brutal Pressure Tactics

410 Eastern Pway

Public Advocate Letitia James with tenants from 410 Eastern Parkway

 

The Crown Heights Tenant Union held three public protests last week, demonstrating their fierce opposition to landlords in the area who use illegal pressure tactics to force rent-stabilized tenants out of their homes.  The protests focused on the actions of two landlords (G-Way Management and Ephraim Fruchthandler) in three buildings in Western Crown Heights, where gentrification has taken off in recent years, and many property owners are desperate to remove rent restrictions and cash in.  Tenants in 410 Eastern Parkway, 1030 Carroll St, and 953 Carroll St – like many rent-stabilized tenants in New York – live with landlords who attempt to raise rents past legal limits, refuse to make repairs, deliberately cut off essential services like heat and hot water, and do construction at odd hours, all in an effort to get them to move.  Many of these tenants have been living in their building and neighborhood for decades, however, and do not want to move.  They have bound together and joined the growing ranks of the Crown Heights Tenants Union in an effort to protect their rights.

The unconscionable actions of landlords towards rent-stabilized tenants has become a central talking-point in city’s current political and civic discussion over gentrification, its effects, and what to do about it.  Under New York’s rent stabilization laws, tenants in rent-stabilized units are entitled to perennial lease renewals and a cap on how much the landlord can raise their rent. (The cap is set annually by the Rent Guidelines Board and ranges from 0-5%). However, if a rent-stabilized unit is vacated, the owner can raise the rent up to 20% and in some cases petition to remove the unit from rent-stabilization all together, allowing them to charge whatever the market will bear.  Landlords in high-rent areas therefore have much to gain by removing rent-stabilized tenants from their apartments. When tenants refuse, landlords often resort to brutal pressure tactics.  In the worst cases, landlords’ deliberate neglect of building maintenance leads to dangerous and unsanitary conditions.

1030 Carroll

Bathroom ceiling at 1030 Carroll St, collapsed due to building construction and ignored by landlord for months.

While these tactics are illegal, the enforcement process is so inefficient that landlords are rarely punished.  City building inspections are rare and the housing court process is burdensome, especially for tenants who cannot afford attorneys.  It is this imbalance of power and lack of landlord accountability that the Crown Heights Tenant Union is working to correct.  The Union (with assistance from UHAB) provides support to tenants in the neighborhood through rights education and sharing best practices for dealing with landlords and the City’s enforcement process. The CHTU also helps tenants connect will lawyers who work pro bono. Rent-stabilized apartments are a huge source of affordable housing for low-income people in an exorbitantly expensive city, and the CHTU and UHAB are not alone in worrying about what will become of New York if they continue to be lost at their current rate (an estimated 50,000+ from 2007-2014).

Last week’s protests demonstrated the CHTU’s continued efforts to build political and public awareness of this issue.  City Public Advocate Letitia James, State Assembly Representative Walter Mosley, and State Senator Jesse Hamilton attended these events, and spoke passionately with tenants and press about their commitment to addressing the problem.  In front of 410 Eastern Parkway on Saturday, March 5th, James told a group of tenants, organizers, and reporters: “We’ve got to stand up for tenants, we’ve got to stand up for justice… For far too long government has turned a blind eye to landlords’s actions when they engage in illegal activities.”  James and her office of the Public Advocate have worked to address this issue by suing numerous bad-acting landlords, while Mayor de Blasio has allocated large amounts of public funds to Legal Services for lawyers to work pro bono with low-income tenants to prevent eviction.  City Council has recently tweaked the legal definition of “landlord harassment” to include repeated buyout offers – another common tactic – and is also debating several proposed laws that would impose greater penalties on offending landlords.  These public protests, and the politicians and press they draw, reinforce the fact that these brutal tactics of displacement are a major social issue in New York, and the City government needs to do more to address them.

The most immediate and perhaps the most important goal of the protests, however, was to publicly expose and shame the perpetrating landlords.  One of the protests involved a large march to the store-front office of G-Way Management, where the crowd of around 50 chanted “G-Way Management: shame on you!” and “Arrest G-Way Management!”  At another protest, the artist collective “The Illuminator” projected large messages in light on 1030 Carroll St, calling out the landlord, Ephraim Fruchthandler, and his many offenses.  The protests turned many heads and drew significant press, and the CHTU hopes that the bad publicity will damage these landlords’ reputation and business to the point where they will reconsider their behavior.  Public Advocate Letitia James has employed this tactic of public exposure and shaming as well. Her “Worst Landlord Watchlist” website names the 100 “worst” landlords in New York according to records of building violations, Housing Court cases, and harassment complaints.  The CHTU is currently working on a Landlord Watch List specific to Crown Heights, and G-Way Management and Ephraim Fruchthandler are sure to be on it.  Calling for the boycott of these landlords, the CHTU is asking new-arrivals to make informed consumer choices, ensuring that bad landlords are not rewarded for their rapacious and deplorable behavior.

