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.

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It’s Crunch Time: We Need a #RentFreeze!

There are certain moments when you simply have to ask yourself, “Wow. Is this really happening?”

When the NY Daily News reported that the Rent Stabilization Association was putting out advertisements advocating that New Yorkers support a rent increase, I experienced one of those moments as I tried to get my jaw off the floor.

This is no small time advertising push. This is a six-figure ad buy that will cover the costs of over 700 TV and Radio ads ahead of the June 23rd final Rent Guidelines Board vote. The Rent Stabilization Association, which claims to represent the 25,000 landlords of rent-stabilized buildings in the city, is as the Daily News put it so eloquently: “trying to do the impossible — convince New Yorkers that the rent is too damn low.”

via NYDaily News
via NYDaily News

These same landlords who refused to make repairs or keep the heat on in hundreds of thousands of rent stabilized units across the city are now spending hundreds of thousands of dollars trying to persuade their tenants that they deserve a pay raise.

These same landlords that over-leveraged countless buildings and took sledgehammers to apartments when doing “repairs” in order to harass tenants out of their homes are telling us to pay up!

As we tell every tenant association that we work with, power comes in two forms: Organized money and organized people. Clearly the Rent Stabilization Association has organized money — since they don’t use it on repairs and services for their tenants, they have to use it somehow, right?

But we have organized people.  For the first time in recent memory, the RGB — the Mayoral appointed board that votes on how much the rent should change from year to year in rent stabilized units — is having hearings in the outer boroughs and in the evening so that working people can have their voice be heard.

This past weekend, nearly over 300 tenants in the Bronx and Brooklyn marched for a Rent Freeze, gearing up for the upcoming few weeks of hearings. Tonight is the first one, in the Bronx at Hostos Community College! (A full schedule is below.)

Never in RGB’s history has it voted for a Rent Freeze. And with the May 5th preliminary vote of a 0-3% increase, for the first time in history, a Rent Freeze is within reach! Its up to us to grab it.

The landlords are scared. Over time they’ve grown used to the rents going up every year — now that this is under threat, they are coming out swinging, doing everything they can to stop this movement. They’ve had their allies at REBNY pressure Mayor de Blasio to walk back on his campaign promise to support a Rent Freeze. They’re now putting hundreds of dollars into a campaign to convince tenants that they don’t pay enough in rent. You better believe they will be at these hearings, claiming that they’re barely getting by with the rents being what they are now.

We’ve got to fight back.

The questions is: Will you be there to show the RGB otherwise? Will you share your story about what a Rent Freeze would mean for you and your family? If you don’t want to testify, will you be there to support your fellow tenants as they give their testimonies?

We need each and every single person to show up and show the RGB that we need a Rent Freeze!

Below is a list of the coming hearings the RGB is hosting. We’ll be at them all. Will you join us?

If you can’t make it in person, you can still be involved by calling the Mayor (212-788-3000) and Deputy Mayor (212-788-8510). You can also participate on twitter, by tweeting at them using the #RentFreeze (@BilldeBlasio, @DMAliciaGlen, @MMViverito)! 

Thursday,
June 12, 2014
Public Hearing
(Public
Testimony)
Repertory Theatre of
Hostos Community College/CUNY
450 Grand Concourse
Bronx, NY 10451
Map & Directions
Campus Map (Repertory Theatre is located in Building C – East Academic Complex)
Agenda
5:00 – 8:00 P.M.
Monday,
June 16, 2014
Public Hearing
(Public
Testimony)
Emigrant Savings Bank Building
49-51 Chambers Street
(between Broadway and Centre Street)
New York, NY 10007
Map & Directions
2:00 – 6:00 P.M.
Wednesday,
June 18, 2014
Public Hearing
(Public
Testimony)
Brooklyn Borough Hall
209 Joralemon Street
Brooklyn, NY 11201
Map & Directions
5:00 – 8:00 P.M.
Thursday,
June 19, 2014
Public Hearing
(Public
Testimony)
Queens Borough Hall
120-55 Queens Boulevard
Kew Gardens, NY 11424
Map & Directions
5:00 – 8:00 P.M.
Monday,
June 23, 2014
Public Meeting
(Final Vote)
The Great Hall
at Cooper Union
7 East 7th Street
at corner of 3rd Ave. (Basement)
New York, NY 10003
Map & Directions
6:00 P.M.

 

The Three Borough Pool: Harassment, Neglect, and Bad Investments…Oh my!

Bad Conditions at 265 E. 194th Street
Bad Conditions at 265 E. 194th Street

In the middle of November, we published a blog post about a campaign we’ve been working on with a group of 42 buildings in foreclosure in three boroughs. The campaign had recently been covered by the Wall Street Journal. Here’s a quick update for the New Year!

