How to Solve NYC’s Affordable Housing Crisis? Legalize Basement Units


“Nearly 40% of the new housing created from 1990 to 2005 were illegal apartments. Many of them are in basements or cellars. These units exist because there isn’t enough affordable housing in NYC.” -Seema Agnani, Executive Director, Chhaya Community Development Corporation in “Bringing Basements To Code” 

For years, Chhaya, a community-based non-profit in Jackson Heights, Queens, has been working on a campaign to legalize basement apartments as a means of creating more affordable housing. According to a 2008 study conducted by Chhaya and CHPC, there are approximately 10,000 illegal dwelling units in New York City, many of which could be easily converted into legal apartments.  More often than not, the tenants in these units are recent immigrants, in search of available affordable housing, which we all know is hard to come by.

Chhaya and ally organizations are working to legalize basement units, and bring them into the scope of regulation that would mutually benefit tenants, landlords, neighborhoods, and the city. Through regulation, tenants’ living conditions would not only improve, but they would receive protections against evictions (benefiting the landlord, as well.) In addition, the city will be able to allocate resources specifically for maintaining units, while simultaneously increasing tax revenues from these properties.

Chhaya has put forth a proposal to create an Accessory Dwelling Unit code, which would legalize many illegal basement units while maintaining the current zoning regulations. Much of Queens, for instance, is zoned for single family housing, and adding this code would create new affordable housing units without changing the character of the neighborhood.

Legalizing basement apartments has emerged as a major component of mayoral candidate Bill De Blasio’s plan for affordable housing.  In a press release, the current Public Advocate says of so-called “granny flats”: “As mayor, I will bring them into the regulated housing system, ensure they meet legal standards for safety, and work to bring them under rent-regulation, so their tenants will have the same basic protections as New Yorkers in traditional apartments.”

At UHAB, we see illegal units all the time, and there’s currently no good answer for the tenants who live in them.  When buildings are in foreclosure and change ownership, for example, we are unable to guarantee that those tenants won’t be evicted.  Illegal units put tenants at risk of displacement and also at higher risk of living in poor conditions.

To learn more about Chhaya’s campaign, and how to get involved, visit their website here.


Mapping Foreclosure in New York City from 2007 to 2012

Created by Federal Reserve Bank of New York
Created by Federal Reserve Bank of New York

Last week, the Federal Reserve Bank of New York published a map illustrating regional trends in foreclose throughout New York City. The maps follows changes in neighborhood foreclosures from 2007 to 2012. The results are startling.

When viewers hit the “play” button, areas of central Bronx, central Brooklyn, Queens, and Staten Island immediately become “colored” in foreclosure. From 2007 to 2008, foreclosures began to multiply in these boroughs.  For example, in the  Bronx neighborhoods of Belmont, East Tremont, and Crotona Park, foreclosures increased from 4  to 9 percent. In the Brooklyn neighborhoods of Crown Heights and Ocean Hill, foreclosure increased from 6 to 12 percent.  In the Queens neighborhood of Jamaica, foreclosures increased from 3 percent to 12 percent.  And, in the Staten Island neighborhood of Far Rockaway (which was recently hit hardest by Hurricane Sandy), foreclosures increased from 2 to 10 percent. While northern Manhattan has a foreclosure rate of 4 to 8 percent, neighborhood South of 125th st. are noticeably pale.  

According to a Citizens Housing and Planning Council (CHPC) report, entitled “The Impact of Multi-Family Foreclosures and Over-Mortgaging in Neighborhoods in New York City,”  one reason this is meaningful is that buildings in foreclosure have a negative impact on the neighborhood around them.  Most buildings that are located near foreclosed buildings already have a high number of code violations.  CHPC’s data illustrates that two years after a building enters foreclosure, code violations in buildings within 250 feet increased by 32.8 percent. While authors of the report dismiss a direct causation of foreclosure on increased deterioration, they do assert that neighborhood instability increases the likelihood of dilapidation.

The same CHPC report also explores demographics of the neighborhoods with exceptionally high number of over-leveraged buildings. The data reveals that 8.5 percent of residents residing within 250 feet of a foreclosed building are living below the poverty line.  22 percent of residents are immigrants, and “minus 7 percent” are white.   Such data illustrates the the way in which racial and class inequalities exist within foreclosure trends.

