The impending financial disaster at Stuyvesant Town has gotten plenty of ink — including our new behind-the-scenes breakdown — but it may only be the beginning of a nightmare for tenants citywide. Housing advocates say overpriced buildings all over the city are in or near default, leading not only to rotten conditions, but raising the spectre of widespread abandonment.
In boom times, Wall Street investors and buyers of commercial, mortgage-backed securities planned to squeeze 20 percent profits from residential buildings. The tenants who paid their rents and followed the rules are increasingly feeling Wall Street's folly trickle down, as these investors default on loans or even go bankrupt, and maintenance and services simply disappear.
Lisa Lopez is wearing out the phone calling 311 on her landlord. The 35-year-old tenant-association president, who lives at 820 Jackson Avenue in the Bronx, says it's nearly impossible to get the management company to make repairs: “My neighbor, her ceiling and her wall are separating so much, every time it rains, it rains inside. Another neighbor, she's got mildew just growing on the walls. Growing on the wall! And her daughter's asthmatic.” Don't even get her started on the mice and rats. “The rodent problem is ridiculous. From the time I brought my [2-year-old] daughter home from the hospital, I couldn't put her in the crib. I find droppings in there. And I'm a clean person, but this is a problem. The new owner, it's like their sole purpose is just to let the building deteriorate.”
Problems started in 2007, when Normandy Real Estate Partners, a private-equity-backed investor, bought the Sharon and two other buildings in the neighborhood. At $131 million, the purchase price was far beyond what the income of South Bronx apartments filled with rent-stabilized tenants could sustain. Ms. Lopez and organizers at the Urban Homesteading Assistance Board say in order to make their mortgage and pay investors, the new owners simply stopped doing maintenance. Unsurprisingly, conditions in the buildings nosedived, and Ms. Lopez and her neighbors put the city's housing inspectors on speed dial. The rats, mold, and leaks are so bad that the U.S. Department of Housing and Urban Development is now threatening to withhold its Section 8 payments.
Max Stein, a consultant who manages government services for the Normandy portfolio, says the landlord takes tenant requests for repairs seriously. "The owners are more than happy to make repairs," he says. "There is a program for addressing conditions in the buildings, as long as tenants communicate with the owners. He checks into it, and it’s done."
Stein says he is unaware of any concern from HUD over the physical conditions of the buildings or any threat to withhold Section 8 subsidies. "I never heard anything about that," he says.
In March, ten buildings — home to 600 families — in the Kingsbridge section of the Bronx went into foreclosure. They were owned by Milbank, another private-equity-backed developer, according to UHAB. In West Harlem, it was the Riverton Apartments, now in default. In El Barrio, it was the Dawney Day buildings. The owner is bankrupt.
The Association of Neighborhood Housing Developers, a nonprofit that does research and advocacy on affordable housing, says hundreds of buildings like Ms. Lopez's are in danger of defaulting on their mortgages. An ANHD report from November suggests that if that happens, neighborhoods across the city — the same ones that suffered neglect and abandonment a generation ago — will see a wave of disrepair and abandonment.
Executive director Ben Dulchin estimates that as many as 100,000 apartments could go into default in the next few months. “If the genie is out of the bottle, it will have a very destructive impact on a lot of good, stable, working-class neighborhoods,” he told us.
NHD tracked ten portfolios of private-equity-backed apartments like the Sharon for the past year. All ten were on industry default watch lists.
“The banks need to restructure these loans. They need to take a hit,” Dulchin says, arguing that banks violated their own lending standards when they underwrote wildly inflated purchase prices. “There are some portfolios out there that will default and really be a mess. But in most of these buildings, there can be an orderly de-leveraging,” he says. The struggle ANHD and other affordable-housing advocates see in the next several months is convincing the banks, and to a lesser degree investors, that they lost their bet and now need to get the buildings responsible mortgages — and responsible landlords.
That's a tough sell in a city where someone is always willing to take a real-estate gamble, especially in a down market. If buildings are simply sold at a slightly lower price, but one still unsupported by the rent, the cycle will continue, Dulchin says. “This speculative model will continue. We thought it died with the economic crisis. But it didn't.”