The Three Borough Pool is the biggest foreclosure portfolio since Stuy Town went into foreclosure 2010. It contains nearly 1600 units in 42 buildings spanning across The Bronx, Manhattan, and Brooklyn (hence the name “three borough pool”). The $133 million mortgage is being serviced by LNR, a Florida-based group. The underwriting for this $133 million mortgage was based on the predatory idea that the owners would be able to increase building revenue by raising rents and spending less on maintenance. When tenants were not able to be intimidated into leaving their homes, the mortgage went into default. Though the 42 buildings have been in foreclosure since April, 2013, no receiver has been appointed. There are four owners of the portfolio:

  1. Normandy Real Estate, which was documented by the New York Times as far back as 2008 as a predatory equity company determined to harass tenants out of their homes to raise the rents to market levels.
  2. Vantage Properties, who we took on a year ago when they partnered with Lone Star, has also been sued by then-Attorney General Andrew Cuomo for harassment.
  3. Westbrook Partners, which has also been known as a predatory equity group since as far back as 2008 and has been hit with tenant-driven campaigns before.
  4. David Kramer, who also runs Colonial Management, the management group in  all 42 of the buildings that has been harassing tenants.

The harassment that tenants have been facing is serious stuff. There are buildings that are denied access to their community rooms, repairs in nearly every apartment that need to get done, and a completely unresponsive office that forces tenants to call 311 constantly.

Colonial has also gone through great lengths to prevent tenants from organizing. They sent at least two buildings notices that their buildings were not in foreclosure. They’ve gotten their goons to block organizers from entering buildings despite tenants demanding that they let us in. When that didn’t work, they began calling the police who ignored tenant protection laws and denied us the right to meet in common spaces. When even that didn’t work, they once had their super physically grab organizers and force them out of the building.

None of this has stopped tenants. They are getting organized in well over half of the 42 buildings because they don’t trust their landlords and know that this foreclosure is an opportunity to give them real tenant choice.

Over the past four months, we’ve been working with a diverse coalition of tenant organizing groups to educate tenants about the foreclosure process and engage tenants in having their voice be heard. There have been dozens of tenant association meetings across the city, culminating in a massive meeting on December 17th in the Bronx attended by tenants from many of the 42 buildings to strategize about the next steps of the campaign.

This foreclosure is the greatest opportunity for Mayor de Blasio, his new administration, and the City Council to walk the walk after talking the talk in protecting affordable housing for thousands of New Yorkers. Stand with tenants when they say that any bank or private equity company thinking of refinancing these portfolio with these owners would be out of their mind. With debt at this level, the properties would be destined for another round of neglect and foreclosure. The tenants won’t take it anymore. The time is now to join together and fight for a better deal for rent regulated housing in New York City.

Predatory Equity fails again…and no one is surprised.

Today the Wall Street Journal published an article about yet another Predatory Equity deal that has fallen into foreclosure. This huge 42 building portfolio of affordable housing spread over the Bronx, Brooklyn and Manhattan is known as the Three Borough Pool. UHAB along with out allies have been expressing concern for these buildings for years. We began organizing

The portfolio is a classic Predatory Equity deal: a group of well known private equity groups including Normandy Real Estate, Vantage Properties, Westbrook Management and David Kramer, purchased the properties with an inflated mortgage from Wachovia Bank, who quickly sold the debt into a commercial mortgage backed security. Several of the owners are now notorious in NYC for tenant harassment in other properties. According to Normandy’s website their business strategy is to “target value-add and distressed asset and debt opportunities in high-quality locations… We identify assets that are underutilized, have operational inefficiencies, or have below-market rents.

“Under-utilized assets” is landlord-speak for “home to low income families who we think can easily be evicted.” This was certainly their plan in the Three Borough portfolio. As with most Predatory Equity deals, the tenants began facing harassment and building conditions began to decline. Rents continued to rise, leases citing MCI increases on elevators that continued to break down and roofs with reoccurring leaks. Default rumors began spreading as early as 2010, and when the mortgage became due in full in 2012, LNR partners stepped in as special servicer for the CMBS to deal with the fall out.

UHAB began organizing some of the buildings in 2009, and CASA has had an established tenant association in one of the largest buildings in the portfolio for many years. According to security documents, the buildings were 94% occupied at the time of purchase. And tenants did not bend to their landlord’s harassment tactics — they refused to be displaced — directly leading to the portfolio’s failure.

