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.

We Need to Organize, People! By Guest Blogger, Keisha Jacobs

This post is written by Keisha Jacobs, an organizer and member of the Crown Heights Tenant Union.  Keisha acted as MC for Saturday’s march and picnic where the CHTU targeted several landlords to sign onto the CHTU demands.  For more information about CHTU, visit http://www.crownheightstenantunion.org 

keisha1

Hello and welcome. Welcome everyone. I’m so glad to see all of you here this afternoon. We are here today to show our solidarity as long standing tenants and new residents against the negative changes in our Crown Heights community. Predatory practices by banks, landlords and building management are forcing rent stabilized tenants out and overcharging new residents.

The stack of small injustices, the clerical mistakes on your rent receipt the administrative errors like cashing your rent check late. The miscommunication, repeated unreturned messages. Come on folks! You know that it looks like. They say they’re coming to FINALLY fix your sink. You take a valuable the day off only to have them never show up. Or the ceiling in your bathroom that’s coming down around your ears, but you see workmen fixing your new neighbors apartment because they pay twice as much as you do.

These things are not just oversights. It’s not incompetence.  It’s not mismanagement. This is not just a simple screw up.  It’s systemic. It’s tactical. You are being targeted.

There are speculators betting on our neighborhood, people. The predatory equity practices by the banks have placed a gamble on our homes. Our landlords have huge mortgages on the buildings we live in. Values set by appraisers using some arbitrary figures of which your rent controlled or rent stabilized apartment is not a factor. In order to cover their bets, your apartment needs to bring in a higher price. So to make up the difference they skimp on services. No heat or hot water for days during the coldest times of year. Major infrastructure items like plumbing, furnaces or water heaters don’t get repaired or replaced. The lobby and halls haven’t been painted in a decade. And repairs in your apartment go undone. All the while we are being dragged back and forth to housing court in an effort to evict us, or being harassed, or offered paltry buyouts to move us from our homes.

We need to organize, people. This is organizing. Get your neighbors together and if you haven’t already get your rent history and start your tenant association and join us.

On June 18 we will be at the Brooklyn rent guidelines board meeting at borough hall and we DEMAND A RENT FREEZE! We are here to fight. Enough is enough. Hands off our homes!

Join tenants from all over Brooklyn at Borough Hall on June 18th from 5:00 to 8:00 to demand a rent freeze!  If you’d like to travel with the Crown Heights Tenant Union, we’ll be meeting at 6:00 at Franklin and Eastern Parkway.  

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!

 

Reflection on Crown Heights Tenant Union Rally by Donna Y. Mossman

The following was written by Tenant Leader and Crown Heights Tenant Union organizer, Donna Mossman.  Her piece is a reflection on the rally held on February 28th in front of 1059 Union St.

donna

 

We decided it was time to FIGHT! We decided we were not going to take it anymore.

We gathered in front of 1059 Union Street, a property owned by BCB Properties, Inc.

We had more than 25 buildings represented throughout the Crown Heights area.

It was freezing cold that Friday morning, but our hearts and our souls were on fire.

When I looked to my right and looked to my left, I saw people of different shades, people of different religions, and people of different economic means. I saw those who could afford the newly renovated apartments and those who could not.

There were approximately 75 of us but in my mind there were thousands. We were there to represent ourselves, we were there to represent each other but we were also there to represent those who did not join us but was joined with us in spirit.

We cheered and we chanted and we were heard.

We had Media Coverage because we are standing up to the injustice that is being inflicted upon the tenants in Crown Heights. We also stand up for all tenants, in all neighborhoods.

BCB Properties, Inc., tried to stop us. They asked HPD to ask us to call off the Rally, and HPD responded with HELL NO!

A tenant called me, shocked and dismayed that the night before our Rally, BCB put up the frame work for scaffolding. For no other reason than to TRY and stop us.

As the Rally heated up, the workers turned the corner with a flatbed truck full of planks of wood to finish the scaffolding to stop our Rally.

We then huddled together in unison.

One of our members spoke to the workers and they refused to cross our picket line. There is strength in having a union.

