A few weeks ago, tenants from all across New York City came together in front of City Hall to demand that the Three Borough Pool, a group of 44 buildings in the Bronx, Brooklyn, and Manhattan, be taken over by a new, responsible owner.
The current owners (David Kramer, Normandy Real Estate, Vantage Properties, and Westbrook Partners) failed at paying their mortgage, landing all of the buildings in foreclosure. They’ve also failed at maintaining the buildings, resulting in horrific living conditions in apartments. If the lender, LNR, sells the buildings to a responsible developer who commits to rehabilitating the buildings and including tenants in decisions about their homes, this foreclosure can be an opportunity to preserve the nearly 1,600 units of rent regulated housing that are at stake.
UHAB created this video from our footage of the press conference. Follow the link at the end of the video to watch the tenants’ full speeches!
One of the most overlooked aspects of the foreclosure process is the utter neglect that already-distressed buildings experience. There are three layers of neglect at play: when landlords and banks saddle buildings with mortgages that can’t be supported by existing rent rolls, landlords don’t have money to pay for maintenance; during foreclosure, landlords have little incentive to maintain properties, and by the time a receiver has been appointed, buildings are so distressed that receivers – with no equity or long term interest in the property – have limited ability to make positive changes in upkeep; and finally, predatory equity actors target buildings for purchase that are usually already in pretty bad shape — and maybe have already gone through a couple rounds of predatory equity already.
In the Three Borough Pool, there is growingpublicpressure for LNR to cut ties with the four predatory equity investors who overleveraged the buildings and are now in default and foreclosure. Tenants and advocates are organizing and demanding that LNR sell the 42 buildings to a responsible actor with the experience necessary to rehabilitate these 1600 units while keeping them affordable for current residents. The four private equity companies are are looking for new investors to refinance their $133 million loan — and to do so, they need to demonstrate that they are responsible enough landlords to get that kind of money.
But this is how tenants are living. Repairs barely scratch the surface, and tenants are suffering every day. Do Vantage Properties, Normandy Real Estate, Westbrook Partners, and David Kramer deserve a second chance?
City Hall — Elected leaders including City Council members Ritchie Torres, Brad Lander, Antonio Reynoso, Helen Rosenthal, and Inez Barron are joining tenants from 42 affordable buildings spread across Manhattan, Brooklyn, and the Bronx and calling on the mortgage holder and the City to negotiate a deal that would end tenants’ suffering. The rent-regulated and HUD subsidized portfolio, known as the Three Borough Pool, is in foreclosure due to irresponsible financial practices called “predatory equity.” Housing advocates across the city, including Banana Kelly Community Improvement Association, CASA New Settlement Apartments, New York Communities for Change, Northwest Bronx Community and Clergy Coalition, Pratt Area Community Council, Tenants and Neighbors, and the Urban Homesteading Assistance Board are assisting residents in their fight to secure the portfolio as affordable housing.
Predatory equity is a disturbing trend that occurs when investors purchase and grossly over-leverage rent regulated housing with the expectation of huge returns. In order to realize financial gains, property owners attempt to illegally raise rents and reduce maintenance and operating costs. This harmful cycle leads to the displacement of low-income families, deterioration of buildings, and the loss of much needed affordable housing.
Advocates say that the Three Borough Pool is emblematic of the problems of predatory equity. In 2007, a private equity joint venture (Normandy Real Estate, Vantage Properties, Westbrook Partners, and David Kramer) packaged the 42 buildings into one portfolio with a $133 million loan. By 2010 the mortgage (now part of a much larger commercial mortgage backed security) was in default. LNR, the mortgage servicer for the security, began foreclosure proceedings in April of 2013. LNR has given the owners until April 2nd to come up with a refinancing plan that would take the buildings out of foreclosure. However, tenants and advocates hope to use the foreclosure as a juncture to transfer the properties to another owner entirely.
“We’re here today to urge any and all financial institutions not to refinance with David Kramer/Colonial Management, Normandy Real Estate, Vantage Properties and Westbrook Management,” said Benjamin Warren, Tenant Association President of 1511-1521 Sheridan Avenue. “Myself and the other residents of this portfolio know what we deserve, and it is not the carelessness of these self-interested corporations. We look forward to better days without these groups.”
The buildings are physically collapsing under the weight of an enormous mortgage. There are over 2,700 HPD violations in the portfolio. Three of the buildings are in City’s Alternative Enforcement Program, an initiative that targets 200 of the most distressed buildings in the City. Tenants, advocates and elected officials are calling on LNR Property to negotiate with the City and transfer the properties to a responsible developer who will bring the buildings back to safe condition and keep them affordable for the families who call them home.
