A growing number of apartment buildings in the city are at risk of going into foreclosure, making thousands of tenants the next potential victims of the mortgage crisis, housing activists warn.
Nobody knows precisely how many tenants are at risk, but advocates say a minimum of 580 buildings, containing 40,000 units, have one or more factors that could lead to default.
Over the past four years, private equity firms have gobbled up at least 90,000 affordable-housing units in the city at inflated prices and in highly leveraged deals with the hopes of raising rents and maximizing profit, according to the Partnership to Preserve Affordable Housing.
But the debt service on many of the buildings is not being supported by rental income because the apartments are still governed by regulations that limit rent increases. In many cases, owners envisioned unrealistic rent growth, but lenders—caught up in the same free-flowing credit frenzy that led to rampant single-family home foreclosures—made the loans anyway. They sold the loans to investment banks, which packaged them into mortgage-backed securities.
“If you want a Cadillac, buy a Cadillac,” says Dina Levy, project director of the Urban Homesteading Assistance Board. “Don’t buy a Chevy and try to turn it into a Cadillac. You’re not going to be able to do that.”
Housing advocates are increasingly worried that if the loans go into foreclosure, the tenants in these buildings will suffer. Maintenance levels typically go down and capital improvements are put on hold when properties enter the foreclosure process.
Some real estate experts say advocates’ fears are overblown. “They are making assumptions when nobody knows whether there’s any truth to it,” says Steven Spinola, president of the Real Estate Board of New York. “We’re going through a period when money is not as available as it has been, but that doesn’t mean these projects are in danger.”
Apartment complexes like Riverton in Harlem and Stuyvesant Town on the East Side have received much of the attention for their financial troubles, as new owners have had a harder time upping rents than expected. Last week, Standard & Poor’s put three loans tied to Stuyvesant Town’s mortgage on a watch list for downgrading, and last month, Riverton’s owners indicated they were on the verge of defaulting.
One complex already on the brink is Savoy Park, a 1,802-unit development in Harlem that has been placed on a watch list. In 2006, Apollo Real Estate Advisors and its partners bought the seven buildings, which were then known as Delano Village, for $175 million. A year later, Apollo refinanced the property, bringing its total debt to $367.5 million, according to credit rating agency Realpoint. The agency says the risk of default on that loan is now “moderate to high.”