We then taped our posters to the poles of the scaffolding. Thank you BCB for providing us with a message board.

This is our Victory Celebration.

The owner of my building called me the Monday after the Rally.

The Superintendent of my building has spent 3 days so far in my apartment. The windows have been fixed; silicon caulking has been used to seal long abandoned cracks.

We decided it was time to FIGHT! We decided we were not going to take it anymore.

When I looked to my right and looked to my left, I saw people of different shades, people of different religions.

There may have been 75 of us but in my mind there were thousands.

JOIN US! AND THERE WILL BE THOUSANDS OF US.

 

The CHTU meets every 3rd Thursday of the month at the Center for Nursing and Rehabilitation at 727 Classon Ave.  

For more information on the Crown Heights Tenant Union, pleasevisit https://www.facebook.com/CrownHeightsTenantUnion

 

State of Emergency at Stabilis-Owned 755 Jackson Ave!

Walking into 755 Jackson Ave. feels like walking into a nightmare.  The stairs which had caved in 6 months earlier remain treacherous, the sign warning tenants about asbestos on the roof remains, and tenants’ health, mental and physical,  is worsening as a result of the state of the building. Tenants, who are not being issued new leases, report a hostile and negligent management.  Tenants are fined thousands of dollars in Con-Edison bills, falsely.  It’s a mess.

The good news is tenants are organizing and they’re not giving up!  Affordable housing is a vital to New York City communities and tenants are fighting to make their homes a better place to live.  Alongside Banana Kelly and UHAB, they are petitioning the City to appoint  a 7A Administrator.  This would take the building out of Stabilis’s hands and into the hands of someone responsible.  See below for the tenants’ letter to HPD.

All too often tenants are denied their rights and unjustly evicted from their homes. Join us as we give Stabilis a taste of their own medicine and evict them!

To Whom It May Concern:

We, the tenant association members of 755 Jackson Avenue, are writing to urge an expedited approval of the 7A administrator appointment process for our building. In late November of 2013, we requested that Harry DeRienzo, the executive director of Banana Kelly Community Improvement Association, a local community development nonprofit organization, be appointed as the 7A administrator. We are grateful for your support and ask that you continue to stand with us in our struggle for safe housing.

Ever since we publicly began putting pressure on Stabilis, through a press conference on December 3rd and a series of accompanying news articles, they have made superficial fixes to our building. However, the deep structural issues that pushed us to request the 7A still remain. Our heating system does not work at the coldest hours of night. The stairs are still dangerous to walk on. In the places where Stabilis’ contractors painted, they covered over possible led paint without removing it. Many individual apartments have experienced periodic loss of water, and many have broken kitchen appliances that have not been fixed. And we know that there is asbestos on the roof that has not been removed.

Meanwhile, Stabilis has been attempting to collect rent from each apartment. However, none of the apartments have a legitimate lease, and multiple requests to receive these since the beginning of their ownership have gone unanswered. We believe that they are attempting to charge much higher than the legal rent on our rent-stabilized apartments.  All these problems take place after Stabilis ignored the building from their initial purchase in June, 2013 until the press conference in December.

Appointing a 7A administrator with all due haste would allow us, the tenants, to begin paying a fair rent and receiving the repairs that we so desperately need. We are deeply appreciative of the steps that have already been taken in the process, and we urge you to allow no further delay and begin the legal proceedings to appoint the administrator immediately.

Sincerely,

The Tenant Association of 755 Jackson Avenue

Fighting Jewish Slumlords Isn’t Anti-Semitic PLUS A RALLY!

The Jewish Daily Forward published an article today written by UHAB Organizer Elise Goldin called “Fighting Jewish Slumlords Isn’t Anti-Semitic.” Inspired by the inflammatory media attention around slumlord Menachem Stark’s murder, she writes about the ways that religious Jews too often appear in NYC’s shady real estate business:

Through my work, I do a great deal of research to try and untangle the mess of who owns what property and who’s connected to whom in the real estate industry. And it’s not easy. Take 199 Lee Avenue, an address in the religious Jewish part of Williamsburg. It’s connected to literally hundreds and hundreds of distressed buildings. Entities with an address at 199 Lee touch all sides of any real estate deal — as owners, mortgagers, brokers — and it’s nearly impossible to connect the address to an actual person.

