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!