While the map is visibly shocking, we have some unanswered questions.  For instance, which neighborhoods experience high single-family foreclosures and which neighborhoods experience high multi-family foreclosures? And, of the multi-family foreclosures, how many were caused by predatory equity schemes?  Also, how can we map the demographic trends revealed in the report alongside foreclosure?

Finally, we want to point out the manner in which the map uses the color red to depict foreclosure.  Red, as we learn in geography classes, means “watch out” and “be afraid” (think communism and blood).  Foreclosure in New York can mean many things, some of them scary.  However, when we go into buildings in foreclosure, one of the first things we tell tenants (who are protected from eviction under rent regulation laws) that foreclosure can be an opportunity.  In rent-regulated multi-family buildings, we hope that foreclosure can create an opening for tenants to organize and fight for positive change!

Debt Threat Returns to the Bronx

Water Damage and Mold at 1576 Taylor Avenue

In 2009, CHPC released “Debt Threat,” a report that detailed the “wildly overoptimistic expectations of income” in commercial mortgage market and the implications nationwide. Particularly, it focused on the affects in the rental housing market. At the time, many of the CMBS-secured mortgages were in default or even foreclosure. Now that the economy has begun to recover, lenders are once again working with landlords to saddle buildings with debt using the complicated CMBS model. Some people define “insane” as doing the same time over and over again and expecting different results. Over-mortgaging was devastating for tenants as well as buildings  (not  to mention the whole economy) in 2009, and we expect that it will be devastating for them once again. So, are investment bankers insane?

Over the past year, Finkelstein Timberger Real Estate and Cantor Fitzgerald Commercial Real Estate have worked together to refinance, repackage, and increase the debt burden on 34 large multifamily buildings in the Bronx. Many of these buildings are in sub-par shape (as the pictures above and below illustrate). With the recent explosion in their debt per unit, the landlord will scrimp on heat and services to pay the inflated mortgage.  Such actions will cause building conditions to worsen. Moreover, we have no reason to trust these folks at Cantor Commercial and at FTRE. Here’s some highlights of the portfolio which we have both surveyed and researched extensively.

  • Building conditions vary wildly between long term tenants and recently moved-in residents. So far, we’ve noticed a pattern: long term, low-rent tenants are denied services, while higher paying residents generally get more prompt repairs.
  • Heat is low and often turned off. We suspect that FTRE is doing the bare minimum in this department, something that is particularly dangerous for very young and very old tenants in the middle of a cold snap.
  • According to our research, the underwriting doesn’t line up. Building income and expenses are made public record at the Department of Finance in order to determine property taxes every year. Thanks to this, we know that CCRE and FTRE underwrote new mortgages for 34 buildings based on income that differs widely from public record. While FTRE reports $5M in income to the Department of Finance, but underwrote the mortgages for the buildings assuming income of nearly $10M. This assumes nearly a 100% increase in income — something that can only be done through eviction.
  • We have reason to expect that CCRE  securities are not performing well, indicating that the highly over-leveraged properties are already beginning to falter. According to this article, released in earlier January, nearly 41% of CCRE’s staff has been let go as a response to under-performance. Needless to say, this doesn’t bode well for tenants for building conditions.
  • 9 of these buildings are in what we call the “Milbank Portfolio,” buildings which Mayor Bloomberg once called the worst in New York City. These buildings deteriorated while in an over-leveraged CMBS, which was managed by Wells Fargo. The new CCRE debt far exceeds the debt level under Wells Fargo.

Starting this week, we’re going out to buildings in the portfolio to set up tenant associations with the goal of helping tenants use their collective power to prevent conditions from getting as bad as they got in the Milbank portfolio. But, conditions are already not great.

Mold at 2264 Creston Avenue

Do you live in a building owned by Finkelstein Timberger Real Estate? Are you interested in forming a tenants’ association? If so, let us know at Join us in breaking the cycle of predatory equity!