“These guys took $133 million from the bank and not one dime has gone into taking care of the buildings we live in,” said Debra Cooper, a tenant leader at 711 Fairmount Place. “We live with constant leaks. I regularly don’t have heat or hot water. We have no mail boxes and can’t get our mail. Enough is enough. If David Kramer and his friends aren’t going to take care of our homes, it’s time they are sold to someone who can. It’s past time.”
Some members of the City Council used the situation in the Three Borough Pool to call on the City administration to renew its pledge to fight financial speculation on affordable housing. Elected officials believe that one way to dissuade investors from speculative behavior is through expanding City programs like the Alternative Enforcement Program and the Proactive Preservation Program. These programs allow the City to more closely monitor buildings in physical and/or financial distress. Officials are also considering legislation to create a “watch list” of property owners who engage in predatory equity.
“Affordable housing exists to ease the burden on middle and low income New Yorkers who are looking for a decent standard of living,” said Council Speaker Melissa Mark-Viverito. “This situation highlights the need for further oversight to prevent affordable housing from being undermined by speculative and predatory equity practices in the future.”
“The loss of affordable housing to the practice of predatory equity has created a crisis in our communities that will only become more severe if we fail to take action,” said Councilmember Ritchie Torres, Chair of the Committee on Public Housing. “These properties belong in the hands of new, responsible owners, committed to their preservation and long-term affordability. As a concrete step to address these abuses I have proposed legislation that would create a publically accessible watch list of property owners that engage in this negligent and abusive practice.”
“What these predatory investors are doing is simply unconscionable; everyone in this city deserves a safe, affordable, and well-maintained place to call home,” said Council Member and Bronx delegation leader Annabel Palma. “The administration must take aggressive action against these irresponsible owners and make good on its promise to preserve the city’s affordable housing stock.”
“No one should live in an apartment with mold, water damage or rusted, broken pipes in New York City. It’s time to close the gap between the rights of tenants and obligations of property owners. When homeowners across the country were facing foreclosure because the banking industry had gone rogue, the federal government stepped in to regulate the industry and offer financial assistance through the HAMP modification program. Tenants are no less important than property owners,” said Council Member Mark Levine. “It’s time for the City to step in to empower tenants and to put an end to these abuses. No one’s quality of life should be diminished because of negligent slumlords.”
“Predatory private equity is sucking the life out of our communities, leaving buildings vacant and in decay across New York City. Thousands of long time, hard working residents will be forced from their homes and this is unacceptable,” said Council Member Ydanis Rodriguez.“The city must step in to save these tenants or else this disturbing trend will continue wreaking havoc in our most vulnerable communities. Going forward, the state needs to put safeguards in place to prevent these practices because in every scenario, NYC residents and taxpayers are losing.”
“Today I’m proud to stand with the tenants of the Three Borough Pool. Predatory lending is rooted in disingenuous dealings and tenant harassment, practices that have allowed building owners to shed affordable housing in the race for greater profits, said Council Member Helen Rosenthal. “On the Upper West Side, advocates and tenant leaders have stood firm against speculators like Meyer Orbach whose portfolio includes 25 buildings located between West 106th and West 109th Street. Like the investors behind the Three Borough Pool, The Orbach group has used frivolous litigation and intimidation tactics to push long-term rent regulated tenants from their homes and strip regulated apartments of their affordability through vacancy decontrol. These actions are unconscionable and we must call on every available recourse in our city government to help tenants save their buildings, protect their homes, and preserve their quality of life.”
“Together, we have the opportunity to ensure that over 1,500 families live free from bad conditions, harassment, speculation and fear,” said Sheila Garcia, an organizer at CASA New Settlement Apartments. “Tenants across these buildings want a landlord who will follow the laws and listen to their concerns. Tenants across these buildings have raised families and built communities that we cannot let be destroyed, period, but especially not in the name of speculation.”
“Brooklyn tenants living in HUD subsidized buildings that are part of this foreclosure pool have had enough,” said Jon Furlong, Assistant Organizing Director at the Pratt Area Community Council (PACC). “PACC is proud to stand with the tenants from ALL the affected buildings to ensure they get the repairs and services they deserve. We must continue working together to prevent this type of speculation in multi-family buildings.”
“We’re pleased to see the City Council standing with Three Borough Pool tenants in their fight for a better deal,” said Kerri White, Director of Organizing and Policy at the Urban Homesteading Assistance Board. “However, as a City, we need to figure out ways we can stem speculation on affordable housing in the first place. Tenants shouldn’t have to suffer for years and face foreclosure, waiting for the opportunity to fight for something better.”
We’re firing on all cylinders here at UHAB and the media is taking notice! There has been so much going on that we thought we’d give a quick summary of the articles that we’ve been featured in.
