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.

Advertisements

Friday UHAB News Round-Up!

It’s Friday and though it’s been a while, we’re back with a Friday News Round-Up!  This week, we thought we’d take advantage of all the work UHAB has been doing with press and highlight our campaigns in the news over the past couple of weeks. Check out the following articles pointing to UHAB’s work with organized tenants fighting back!

 Stabilis Capital:

Ridgewood tenants seek city assistance to wrest control of six buildings from Stabilis Capital,” NY Daily News, 5/12/14

Melrose Tenants Still in Limbo,” Mott Haven Herald, 5/12/14

Bronx Tenants Protest Building Conditions NY1, 5/6/14

After Foreclosure Crisis, Renters Suffer Under Wall Street Landlords, ” Al Jazeera America, 4/20/14

 

Crown Heights Tenant Union: 

Tenants Fight to Save Their Homes in Up and Coming Crown Heights,” Epoch Times, 5/15/14

Desperate Forces Align Over Affordable Rents,” The New York Times, 4/28/14

 

Three Borough Pool: 

Garodnick Calls for Citywide Action to Stop Predatory Equity,” Capital New York, 4/22/14

 

Putnam Coalition:

Renters ‘Sold Out’ by NYC’s Pensions Press de Blasio on Housing,” Bloomberg News, 5/14/14

 

We’re proud of our work and excited to continue mobilizing and growing tenant power throughout NYC!

 

Three Borough Pool Press Conference

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!

A Picture is Worth…$133 Million?

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 growing public pressure 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?

1229 Franklin, E4, hole in wall

1229 Franklin Avenue, Bronx

1229 Franklin, E4, broken window

1229 Franklin Avenue, Bronx

 ceiling, apt 2A

1270 Ocean Avenue, Brooklyn

IMG_6986

269 East 194th Street, Bronx

265 E. 194th 2D 2.13.14

265 East 194th Street, Bronx

269 E. 194th 4D 1.8.14

269 East 194th Street, Bronx

ceiling light

709-713 Fairmount Place, Bronx

floor

709-713 Fairmount Place, Bronx

Council Members Ritchie Torres, Brad Lander, Antonio Reynoso, Helen Rosenthal, Inez Barron Tenants, and Advocates Stand United against Predatory Equity: Call for responsible disposition of more than 1500 apartments currently in foreclosure.

Council Members Antonio Reynoso and Ritchie Torres with UHAB Executive Director Andrew Reicher. Photo from Council Member Brad Lander.
Council Members Antonio Reynoso and Ritchie Torres with UHAB Executive Director Andrew Reicher. Photo from Council Member Brad Lander.

For Immediate Release: March 18, 2014

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.”

###

Fight for affordable housing! Fight for a better deal!

Image
Forty-two buildings spread across the Bronx, Manhattan, and Brooklyn are currently in foreclosure. These buildings, home  to more than 1500 low-income families, are now at risk of being lost to the same speculative financial instruments that led to a massive housing crisis in 2008. Investors continue to gamble on these homes, while 1500 families suffer in hazardous living conditions. 
At this moment in NYC, we cannot afford to lose even one unit of housing for the poor and working class. Let alone more than 1500. That’s why tenants are organizing and fighting back. Join us on Tuesday, March 18th at 11AM on the steps of City Hall to fight back against speculation on affordable housing and for a better deal for tenants!
 
A group of four predatory equity groups (Normandy, Westbrook, Vantage, and Colonial Management) took out a $133 million mortgage in order to buy the portfolio in 2007 during the housing boom. They hoped to cut maintenance costs and force tenants out to raise rents. When people refused to leave their homes, the landlords pocketed the tenants’ rent and let the buildings deteriorate more and more until finally they defaulted on their debt causing all 42 buildings to fall into foreclosure in April 2012.

And that’s just the tip of the iceberg. Tenant have been suffering from neglect and harassment for years. No heat and hot water for days at a time. Elevators that are broken as often as they work. Ceilings that have collapsed or are missing entirely. Repairs that should take hours take months to complete — and then, they are only patchwork. One building hasn’t had gas since August. These conditions are unjust, and tenants are demanding change. 
 
On Tuesday at City Hall, we say enough is enough! We demand safe, permanent, and affordable housing. If Colonial Management won’t take care of these buildings, we demand that the bank sell them to someone who can. 
Will you stand with us on Tuesday morning?
 
For more information, or to let us know you’ll be there, contact Kerri White at 212-479-3358  or at kwhite@uhab.org

UHAB Organizers: News Round-Up

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.”

Then on Monday, Bronx News 12 covered a Tenant Association meeting with three of those buildings on Franklin Avenue that featured their new Councilwoman, Vanessa Gibson who came out to hear from tenants about overt harassment tactics and utter neglect of the buildings. Check it out to see some great VIDEO of the meeting and tenants!

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!