Time for Receiver Reform

It’s hard to pin down a 100% accurate number of multifamily buildings in New York City in foreclosure. Our system of collecting data is far from perfect, and the status of many of these cases can change overnight. That being said, we estimate that about 400 multifamily buildings fell into foreclosure in the two year period between January 1st, 2010 and December 31st, 2011. (The single family number is far greater. We don’t collect data on that, but The Furman Center is an excellent resource for more information.) This unprecedented level of foreclosure has inevitably led to a tiresome backlog at county Supreme Courts, where foreclosure cases in New York State are all held. Right now, it is not unusual for a foreclosure case to drag out for over two years.

As many of our readers know, court-appointed receivers are supposed to collect rents and make repairs during the foreclosure process. You can read more about the problems tenants experience working with building receivers in our earlier post, “Receiver Reality.” Perhaps because receivers are temporary agents or perhaps because even the best receivers have a limited ability to provide lasting repairs, we have never thrown our weight behind an effort to reform the often corrupt receiver appointment process. But between the increase in the number of foreclosures and the subsequent increase in the length of time of the foreclosure process, the universe of buildings with court-appointed receivers has multiplied in size. We know some tenants who have moved into a building and moved out of it, all during the tenure of a receiver, never knowing a “real” owner. And we’re rethinking our decision to set this issue aside.

Currently, receivers are regulated by court rules 22NYCRR Part 36, which governs all judicial appointments, from building receivers to legal guardians to attorneys for incapacitated persons. Part 36 establishes of a list of qualified applicants for each category of appointment, of which receivers are one. It is under judges’ legal authority to establish education and training requirements for appointments, but this power is not exercised in practice. For building receivers, judges typically only consider issues of compensation and reasons for disqualification (conflicts of interest.) You can read more about Part 36 here and here.

We’re currently working with several of our allies to recommend that judges additionally consider potential receivers’ demonstrated level of competence at managing distressed properties as a requirement for qualification. Because they often manage the most troubled buildings in New York City, possibly for several years at a time, it has become essential that receivers have the skills to at least stabilize buildings while working with tenants in respectful ways. One idea involves recommending that receiver qualifications look similar to HPD’s qualifications to become a 7A administrator. Both officers are temporary appointees that ideally have the capability to stabilize extremely distressed housing.

We are working with allies on formulating a way to approach this issue, but we’re still in the early stages of this process. We remain hopeful: it is in the interest of tenants, advocates and lenders that properties be as best maintained as possible throughout the duration of foreclosure. Some banks have indicated to us that they often request specific receivers who they know will be responsible property managers; tenants can attest to the fact that a good receiver can be an improvement on a bad landlord.  It’s not often that we’re on the same side of the table as lenders. We’re hoping that this unusual collaboration will be helpful in moving this issue forward.

CHPC Study Finds Bad Lending Practices Cause Neighborhood Decline

We’ve known for some time that bad lending practices have had devastating impacts on multifamily rental housing and on the families who live in these buildings.  Now, thanks to Citizens Planning and Housing Council (CHPC),  we know that Predatory Equity is infecting surrounding neighborhoods as well.

Commissioned and funded by Enterprise Community Partners (Enterprise), “The Impact of Multifamily Foreclosures and Over-Mortgaging in Neighborhoods in New York City” examines more than 1,100 multifamily buildings across Brooklyn, Bronx, Manhattan, and Queens. It highlights the need to monitor multifamily housing stock and coordinate public and private sector intervention so that the stock may be improved, returned to responsible owners, and preserved for another generation of tenants.

Additional findings from the study include:

  • For buildings within a 500 foot radius of an over-mortgaged building, the average percentage increase in ERP liens per building was 198%. However for buildings outside of the 500 foot radius, the average percentage  decrease in ERP charges was 39%.
  • Buildings within a 500 foot radius had $1,892,142 more in ERP charges in 2010 than they would have had if they were not near an over-mortgaged or foreclosed property.
  • The average per building percentage increase in Class C housing code violations, the most serious, was 13.7% between 2008 and 2010 in buildings located within 250 feet of an over-mortgaged building.  The average increase per buildings outside of a 250 feet radius was only 6.3%.

Click here to read this important new report!