This Wednesday, we’re holding a tenant action in the neighborhood of Borough Park with tenants from 230 and 232 Schenectady in Crown Heights. The buildings are in some of the worst condition we at UHAB have ever seen: unbelievable leaks, ceilings caving in, and two electrical fires since they’ve been in foreclosure.  Back in 2012, tenants actually won their organizing campaign:  an non-profit group, MHANY, purchased the mortgages on the buildings with the goal of finishing the foreclosure and becoming owner.  Unfortunately, the foreclosure process has moved at a glacial speed and even though MHANY holds the mortgages, no real work can be done until the foreclosure is finished.  While tenants continue to live in dangerous conditions, the owners of the building are further stalling the foreclosure by marketing the buildings with hopes of paying off MHANY and making some money off the top.

Wednesday morning, we’re gathering to protest real estate broker, Sanford Solny, in front of his office in Borough Park to tell him and his investors to back away from this deal and let foreclosure case finally come to an end. This is an action to preserve affordable housing in Crown Heights, and to assert that tenants, not banks and landlords, should be determining what happens to their homes.

Every minute that Sanford Solny and his slumlord investor friends continue to treat these buildings like gambling chips, tenants continue to suffer. Join us in telling them to back off! 

When: Wednesday, January 15th, 11 AM
Where: 3811 13th Ave, Brooklyn

Questions?

Contact us at thesurrealestate@gmail.com or 212-479-3358

Crown Heights Tenant Union To Meet This Thursday

Photo: San Fran.'s Tenant Union
Photo: San Francisco Tenant Union

Crown Heights is gentrifying.  Everyone knows it, but how does it actually play out on the ground? When a neighborhood gentrifies, where are the people who used to live there?  (Often, those experiences are lost and made invisible.  San Francisco’s Anti-Eviction Mapping Project is working to bring this issue into the public eye through sidewalk stencils.)

Along with gentrification comes harassment and illegal activity.  When landlords project that property values will rise, they purchase a building for too much money, assuming they’ll make it back through the high rents that they’ll be able to charge.  Unfortunately, what they don’t take into account is that many New York City buildings are rent stabilized, and that rents can’t just be raised willy-nilly.  So they use other tactics: Harassment,  Major Capital Improvements,  Lack of repairs, Buy-outs.  Anything to force long term tenants out to bring in new, higher paying ones.

In order to pay back a too-big mortgage, landlords don’t stop with the illegal activity after getting a long term tenant to move out.  Instead, they illegally overcharge new tenants, often young people who are also unaware of New York City rent laws.  Some landlords (like ZT Realty) overcharge unsuspecting newbies thousands of dollars.  And the worst part is, they get away with it!  (And they continue to buy more buildings!)  This is the cycle of predatory equity when it works for landlords.  Because the debt levels on these buildings are so high, if landlords were to actually abide by rent laws and respect tenant rights, they wouldn’t be able to pay back their mortgages and the buildings (like so many that we see) would fall into foreclosure.

A group of tenants in Crown Heights have begun meeting as a Tenant Union, hoping to organize and make demands to landlords, lenders, and the City.  Many of the tenants have lived in the neighborhood for decades, and have been experiencing landlord harassment and decreased services, and want to speak up for their rights.  Others have lived in the neighborhood a year or two, and don’t like what they’ve been seeing or are personally being illegally overcharged.

UHAB has been organizing with small, distressed buildings in this neighborhood for years, and have seen this same pattern play out over and over.  We decided to team up with the Crown Heights Assembly to jump-start the Tenant Union and launch a campaign to protect tenant rights and preserve affordable housing.  Join us for the third meeting of the Crown Heights Tenant Union.  We’ll be meeting Thursday evening, 7:00 at 805 St. Marks (between Brooklyn and New York Ave).