Traditionally the province of private owners, rent-stabilized apartments – which account for two-thirds of the city’s 2 million rental units – are attracting the dollars of high-powered money managers of all stripes. The accompanying demand for high returns has some affordable-housing advocates worried about greater pressures to raise rents and revved-up loss of affordable housing – and strategizing about how tenants can fight back.
“We have seen an explosion of very, very aggressive tactics in these large blocks of buildings that have been purchased by private equity-backed financiers. That’s very bad news for affordable housing in New York City,” says Benjamin Dulchin, deputy director of the Association for Neighborhood and Housing Development. “There’s too much money out there, to tell you the truth. Wall Street has found a sleepy corner of the market, and it’s chewing it up.”
Tishman Speyer’s landmark purchase of rent-stabilized Stuyvesant Town and Peter Cooper Village last year for $5.4 billion is the marquee example. There’s also the $1 billion in residential real estate bought over the last few years by the Pinnacle Group, which was sued by nine individual tenants and a Harlem community group in July for allegedly harassing lower-rent tenants. Pinnacle is backed by the Praedium Group, a real estate investor “focusing on underperforming and undervalued assets throughout North America,” according to its website. On a smaller scale, firms such as Taconic Investment Partners, SG2 Properties and Apollo Real Estate Advisors have purchased thousands of units in Queens, Brooklyn, the Bronx and upper Manhattan.
The terms of some deals are revealed through financial documents filed with the federal Securities and Exchange Commission, providing a window into expectations of income growth in rent-stabilized buildings. In fact, the filings relating to a deal by one of the more aggressive players in New York, Vantage Properties LLC – which was formed in late 2005 and often obtains financing through Apollo Real Estate Advisors – demonstrate how one group of properties is expected to double its current rent yield in under a decade.
Vantage Properties owns or manages some 7,000 units in the city. The company’s first major purchase was Delano Village in Harlem, renamed Savoy Park after the acquisition. It is a 1,802-unit apartment complex built in the late 1950s and bought in March 2006 for a reported $175 million. The seven buildings (15 and 45 West 139th St.; 30 West 141st. St.; 60 West 142nd St.; 2300 Fifth Ave. and 620 and 630 Lenox Ave.) occupy a city block on the former site of Harlem’s famed Savoy Ballroom.
In early 2007 the buyers refinanced their 2006 loan of $165 million to $210 million, reserving as much as $42 million for improvements to the property, according to the prospectus from financier Credit Suisse First Boston. The refinancing was in addition to $157 million secured in mezzanine financing, a common borrowing tool used to obtain cash, often at a higher interest rate.
The prospectus outlines an aggressive plan to increase profitability for the building, hiking net operating income from the 2006 level of $7.7 million to $19.5 million. A target date was not given to hit the higher figure, but analysts said it was likely to be in seven years, at the maturity of the loan.