UHAB is one of the most established institutions when it comes to affordable housing in New York City. We work citywide on housing issues that run the gambit from limited equity cooperatives to building strong tenant associations and addressing multifamily foreclosure, and we’ve been around since 1973. For that reason, we’re uniquely suited to speak to some of the myriad housing issues that low income New Yorkers face. Last week we were quoted in two articles written about the current affordability crises.
The New York Times wrote a broad piece about housing affordability in the city, focusing on those who bought apartments decades before the neighborhoods became “desirable.” Some of the people in the story claimed succession rights, like Josh Schaffner, who pointed out the insanity behind it all:
“What other 25-year-old keeps a file box of every statement, every tax return?” Mr. Schaffner said. “I felt like I had been working toward something and I’d finally won it, which is a weird feeling to have, because it’s a place to live — it shouldn’t be something you win.”
Our Executive Director, Andy Reicher, made the broader point that those who stood by their buildings through the hard times and helped usher in a new era in their neighborhoods are now the ones who are feeling the most pressure to leave their homes.
“These were the buildings where the front lights were on, the door was locked,” said Andrew Reicher, the executive director of Urban Homesteading Assistance Board, an advocacy group. “They helped spur the redevelopment of neighborhoods, and now that the neighborhoods are gentrifying, they are the only affordable buildings that are left.”
The Nation Magazine had an analysis of whether or not Mayor de Blasio will be able to follow through with his promise of 200,000 new or preserved affordable housing units. They made the point that much of it comes down to who the new Mayor appoints to the Rent Guidelines Board, which sets the rate of increase for rent-regulated units in the city and has the power to institute a rent freeze. Our very own department’s Assistant Director, Cea Weaver, chimed in:
“Coming off the Bloomberg years, any appointees who are committed to rent stabilization and do not simply represent real estate interests would be an improvement,” writes Celia Weaver, the assistant director of organizing and policy at the Urban Homesteaders Assistance Board, in an e-mail. She’d be happy just to see RGB hearings in the outer boroughs. And she adds: “It’d also be great if the RGB prioritized things beyond operating costs in determining increases. In the last few years rent has continued to climb while wages have stagnated, and the RGB should take that into account.”
Democratic inclusion and resident controlled housing are fundamental to UHAB’s mission. That’s why, in the Organizing and Policy department, we translate these broad policy struggles (gentrification, rising rents, etc.) to real campaigns, where we fight alongside low income New Yorkers in distressed or otherwise at-risk housing.
As we’ve talked about on this blog before, our biggest organizing campaign right now concerns a portfolio of 42 buildings with nearly 1600 units stretching across the Bronx, Manhattan, and Brooklyn. The New York Daily News gave it a great write-up last week, delving into the nitty-gritty details of tenant harassment by the managing company, Colonial Management and the danger of refinancing on the mortgage.
“I would like to see these landlords sell the buildings to someone who cares,” said Benjamin Warren, a 35-year resident of 1521 Seridan Ave. in Claremont [in the Bronx]. “Someone who can keep them affordable.”
If the landlords are to be believed, that doesn’t appear likely.
The firms that own Warren’s building and the others in the pool say they’re on the verge of closing a new loan that would enable them to maintain their ownership. Tenants and housing advocates say that would be a disastrous outcome.
“It’s simple: We don’t want the banks to finance a slumlord,” said Warren, 72. “We can’t force the owners to sell. What we want is to stop the banks from refinancing the current plan.”
We’ve also been working closely with the Crown Heights Assembly and Pratt Area Community Council to create a Tenant Union in order to fight displacement of long-term tenants (as we’ve written about before as well!) We’ve been working alongside tenants in 1507 St. Johns Place and 1059 Bergen St since their buildings were in foreclosure last year. The two extremely distressed buildings were purchased — while in foreclosure and against tenants’ wishes — by Barry Farkas: principal of Vasco Ventures. Since purchasing the properties, he has aggressively tried to push existing tenants out. Vasco’s website (which opens to a quote from robber baron Andrew Carnegie) says they acquire properties with “maximum potential for growth in value.” That’s landlord-speak for “push out rent regulated tenants and destabilize the building.” The New York Daily News wrote about some of his ugly tactics in Harlem, mentioning “The landlords also own at least one of two buildings in Crown Heights, Brooklyn, where tenants have formed a coalition to fight similar conditions including a collapsed ceiling.” Its not all that surprising that Farkas is buying housing in Harlem in addition to Crown Heights, as the neighborhoods rival each other for most rapidly gentrifying neighborhoods in New York City.
All this media coverage is a crucial aspect to putting pressure on slumlords and keeping New York City affordable. We’re going to win these fights, one article at a time!
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:
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:
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!