City housing officials laid out their plan to deal with multi-family building foreclosures yesterday at the New York City Council. In the Council’s Community Development committee, council members grilled newly minted Department of Housing Preservation Development commissioner Rafael Cestero on the foreclosure crisis.
HPD’s commissioner laid out a plan to tap federal bailout and stimulus money to save multi-family buildings from falling into foreclosure. Cestero essentially echoed the Geithner plan to mix public and private funding to finance problematic buildings and prevent them from foreclosure. While the plan may work on single to three family homes, New York City’s rental housing stock consists of tens of thousands of rent-regulated buildings – buildings with six or more units built before 1974.
“Its not just families in these buildings [that could face problems], there are spill over affects as well,” said Cestero.
Cestero warned about the dangers of multiple family buildings going into foreclosure such as landlords refusing to make repairs that contribute to deteriorating building conditions. This in turn could drive entire blocks into decline by lowering property values and encouraging other property owners from investing in buildings – namely through making repairs and capital improvements. HPD will stress outreach to owners in danger of foreclosure, code enforcement targeting distressed buildings and the linchpin – using federal funds to purchase or co-finance mortgages with private investors.
“We are looking at ways to use resources to purchase bank assets and transfer ownership to those who are interested in the long-term affordably of the building,” Cestero said.
In other words, putting restrictions on any private investors who accept public financing for purchasing buildings in danger or in foreclosure. Nonetheless HPD was not specific and admitted to not even talking to the federal government about tenant protections.
Driving the looming foreclosure crisis in the city are private equity firms; little regulated and non-publicly traded investment firms that pool private capital to purchase assets. In New York City, private equity firms bought hundreds of thousands of rent-regulated apartments. Private equity firms, or “predatory equity” as tenant groups refer to them, have attracted negative press because of their business plans and the lengths the companies go to carry them out.
“These robber barons in the guise of bankers are pillaging our neighborhoods,” Council member James Sanders said.
Private equity investors generally look for quick returns on their investments and during the boom, overpaid for rent-regulated buildings with business plans predicated on high tenant turnover. When these firms, like Vantage Properties that bought 48 Queens buildings for $300 million last year, according to the Real Deal, are unable to dislodge rent-regulated tenants fast enough they are in danger of foreclosure.
While foreclosures continue to wreak havoc Queen’s larger stock of one to three family homes, a novel idea came forth from housing advocates at the Council meeting; let multi-family buildings foreclose. Advocates contend if the rent-regulated buildings fall into the foreclosure process, they can use federal money to preserve affordable housing from deteriorating and prevent private equity abuses of tenants.
Advocates fear a new generation of private equity firms taking advantage of the bad luck of their predecessors and taking over their distressed buildings and implementing the same business plan.
“The second wave of the foreclosure crisis is sadly just around the corner,” said Chris Quinn, Speaker of the City Council.