Foreclosed Complexes Leave Hundreds on the Street
Wednesday, October 22nd, 2008Imagine, it’s a snowy December morning in New York City. You live in the Magnolia Apartment structure, which totals some 300 units.
A man is walking around the building, nailing papers to the doors. You examine yours and learn that it’s an eviction notice; your landlord has been foreclosed upon and you have thirty days to get out.
Winter months are some of the hardest to move during, partly because of the holidays and partly because the availability of rental property during this time is low. No one is moving out and no one is building new real estate.
In the current economy, many homes once serving as rentals have been foreclosed and remain vacant. There are less rental availabilities out there than what would be available under normal circumstances, as a result.
You’re instantly in competition with the 300 other families in your complex. After doing some research, you find out that your landlord had three other large complexes, quadrupling the amount of people that will be looking for new homes and competing against you.
Your job is really good and you doubt you can find something comparable in another town. Commuting would be a very difficult, if not expensive, option with the snow and rain. You also don’t want to uproot your child from his school and friends.
You have very little money saved and moving expenses in winter weather are likely to be higher than during the summer. If you go it alone, the risk of injury or accident could be higher.
Singles and people with pets have a harder time finding rental property. Would you give up a beloved furry friend to find shelter? If you cannot afford a rental on your own, would you be able to keep your job living in your car, out of a friend’s living room, or under a bridge?
Where will you go? What will you do if you cannot find a place to stay? How will your family stay warm?
That’s what New York City advocates are concerned about in today’s featured article. Despite claims that there is no substantial evidence to prove that any metropolitan city complex owner is close to foreclosure, the current state of the economy and real estate market means that large-scale investors who secured their loans with mortgage-backed securities are not exempt from experiencing foreclosure.
In recent months, foreclosure has been spreading to commercial real estate. The possibilities are frightening. You might think you’re safe because you rent, but you’re only safe if you are the one in charge of your residence.
It might be the right time to make that decision to buy. With all the special lending options offered by federally owned and operated companies, ownership may be a real possibility.
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.”
Source: Massey, Daniel. More city apartments facing foreclosure. Copyright 2008 Crain’s New York Business