1030 Carroll 2

“The Illuminator” at 1030 Carroll St

 

Watch videos of the events here:  410 Eastern Parkway;  G-Way Management Office

See news coverage here:  Politico, 3/5/16;  The Brooklyn Reader, 3/7/16;  Kings County Politics, 3/8/16;  News 12 Brooklyn, 3/10/16;  Brooklyn News Service, 3/14/16

Study on loss of Rent-Stabilized Apartments:   Gothamist, 7/15/15

Article on proposed tenant protection laws:  City Limits, 3/7/16

Public Advocate Letitia James’s Worst Landlord Watchlist

Crown Heights Tenant Union: Website;  Facebook

 

 

De Blasio’s MIH Plan Still Needs Work

MIH

As the wave of gentrification continues to extend outward from Manhattan, the struggles of low-income renters being displaced from their homes and neighborhoods has become a major social problem.  With more than half of New York City’s renters paying more than a third of their income in rent and the homeless population rising dramatically, there is a growing consensus among City politicians and citizens that the government needs to take action. This consensus was demonstrated in the landslide election of Mayor Bill de Blasio, who ran an inspired campaign that focused on addressing income inequality as well as building much more affordable housing.  Now in the process of trying to deliver that affordable housing, however, de Blasio has run into serious opposition from unions, low-income renters, community boards, and elected officials across the city, many of whom supported his campaign.  Most recently, a large and growing coalition has come out against his proposed “Mandatory Inclusionary Housing” bill, arguing that it does not do enough to help low-income New Yorkers afford housing, and if not improved, may actually worsen the displacement and homelessness problem it intends to address.

Under “Mandatory Inclusionary Housing” (MIH), the city would require real estate developers to include a certain percent of affordable apartments in each new building built in “up zoned” neighborhoods. “Up-zoning” means that developers are able to build bigger and taller buildings, making their properties more lucrative. By using up-zoning and MIH together, the mayor would take advantage of the ambition of New York developers, by luring them to certain areas with the “up-zone” and then requiring that they build at least some affordable housing. The rationale behind this strategy is that rents are high and rising in New York and low-income people are being displaced because there are so many people—especially higher-income people—who want to live here and everyone is competing over a limited supply of housing. So if the supply of housing is increased and Affordable Housing is guaranteed, there will be more places for everyone to live, less competition driving up rents, and less displacement of low-income people.

The neighborhoods targeted for the up-zone and MIH plan include East New York, East Harlem, Inwood, Flushing West, Long Island City, the Bay Street Corridor in Staten Island and the Jerome Ave Corridor in the Bronx, with more to be announced. All of these neighborhoods are far from the wealth centers of mid- and downtown Manhattan and are very low-rent and low-income compared to the rest of the city. Many of them, however—particularly the Bronx, East New York, East Harlem, and Inwood—are not expected to remain low-rent and low-income for long. These neighborhoods appear to be next in line for gentrification, with more and more millennials moving in each year, slowly increasing competition for housing and as a result, rents. Thus, by up-zoning these neighborhoods and mandating the creation of Affordable Housing within their borders, the administration is attempting to shield the low-income residents of these neighborhoods from becoming refugees of the fast-approaching tidal wave of gentrification. They hope to act one step ahead of gentrification and ensure that it does not cause mass displacement.

In spite of MIH’s noble intentions, low-income renters and community groups in these neighborhoods are coming out in droves to protest against it. Their opposition is simple and undeniable—because of the way MIH is drawn up, they would be unable to afford the “Affordable Housing” built. The most stringent of MIH’s three proposed requirements for the Affordable Housing component of new buildings would require that 25% of a building’s units be rented to households making an average of $46,620 a year (rents would be no higher than one-third of a family’s income). In East New York and East Harlem, the average household income is about $33,000. Therefore, the vast majority of people currently living in these re-zoned neighborhoods would be disqualified from renting even the so-called “Affordable” units in the new buildings.

