Garodnick might seem like an unlikely champion in the fight against foreclosures' impact on tenants. His district covers some of Manhattan’s priciest real estate, including the grand apartments along Central Park South and much of Museum Mile. By contrast, the vast majority of home loan foreclosures in New York City are concentrated in a few low-income neighborhoods on Staten Island and in Southeast Queens, such as Jamaica and South Ozone Park.
But Garodnick’s district also includes the more than 11,200 rental units at Stuyvesant Town and Peter Cooper Village, which sold in 2006 for nearly a half-million dollars per apartment. That's one reason he backs three related bills (Introductions 889, 956 and 959), which would require that renters be notified of a pending foreclosure, require banks and others to register foreclosing properties with the city, and require owners to maintain upkeep of properties while in default.
Those downtown Manhattan units have plenty of company: Local experts count more than 70,000 “overleveraged” rentals where the commercial real estate loans may be larger than the value of the property based on rental income.
As these properties' debt becomes more onerous and foreclosure becomes a possibility, a variety of officials and advocates hope to protect tenants while a tangled web of owners, lenders, and investors struggle over who has the right to whatever value is left at the properties.
At the same time, state and city housing officials hope to potentially rescue these buildings and preserve them as housing for low and moderate-income New Yorkers.
“We don’t think that the shoe has dropped yet for overleveraged buildings,” said Holly Leicht, deputy commissioner for development at the city’s Department of Housing Preservation and Development (HPD). “We think things will get a lot worse. We want to make sure that those buildings don’t decline as landlords walk away.”
The worst-case scenario for these buildings could already be playing out at the 1,230-unit Riverton complex in Harlem. In January, Riverton’s owners defaulted on their $250 million package of loans on the property.
The property is now in limbo as the mezzanine lender and the permanent lender begin what could be a protracted legal battle over the property, which analysts estimate to be worth either as little as $80 million, based on the current rent roll, or as much as $196 million, depending on how much rents can eventually be raised at the rent-stabilized property, according to recent coverage in the real estate financing trade press.
In the meantime, Riverton’s current owners and managers have little incentive to invest new money to maintain the property, because they are almost certain to lose Riverton to one or another of its lenders.
The fear is that the property could join New York City's long history of poorly maintained rental buildings. At notorious projects like Noble Drew Ali Plaza in Brownsville, Brooklyn, years of neglect allowed drug dealers to control many of its public spaces. But there's hope, too, because a qualified government-subsidized community developer finally took ownership in 2007.
State and city officials have pledged to keep overleveraged buildings from decaying like Noble Drew. Most of these overleveraged apartments are still controlled by rent stabilization laws.
“We have legal tools,” says Deborah VanAmerongen, commissioner of the state’s Division of Housing and Community Renewal (DHCR). “It doesn’t matter who owns the property… They will be dealing with us.” Residents have the right to file service complaints and claim rent reductions if overleveraged buildings are allowed to deteriorate, she says.
HPD officials like Leicht also promise to fight decay through programs like HPD's Alternative Enforcement Program, which every year identifies the 200 worst-managed buildings in the city and then fines the owners until they fix the problems.
Residents at these buildings also worry about eviction. Many banks that foreclose on smaller buildings like single-family homes throw out tenant families as a matter of course, claiming the homes are easier to sell when they are vacant. “People are extremely concerned,” says Garodnick.
Most of the residents at these overleveraged buildings are protected from eviction by New York’s rent stabilization law, says VanAmerongen. Residents not protected under rent stabilization may also be safe from eviction since their rents have probably already risen to match the rents in the surrounding rental market. Unlike single-family homes, apartment buildings are easier to sell when occupied by tenants paying market-rate rents, according to commercial property brokers.
The three City Council bills that received a hearing April 21 come at a time when other levels of government also are trying to help tenants – rather than just homeowners – affected by foreclosure. Congress is creating legislation to help protect renters living in foreclosed buildings. On May 6, the U.S. Senate passed the Helping Families Stay in their Homes Act of 2009 (S.896). Among other things, the bill would allow renters to continue to live at foreclosed properties until the expiration of their lease, unless the home is sold to a buyer who wants to live in the home, in which case the tenant family still has 90 days to arrange for new housing. A similar bill also has passed in the House of Representatives.