UHAB is working with organizers from CASA, New York Communities for Change, Mothers on the Move, Banana Kelly and PACC to engage tenants across the portfolio.  Our efforts have been met with extreme harassment from Colonial Management, who manages the entire portfolio. David Kramer, one of the owners in the deal, is a partner at Colonial Management. Supers and property managers have attempted to lie to tenants about meetings being cancelled, tried to impede on tenants rights to have a meeting in the lobby and have even out-right lied by passing out flyers that denied the buildings are in foreclosure:

Colonial notice not in foreclosure

This only intensifies the frustrations of tenants who have been suffering from problems with management for some time.  Neglect of the buildings have caused serious problems for the families who live in them.  Conditions like mold, leaks and vermin are not uncommon in the buildings. The WSJ article published a map along side the article which highlighted the code violations across the properties:

WSJ Violation Map

The WSJ article also mentions a possible deal on the table to end the foreclosure, although their source is anonymous. Considering that the portfolio has been in default for almost three years, we happen to think that any investor would be mad to refinance this portfolio without a significant mortgage write down. Ultimately, this is what the tenants need. Any refinancing should not be negotiated behind closed doors with sources that refuse to be named in the press. Tenants deserve (and demand) a voice at the negotiating table.

LNR Partners’ decision on how to deal with this portfolio will affect over 1,500 families. Working with tenants, they could transfer the buildings to a housing developer who will work alongside residents to respect their rights, ensure good repairs, and keep the buildings affordable. However, LNR could also work with the current management and transfer our buildings to another speculator with the same, unsustainable mortgage. This would cause tenants to live through another round of harassment and neglect. Tenants are joining together to fight LNR and Colonial Management because they have no other choice: the buildings are an important source of affordable housing, and losing these 1500 units to another speculator would be devastating for New York City. Join UHAB and our allies in standing with the tenants of the Three Borough Pool and demanding a better deal! 

Friday News Round Up

It’s been a busy week here at UHAB, and the world of affordable housing is as jam-packed as ever. Get ready for the roundup!

  • Mayor Bloomberg finally announced his appointments for the NYCHA Board, adding two more tenants to the seven person board, raising tenant representation to 3. The new volunteer tenant board members are Beatrice Byrd, former tenant president of the Red Hook West Houses in Brooklyn, and Willie Mae Lewis, tenant president of the St. Nicholas Houses in Harlem; they join Victor Gonzales.
  • The city is dangerously close to ending a program that has allowed 350 refugees of Superstorm Sandy to live in hotels for the past year. FEMA will stop reimbursing the city for the costs starting on Monday, and the city currently has no official plans for the refugees other than “apply to stay in one of the city’s homeless shelters.”
  • In his weekly radio show, Mayor Bloomberg praised the income gap between the rich and poor and said it would be a “godsend” if every millionaire moved to the city. This outrageous assertion comes on the heels of the release of the Census Data from 2012 showing a 3% increase in the poverty rate of New Yorkers.
  • Don’t forget about the runoff election for Public Advocate this coming Tuesday, Oct 1st! City Councilmember Tish James will face state Senator Daniel Squadron. Tenant PAC has endorsed James as a prominent opponent of the Atlantic Yards development in her district. Don’t forget to vote!
  • It’s finally Fall, meaning that organizations are putting out newsletters and reports like its no tomorrow! Check out UHAB’s Fall Newsletter to see what the entire organization is up to. Next, make sure to read up on “The Burden of Fees: How Affordable Housing is Made Unaffordable” a report by  Community Action for Safe Apartments (CASA), in coordination with the Urban Justice Center’s Community Development Project we featured on the blog this week. And finally, dive into the new report by the Center for New York City Neighborhoods, “Home by Home: Neighborhood Stabilization in New York City” that documents the local repercussions of the national housing crisis and highlights the work of the Center’s network of housing counselors and attorneys with thousands of homeowners struggling to keep their homes.
  • And to close out the roundup, in honor of the Ribbon Cutting Ceremony at 1520 Sedgwick — better known as the Birthplace of Hip Hope — here is a clip of a news conference from back in 2007 — featuring a quick rap from Senator Schumer at minute 6:25.

Enjoy the weekend – we’ll be back at it on Monday!

Watch Out! Non-Rent Fees are on the Rise!

“Tenants in New York City’s poorest neighborhoods are under attack.”

That’s the opening to the new report, “The Burden of Fees: How Affordable Housing is made Unaffordable” which was released last week. The report comes from our friends in the Bronx, Community Action for Safe Apartments (CASA), in coordination with the Urban Justice Center’s Community Development Project.

CASA talked to almost 200 tenants in more than 20 buildings to better understand the issue of non-rent fees. What they found truly does make it seem as if the neighborhood is under attack.

“Despite the existence of laws such as rent stabilization to protect tenants from high rents, landlords are creating new ways to push rent stabilized tenants out of their homes. One such tactic is the use of non-rent fees, a confusing and often times unwarranted set of charges that are added to a monthly rent statement.”

The report was featured in the New York Times last week, who went further into the concept of non-rent fees.

