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.
Recently, a reader asked us to give an update about what is happening in the 10 Milbank buildings, now owned by Finkelstein-Timberger Real Estate (FTRE). Here’s what’s going on, from our perspective and from the perspective of tenants in the building. In short, it’s a mixed bag:
The buildings are being repaired. In January 2011, 6 of the 10 Milbank buildings were put into the Alternative Enforcement Program (AEP). We are happy to announce that all 6 have been discharged and have a seen a drastic decrease in code violations. Then-HPD commission Rafael Cestero and Mayor Michael Bloomberg called these 10 buildings the “worst in the city,” in early 2011. We’re happy to report that they are slowly becoming livable.
Many things are being ignored. The 4 buildings that did not enter AEP have received repairs at a much slower rate than the other 6. Further, tenants are concerned that FTRE is doing the bare minimum. FTRE is definitely sticking to a pre-determined repair plan which seems, to tenants, to be set in stone. Things that are not on this list do not get addressed. This is unacceptable for obvious reasons.
Tenants will keep fighting if they need to. The Milbank 10 coalition still meets, thanks to a determined tenant leader in one of the buildings. We hope that this coalition will continue to be a valuable resource for those who live in these buildings for years to come.
Stay tuned as the agreement expires. The Milbank Tenants signed a ground-breaking agreement with FTRE when the group purchased the 10 buildings. The agreement limits the amount the landlord can charge for Major Capital Improvements. MCI caps will expire in less than a year. Tenants predict to know more about what kind of landlord FTRE is once this agreement expires.
“Milbank” is still breaking ground. The Milbank tenants fought long and hard for their buildings and are still setting the tone for preservation campaigns across the city. Using innovative legal strategy, tenants were able to force the lender on their buildings to cough up money for much needed repairs during the foreclosure. In what we call the “Milbank Suit,” we have brought this same case against lenders in at least 14 other buildings. We believe that we have turned a corner in making lenders culpable for bad conditions. Read more from South Brooklyn Legal Services.
A long way to go. The Milbank buildings continue to inspire us to think critically about the problems that face the affordable housing community and what we can do to fix them. As some may know, City Council is working on legislation to reform the housing code. A reformed housing code would drastically help tenants in the 10 Milbank buildings. For example, tenants in 1576 Taylor frequently suffer from a lack of heat, particularly at nighttime. Currently, FTRE keeps the heat at 55 degrees – the bare minimum required by HPD for rent-regulated housing. This is quite low, and allows landlords to skirt by without providing real services. Further: when tenants negotiated an agreement with FTRE in early 2011, we could not agree on the right amount to spend on repairs: FTRE’s estimate was about half of ours. A housing code that requires landlords to go behind the walls to fix violations would certainly force landlords to come closer to a real number in situations like this one.
On our walk last night from Milbank building 1576 Taylor Avenue to the subway station, UHAB organizer Cea Weaver and I got to talking. We looked around. This neighborhood by the East 180th subway station in the Bronx is as dilapidated as ever. Within a ten block radius of Taylor Avenue, all I have ever seen are closed restaurants, auto repair centers, and a gas station. The Bronx Zoo isn’t far – but it’s the only attraction nearby – and the building itself is about a 15 minute walk from the subway if you watch your step and avoid falling into the pebbled, unpaved sidewalk.
What on earth would draw an investor out here to overpay for this building? How could a near 30-Million dollar loan on the portfolio possibly work out? Who did the math on this deal?
This is not a neighborhood ripe for gentrification. The tenants have been promised that they will not owe rent arrears. The landlord, Finkelstein-Timberger, has put in writing that they will make substantial repairs in the buildings. How will this deal work? If the neighborhood doesn’t become more expensive, and the current tenants remain in their rent-regulated homes, and the landlord is obligated to spend a significant sum to repair the buildings – how will Finkelstein-Timberger avoid avoid a repetition of Milbank’s mistakes?
While tenants and advocates are satisfied that repairs have been promised and tenants will remain in their homes, there is a lingering discontent. We cannot understand the premises of the NY distressed real estate market. While this may be the best outcome for tenants considering the numerous predators in the market, deals like this are not the answer to the problem of predatory equity. We must start to have an honest discussion about numbers. How landlords run theirs, and how their assumptions differ from tenants and advocates.
Without this, I know that I will remain bewildered, confused, and doubtful of success. These tenants and many others in New York have been through too much for us to celebrate this Finkelstein-Timberger deal without remaining vigilant and thoughtful about what real solutions look like.
MEDIAPOCALYPSE’s most recent video stars The Surreal Estate’s own Elyssa White! MEDIAPOCALYPSE is an emerging new media project to celebrate and inspire community work and grassroots activism. In this video, Elyssa highlights the importance of tenant organizing in the ongoing struggle for fair and affordable housing.
Here, Elyssa reaches out to tenants who live in what has come to be known as the “Milbank Portfolio,” a group of 10 buildings in the Bronx that were bought out of foreclosure by Steve Finkelstein earlier this year. Tenant Ruben Vidal discusses the conditions issues associated with predatory equity and his & his neighbors’ continuing struggle with speculative landlords.
Special thanks to Nina Reyes Rosenberg of MEDIAPOCALYPSE for her support!
UHAB organizers and organizers from the North West Bronx Community Clergy Coalition have been working with the “Milbank 10” for over a year. Public officials, including HPD, Speaker Christine Quinn, Boro President Diaz,and Mayor Bloomberg, have been great allies in the battle, coming to the Bronx to speak out for Milbank tenants multiple times.
Tuesday morning saw these allies in the Bronx again, praising the sale of these buildings, the tenacity of tenants, and the great value of investors like Finkelstein Timberger Real Estate . But if you ask organizers at The Surreal Estate, the jury is still out. We hope that Finkelstein Timberger Real Estate will rehabilitate these buildings. We hope that the agreement forged with tenants in February 2011 remains upheld.
Stay tuned with UHAB organizers and The Surreal Estate to see how this purchase plays out. Stay tuned to see what we think of Finkelstein. Not all of his tenants think he’s so great of a guy, and as of Tuesday morning, we were all standing together celebrating, well, nothing — yet. We stand – as ever – cautiously optimistic for the Milbank Tenants and hoping Finkelstein holds ALL his buildings to the same high standard, whether elected officials are looking over his shoulder or not.