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.”
Before the pandemonium of Sandy and the chilling effects of Athena, there was a press conference. On October 22nd, tenants from the Vantage/Lone Star buildings in Inwoood and Washington Heights joined their elected officials for a press conference to save their homes! To watch the video, click here.
Flor Matos, una de las residentes del inmueble 566, de la calle 190, que vive desde hace 29 años en el sitio, expresó sentirse muy preocupada ante la incertidumbre de no saber lo que va a pasar. “De llegarse a vender el edificio, por más de lo que vale, es casi seguro que nos van a subir la renta y continuaremos esperando para que nos reparen la calefacción.” (El Diario)
Flor Matos, one of the residents of the property at 566 W. 190th St, who has lived in the building for 29 years, said she was very concerned about the uncertainty of what will happen. “By selling the building for more than it’s worth, it is almost certain that they will continue to raise the rent and wait to repair the heat.” (Our own translation.)
“It’s outrageous that Vantage and Lone Star would jeopardize the stable housing of hundreds of New Yorkers to turn a quick buck,” City Council Speaker Christine Quinn said in a statement. “If these buildings are sold with millions of dollars more in unsustainable debt, tenants will be the ones who pay the price when the new owners can’t make mortgage payments or repairs. I urge Lone Star and Vantage to put tenants first and to sell these properties to a responsible buyer who will ensure the upkeep of these buildings is maintained.” (Crain’s NY)
“We want to make sure that to the extent that these buildings are sold that they’re sold to responsible owners and that they’re sold at prices that will be responsible prices,” HPD Commissioner Matthew Wambua said. (WNYC)
More Press is below. You can read HPD’s press release here, and please stay tuned as we continue to add press links throughout the day!
Investing is a tricky thing that I (as a recent college graduate on Americorps wages) don’t pretend to understand. But I do know that responsible investing is crucial, particularly for public pension fund managers, and that socially-ignorant investments is one way that a lot of large, irresponsible companies profit.
As you know, we are working on an exciting campaign in Washington Heights and Inwood with tenants from 16 different buildings in foreclosure owned by private equity backed Vantage Properties. When the Anglo-Irish Bank failed in 2010, Lone Star Funds purchased many of their assets, including the mortgages on these buildings.
To us, it’s not a surprise these portfolios are now in foreclosure. We’ve written before about the Cycle of Predatory Equity, and with Vantage’s problems with harassment. We don’t know much about Lone Star, but what we do know we don’t trust. Like Vantage, they are a private equity company which buys non-performing loans and failed companies or banks to turn a profit. They’re based in Dallas, Texas, and they’re in trouble with the law in South Korea. Lone Star manages many different funds that wealthy people can invest in; the fund that owns the buildings are concerned with is Lone Star Real Estate Funds II (LSREFII) – Clover Trust.
Private equity companies (that become predatory equity landlords) are funded by wealthy investors and, in many cases, public pension funds. Lone Star specifically manages many different private equity funds that wealthy people can invest in. According to Prequin, 26 United States public pension funds (including two in New York State) have invested with various entities connected to the Lone Star Funds. The NY State Pension Fund is invested one of Lone Star’s funds, and the New York State Teacher’s Retirement System has invested $75 million in the specific fund which (we believe) owns the specific mortgages on the buildings in question.
This is compelling information. It means that state employees and more surely teachers’ salaries are invested in a company that is potentially acting against their interest. (We don’t know much about what Lone Star plans to do with these buildings, but a lawyer from the Clover Trust has indicated they are unlikely to meet with tenants.) It means that the very people who live in the building are, without their control, investing a portion of their salaries and retirement into a company that is not providing answers about the future of their homes, and potentially fueling the ongoing housing crisis.
Employees working for the State of Oregon also have pension funds with investments in Lone Star, and they are not happy about it. Just this April, two public employees in Oregon sued Lone Star Funds arguing that they were not adequately informed that Lone Star’s executives in South Korea were charged of stock manipulation. According to an article in The Oregonian:
The lawsuit focuses specifically on the state’s alleged failure to conduct adequate due diligence before and after Lone Star and its top executive in South Korea were convicted in 2008 of stock manipulation in connection with their buyout of the Korea Exchange Bank. But it is also a broad indictment of the state’s massive bets on risky private equity funds, and a see-no-evil-hear-no evil approach when it comes to money managers who generate profits.
We don’t know why or how New York began investing with Lone Star Funds, but we are encouraged by what is happening in Oregon and hope to explore similar ways to use pension funds as leverage in our campaign.
Are you a teacher? Do you receive a pension fund from the Teacher’s Retirement System and are interested in getting involved in this fight to preserve affordable housing in NYC? If so, get in contact with us at firstname.lastname@example.org or comment on this post. If you’re not sure whether or not you receive a pension from the Teacher’s Retirement System, click here for more information.
Yesterday, El Diariopublished an exciting article about 9 Thayer, a building we’ve been organizing as part of our latest Vantage/ Lone Star campaign! Just to remind you, Vantage Properties, the notorious landlord and private equity group with over 5,000 apartment units in New York City (mostly upper Manhattan and Queens), has defaulted on several mortgage portfolios. Lone Star Funds, another private equity group based in Dallas, Texas, has purchased the debt on sixteen of these buildings in Upper Manhattan. Among these buildings is 9 Thayer.
Ana Cruz, a tenant of the 9 Thayer, told the El Diario reporter in Spanish that no one knows what will happen to her and the other tenants, but they will fight to stay in their apartments. She hopes that whoever buys the building will be a better landlord than Vantage.
Working with tenants in the Vantage/ Lone Star portfolios has been an exhilarating experience for us because of how much energy and fuerza the tenants bring to fighting for their homes. There is a great sense of community within the buildings, in part because the tenants have developed it for the thirty or forty years they’ve lived there. The majority of tenants in the Washington Heights/ Inwood neighborhoods we’re working in are Dominican, which means they share a language, a culture, and a common experience. Like other predatory equity groups, Vantage bought these buildings for too much money, proceeding to aggressively harass rent-stabilized tenants in attempts to force them out and raise the rents. Many of the tenants we have recently met suffered alongside one another when harassment was at its peak. Our experience organizing in buildings with such community and determination to fight has allowed our campaign to take off.
We hope that the 16 buildings in foreclosure with Lone Star Funds will see a similar outcome to another Vantage property that is in the news today. Savoy Park, an 1,800 unit complex in Upper Manhattan was recently sold by Vantage and AREA Partners to through a joint fund between Citibank and affordable housing developers, L&M Development Partners. The story is similar – Vantage overpaid for the buildings during the housing boom, and was unable to carry out its plans to force tenants out and raise rents. At the time of purchase, Savoy Park’s mortgage had been in default for nearly a year, though foreclosure proceedings had not officially begun. David Dishy, president of L&M said in a statement published by Crain’s NY that
We are committed to preserving affordability and upholding the unique culture and vibrancy of the Savoy Park community.
We hope that the Vantage foreclosure buildings with Lone Star Fund mortgages (like 9 Thayer) are also able to see a bright future and permanent affordability. Whether or not the buildings experience a good outcome with the foreclosure depends on what Lone Star Funds is planning to do with them. Will they keep them? Will they sell them, and if so – to who? This is what tenants want to find out, and they are determined to have a voice in the process!