…some New York City landlords are tacking extra charges onto monthly rent. These landlords say they are entitled to collect the fees under state rent laws to help cover their own growing expenses. But many residents counter that the fees often show up on rent bills without warning or explanation, and that even an extra $5 a month can add up quickly for low-income families.

Translation: using loopholes in rent laws to raise rents on apartments that are already dangerously close to not being affordable in the first place.

The report focuses on Chestnut Holdings, a major Bronx landlord which owns 72 buildings in the Bronx alone.

Before Chestnut Holdings took over a few years ago, tenants had never before been charged for non-rent fees…both the amount and the way in which the fees are collected by landlords like Chestnut Holdings creates an unnecessary strain on thousands of low-income tenants in New York City.

The report ends with a series of demands on HPD and the Office of Court Administration in order to return the power to the tenants rather than the landlord. The theme running across the list is the need for more education around the ability to challenge non-rent fees as well as the need for more oversight into the regulation of landlords to ensure that these extra fees are no longer issued.

Needless to say, we at UHAB are fully supportive of these demands and thank CASA and UJC for putting their time and energy into this report.

UPDATE! If you want to learn more about this report, THIS Wednesday from 10am-12pm, there will be a policy briefing at the UJC’s office (123 William St, 16th Floor, New York, NY). Hope to see you there.

Innovative First Look Program Sparks Another Exciting Victory for Bronx Tenants!

For over two years, tenants, organizers, advocates and elected officials battled with New York Community Bank, New York’s largest multifamily lender, to determine a path to preservation for the thousands and thousands of units of distressed and at risk affordable housing, damaged by Predatory Equity. The result, as we detailed last summer in “Breaking the Banks,” is a revolutionary “First Look” Program that allows HPD approved landlords a better opportunity to purchase overleveraged and physically damaged affordable housing in foreclosure.  The details of the program were first hammered out between NYCB and advocates, including UHAB, in the Spring 2012, and currently there are at least three participating banks.  

Today, HPD, Speaker Quinn, Workforce Housing Advisors (WFHA), the Community Preservation Corporation (CPC) and UHAB are pleased to announce the beginnings of a gut renovation of some of the the earliest multifamily residential buildings to be transferred to an approved affordable housing developer through the First Look program. WFHA purchased the mortgages at a discount from NYCB in October 2011, and after a comprehensive relocation process (which assured tenants the opportunity to return home following renovation), closed on a $4.7 million financing package.  This package will allow the properties to be fully repaired while also ensuring that they remain affordable for the current residents for years to come.

“The deal is an example of what the City can accomplish when we work together to protect tenants’ homes,” said Speaker Christine C. Quinn. “The ‘First Look’ agreement we reached with New York Community Bank ensures the City and good developers get first crack at purchasing loans and preserving buildings, and I thank Workforce Housing Advisers,  UHAB, and HPD for their hard work to save these homes.”

In her recent State of the City address, Christine Quinn proposed created a housing fund “to make bulk purchases of over leveraged housing. The city will make sure repairs get made while properties make their way through the foreclosure process. Then, we’ll transfer them to an approved developer who will keep the buildings affordable and in good condition.” This proposal is the result of collaboration between the City and housing advocates for the past year. Our idea, which we have called the Interim Facility, will build upon First Look by setting up a framework for large scale preservation of distressed housing.

539-541 E. 147th are the first two buildings in the First Look program to begin the long renovation process, but there are other buildings purchased through the program and are slated for future development. WFHA purchased mortgages in foreclosure from NYCB on 1380 University, also in the Bronx. As recently reported, Banana Kelly and Wavecrest Management also reached a deal on three properties on College Avenue. Tenants in both 1380 University and the College Avenue properties are working closely with CASA (Community Action for Safe Apartments) to ensure that they have a voice in the future of their buildings.

Another exciting victory for the First Look program took place in March 2012 when Mutual Housing Association of NY (MHANY) purchased mortgages from NYCB  on four extremely distressed properties in Brooklyn. These buildings, organized by UHAB, are still winding their way through the foreclosure process. MHANY expects to become the deed holder in the next few months. Once that happens, tenants can look forward to extensive repairs and a cooperative relationship with their non-profit landlord. In the meantime, tenants, UHAB organizers, and MHANY have been meeting regularly with architects to collaborate on a plan for renovation.

The addresses of buildings that have entered the preservation pipeline  through the First Look program thus far are 539-541 E. 147th Street, 1380 University Ave, and 1259, 1265, and 1269 College Avenue in the Bronx, and 230-232 Schenectady Ave, 266 Malcom X Blvd, 896 Madison Street in Brooklyn. Combined, these properties are home to over 250 families. As the Interim Facility gets off the ground and the First Look program continues to grow, we expect this number to multiply!

To read more about the upcoming renovation at E. 147th Street, read today’s press release here.