Affordable Housing Victory in the Bronx
Tenants in 14 Bronx buildings formerly owned by the Ocelot Capital Group won a ground-breaking victory over predatory equity in December. After a seven-month campaign, they got Ocelot’s creditors to take a loss and sell the mortgages on the buildings to a developer that specializes in affordable housing.
The Ocelot victory “proves that tenants working together can have an impact on the behavior of even the largest, most powerful institutions and how their decisions get made,” said Jill Roach of Hunts Point Alliance for Children, one of the groups that worked with tenants in their campaign against Ocelot.
The buildings were among 24 rent-regulated properties in the Crotona Park neighborhood acquired in 2007 by the Ocelot Capital Group, which was a partnership between a local real estate investor and Eldon Tech, a private equity firm based in Israel. Since the buildings were rent-regulated, they had limited profit potential and they were not in great shape. However, that did not stop Deutsche Bank from providing a $29 million mortgage for the deal, nor did it deter the government-sponsored mortgage giant Fannie Mae from agreeing to buy the mortgage from Deutsche Bank.
With at least 60,000 and possibly more than 100,000 units of overleveraged housing in New York City, the Ocelot case is far from unique. The real estate boom saw greedy, careless banks and Wall Street firms making massive loans to real estate speculators whose business models required displacing low and moderate-income families to make way for higher-income tenants.
By 2008, Ocelot could not make the mortgage payments and abandoned the buildings. Fannie Mae initiated a foreclosure action. Tenants were left living in some of the worst and most dangerous housing conditions in the city.
Last June, organizers from the nonprofit housing advocacy groups the Urban Homesteading Assistance Board, CASA/New Settlement Apartments and the Hunts Point Alliance for Children began working in the Ocelot buildings in an effort to deal with their terrible physical conditions and the need for new, responsible landlords. The 24 buildings had more than 10,000 outstanding code violations, many of them Class C, the most serious health and safety risks.
Residents quickly came to understand that no amount of repairs or calls to 311 would get their buildings back into decent condition. Relief would not come until the underlying debt was modified to a supportable level. For that to happen, Fannie Mae and Deutsche Bank would have to accept substantial losses on their outstanding mortgage — a reality that at first neither entity seemed ready to accept.
Legal Services NYC -Bronx agreed to represent all of the tenant associations in the foreclosure proceedings. “By moving to intervene in the proceedings, tenants were able to hold Fannie Mae responsible for the upkeep of the buildings during the foreclosure,” said Jonathan Levy, the Legal Services attorney who spearheaded the legal case. “Fannie Mae came to realize that it was not only facing a loss on the loans but also substantial liability if they did not cooperate in putting the properties in the hands of responsible developers.”
Political support from U.S. Senator Charles Schumer (D-NY), U.S. Rep. José Serrano (D-NY) and City Council Speaker Christine Quinn (D-Manhattan) also helped tenants make their case to Fannie Mae and Deutsche Bank.
TAKING A LOSS
In December, it was announced that Fannie Mae had sold the Ocelot mortgages to Omni NY LLC, an affordable housing provider approved by the New York City Department of Housing Preservation and Development (HPD) with an excellent track record of revitalizing and rehabilitating distressed housing. Omni, which was co-founded by former Mets first baseman Mo Vaughn in 2004, is now committed to working with tenants, advocates and HPD to acquire ownership of these buildings and to restore them to decent, safe and affordable housing.
Most importantly, Fannie Mae sold the mortgages to Omni at a price that represents the “true value” of the portfolio — a substantial reduction from the original loan amounts. In doing so, it and Deutsche Bank acknowledged that their loans were overleveraged and accepted the cost of bringing financial stability back to these buildings.
The sale of the mortgages to Omni is only the first step. The serious problems that persist in the buildings cannot be fully addressed until Omni acquires the title to them through the foreclosure process, which could take another six months to a year.
The Ocelot tenants’ determination and commitment to maintaining their communities is a template for how to preserve affordable housing that fell victim to predatory equity.
“Tenants are making a transformation from passive actors to self-empowered advocates who insist on having a measure of control over where they live,” Roach said.
Dina Levy is director of organizing and policy for the Urban Homesteading Assistance Board. This article was adapted from an article published in Tenant/Inquilino (January, 2010).