For these people—the neighborhood’s lowest-income and most vulnerable to displacement—re-zoning with MIH would not expand the supply of housing. All it would do is vastly expand the number of higher-income people moving into their neighborhood and competing for housing. These new arrivals might initially gravitate towards the thousands (6,000 is the official estimate for East New York) of newly constructed units, but as news of the neighborhood’s “revival” spreads, and new restaurants, bars, and cafés pop up, many will start to eye the townhouses and brownstones on attractive residential streets where low-income people currently live. Property values will skyrocket and many long-term, low-income tenants will be priced out or evicted to make way for gut-renovations and Zillow postings. These people, being unable to qualify for the new “affordable housing” in the area, will be forced to move, causing a huge disruption (longer commute or new job, new schools, new community, etc.) to their already difficult lives and bringing New York City one step closer to being a place where low-income people cannot reside.

If the de Blasio administration truly wants to help low-income New Yorkers stay in their homes, they need to do a better job at tailoring this policy so it works for each and every re-zoned neighborhood. The mayor is right to want to build Affordable Housing in gentrifying neighborhoods, but this Affordable Housing must actually be affordable for the people living in the neighborhood. We live in a time when those with wealth and political power actually want to invest in low-income, often majority-minority parts of the city. People increasingly don’t mind and in many cases prefer living in ethnically and economically diverse areas. This new investment and economic and ethnic desegregation can and should benefit low-income residents. It is well documented that crime decreases and services improve when investment comes into a low-income neighborhood. It is also well known that low-income people’s chances of economic improvement increase dramatically when they live in mixed-income areas as opposed to homogenously poor enclaves. None of these benefits matter if affordable housing is not available for the people who need it most.  MIH needs a deeper affordability option, and City Council is currently working on a plan to accomplish that.  Once MIH has been improved and passed, it is incumbent on the City to engage with these communities, take their needs seriously, and come up with a re-zoning plan that works for the residents of each neighborhood. Going forward, the City must ensure that low-income people will be able to stay once their neighborhood has improved.

 

For a report on speculation and displacement beginning to occur in East New York, see: http://citylimits.org/2016/03/10/some-suspect-east-new-york-rezoning-has-triggered-speculation/

For an update on the MIH debate in City Council, see: http://citylimits.org/2016/03/08/council-identifies-5-sticking-points-for-de-blasio-rezoning-plan/

 

 

 

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

PHOTO: JOHN TAGGART FOR THE WALL STREET JOURNAL

PHOTO: JOHN TAGGART FOR THE WALL STREET JOURNAL

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.

Tenant Harassment Prevention Task Force: A Collaboration for Affordable Housing

On Friday February 19, 2015 Mayor Bill de Blasio alongside attorney general Eric T. Schneiderman announced the tenant prevention task force. The city and state agencies are coming together to protect rent stabilized tenants from harassing landlords. The mission of the task force is clear, as the attorney general stated “…it is designed to investigate, sue and, when appropriate, prosecute abusive landlords to stop the harassment of tenants.”

Mayor Bill de Blasio and Attorney General Schneiderman on Friday February 15, 2015.

Mayor Bill de Blasio and Attorney General Schneiderman on Friday February 19, 2015.

This task force came to light due to the dramatic increase of harassment complaints from tenants. Tenant complaints have been increasing over the past year due to the harassing tactics landlords are using. An issue the tenants of Crown Heights are well aware of. The Crown Heights Tenant Union, the growing coalition of tenants, has been underway for over a year now, working together to make sure that all residents know these tactics. Landlords all over Crown Heights have taken tenants to courts for frivolous reasons, used construction to affect living conditions, and ignored tenant’s complaints of building and apartment repairs.

The announcement of the task force shows that the city is listening to the tenants of New York and as well to the work that the Crown Heights Tenants Union is doing. Also present this past Friday at the conference, was Donna Mossman from 1159 President St, owned by BCB Realty, she highlighted main tactics that landlords used to harass tenants, such as removal of boilers, blockage of entrances, lack of garbage pick-up and sending management to personally harass tenants.

 “I have watched predatory landlords push working-class people out of their homes,” said Donna.

Donna Mossman speaking on predatory landlords and their harassment tactics on February 15, 2015.

Donna Mossman speaking on predatory landlords and their harassment tactics on February 19, 2015.

Landlords are stopping at nothing to push out long-term residents from their home of over 20 or even 30 years. The increase in real estate market, the loopholes in the rent laws and the gentrification of neighborhoods has allowed for many working families to be displaced, families who cannot afford the astronomical rent hikes of New York.

De Blasio stated, “The landlords “believe ‘if we made life unacceptable they would leave,” but tenants from all boroughs are fighting back, fighting to stay in their homes. Donna and her neighbors from Crown Heights now have another resource supporting them in this fight. The tenant harassment prevention task force; where city and state agencies meet, will keep landlords accountable, and assist tenants in the long fight of making sure there is affordable housing in New York.

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