New York, NY —
Hundreds of rent-stabilized buildings across the city could be heading towards foreclosure. Some are already in default. This came about because owners overpaid for properties assuming they could rapidly raise rents to market rates. But that’s not how things turned out. WNYC’s Cindy Rodriguez reports.
REPORTER: The poster child of this failed business plan is Tishman Speyer and Black Rock Realty’s purchase of Stuytown and Peter Cooper Village on Manhattan’s east side.
In 2006, in the middle of the housing bubble, the sprawling complex was purchased for $5.4 billion. Now, three years later, the bubble has burst and the owners have requested that the lender delay a foreclosure. While this troubled real estate deal has garnered major headlines, it is far from the only property in trouble.
In East Harlem for instance, dozens of tenants recently crammed into a second floor meeting room at the rectory of St. Cecilia’s Church. This mostly Spanish speaking crowd was there to meet Harvey Fishbein:
FISBHBEIN / TRANSLATOR: My name is Harvey Fishbein….I am a court appointed receiver and my job is to make sure the buildings run properly.
REPORTER: Fishbein was appointed in September after British investment group, Dawnay Day, stopped paying its mortgage on more than 40 buildings in East Harlem triggering foreclosure proceedings.
Dawnay Day purchased the portfolio for more than 200 million dollars in 2007. According to the British press, it was their first real estate venture in the U.S.
FISHBEIN / TRANSLATOR: that the taxes are paid, that the water bills are paid, that the con ed bills are paid, that the staff is paid...
REPORTER: Basically, Fishbein is there to make sure the buildings stay intact while the bank finds a new buyer. But the tenants say many of the apartments have been in poor condition for a long time. Fishbein did his best to convince tenants he’s responding to their complaints about broken locks, no hot water and bed bug infestations:
FISHBEIN / TRANSLATOR: If you have a specific problem, or the reaction is not appropriate from the managing agent and his staff- let me know.
REPORTER: Many of the tenants are Mexican immigrants organized by a group called Movement for Justice in El Barrio. From the start, they complained their new landlord was aggressively trying to push them out.
A lawsuit accuses Dawnay Day of filling rent bills with false charges and threatening to evict tenants who refused to pay up. The case was settled. The landlord agreed to remove the fees. But now that the building’s in foreclosure, tenants aren’t sure what the future holds.
At the end of the meeting, some tenants folded up chairs while many others lined up to ask Fishbein questions. One man, who would only give his first name, Felix, says he came to see who’s going to fix the many problems in his apartment:
FELIX: y luego el techo que se esta cayendo. Ya por mi parte lo he arreglado tres veces.
Like the ceiling that’s falling down. He says he’s already fixed it himself three times.
REPORTER: Dawnay Day collapsed last year and attempts to reach former New York City representatives were unsuccessful. The brokers who put the real estate deal together are still around but declined to be interviewed.
At an office in lower Manhattan, the Association for Neighborhood and Housing Development has been tracking the Dawnay Day real estate deal as well as nine others. Benjamin Dulchin is the group's Director:
DULCHIN: So this is the underwriting documents for most of the predatory equity portfolio’s we’ve seen..
REPORTER: His group recently put out a report showing how 10 real estate deals are affecting more than 21,000 apartments in neighborhoods such as Washington Heights, Harlem and the South Bronx. All of them are currently on a finance industry watch list for loans likely to default.
The Dawnay Day deal was one of the first to go under. Dulchin says according documents filed with the Securities and Exchange Commission, the owners expected to almost double the average rent to $1700 by 2012.
DULCHIN: The underwriting and the mortgage lending on this building was clearly speculative and assumed that they could rapidly move out the existing moderate paying tenants in East Harlem and bring in tenants who were able to pay a much, much higher rent.
REPORTER: In all, Dulchin’s group estimates a 100,000 units or 10 percent of all rent stabilized apartments in the city are at risk. Housing groups worry that if these buildings fall into foreclosure, they will also fall into disrepair.
The city’s Department of Housing Preservation and Development is also tracking the problem. HPD Commissioner Rafael Cestero says New York City’s recent prosperity created this notion that for every building in every neighborhood there’s a pot of gold at the end of the rainbow:
CESTERO: And I think what we’ve learned through this crisis is that that pot of gold isn’t there and that owners really need to understand the rent regulation system, they need to understand local markets that they’re buying buildings in and that lenders that are making those loans need to reflect those conditions in their underwriting.
REPORTER: Cestero says a small portion of these financially distressed buildings are also in severe physical distress and those are the buildings the city is concerned about because one blighted building can ruin a neighborhood:
CESTERO: Because it’s important to remember that in New York City we’ve seen this movie play out before in the 70’s and 80’s where we saw financial distress in the multi-family sector turn into physical distress.
REPORTER: And so recently, when more than a dozen Bronx buildings were about to be auctioned off by lender Fannie Mae, the city stepped in.
The buildings, known as the Ocelot portfolio, are in bad condition and so the city worked with Fannie Mae to limit the group of developers allowed to bid on the mortgages.
Omni New York’s bid was selected. Former Mets first baseman Mo Vaughn owns the affordable housing company. Eugene Schneur is his partner:
SCHNEUR: This is one of the buildings that’s somewhat indicative of the portfolio as you see there’s not much in terms of doors.
REPORTER: This rundown building on Crotona Avenue in the Bronx is one of the buildings the Omni group hopes to take over. So far, they have only bought the debt from Fannie Mae, now they have to finish foreclosure proceedings and then Schneur says renovations will begin:
SCHNEUR: We can stop on this floor. There’s a couple of apartments here that are boarded up. When we redo an apartment like this it’s new roofs, new windows, redoing all the hallway space, all the doors, obviously security doors downstairs, intercom system...
REPORTER: Schneur says the building actually looks much better than it did when he first walked through it in September, a court appointed receiver has been ordering repairs.
Back then he says it was covered in graffiti and looked like a subway car from the 1980’s. The current super says when he got to the building six months ago, the hallways had no lights, there were broken windows and the place resembled a crack den. Tenant Elia Colon describes what she’s had to endure:
COLON: It was terrible. It was bad. I mean no heat no hot water. Can you imagine in the winter time. Ceilings cracking, no paint -nothing...
REPORTER: Schneur’s group is promising major changes. Colon, is optimistic and wants to believe that help is on the way. For WNYC, I’m Cindy Rodriguez.