The building where Sloan, 40, an unemployed administrative assistant, lives was owned until recently by the private equity-backed Ocelot Capital Group. When these Ocelot properties entered foreclosure last year, government-sponsored financial giant Fannie Mae was left holding the bag on a $29 million mortgage package it underwrote for Deutsche Bank. Now 300 families live without effective management in buildings suffering from thousands of serious housing code violations, including collapsed ceilings and faulty electrical wiring. With Fannie Mae preparing to auction the debt it holds on the 19 buildings – in effect selling them – the city's Department of Housing Preservation and Development says the sale's design could become a template for how the city handles the disposition of other financially troubled buildings.
"We're seeing it as a test case," said RuthAnne Visnauskas, HPD's assistant commissioner for new construction finance. Tens of thousands of apartments around the city presently rest on shaky financial footing and could end up in foreclosure like the Ocelot properties if owners stop making debt payments. In cases where mortgages stand to be transferred again, those involved all say it’s crucial not to sell to yet another unreliable owner. Sloan joined with other residents and activists in a rally on July 20 to tell Fannie Mae that a nonprofit buyer is the better choice.
But Fannie Mae maintains that an open auction is the best way to find a responsible owner and begin the process of repairing the buildings. "Fannie Mae is committed to selling its Ocelot notes to a responsible buyer who will address safety and affordability issues at the property and deal fairly and appropriately with tenants," said Jon Searles, Fannie Mae's director of communications. Fannie is working with HPD to establish criteria for selecting the winning bidder. "The criteria will include demonstrated financial strength and a strong track record in managing and maintaining large affordable rental properties in a responsible manner," said Searles, who noted that the company is less interested in recovering its debt than in selling to a landlord who will take care of the buildings.
Ben Dulchin, executive director of the Association of Neighborhood Housing Developers (ANHD), which represents 97 nonprofit housing organizations citywide, is cautiously optimistic that the right sale could rescue the buildings and preserve affordability. Some ANHD members have expressed interest in the buildings, despite the mountain of repairs they need.
"This is potentially a really good outcome to a terrible situation. It is hopeful that Fannie Mae is seeing that they have an obligation to make this story come out right," said Dulchin. If the sale price were low enough, ANHD members or other developers committed to managing quality affordable housing could buy, repair and maintain the buildings. "As long as Fannie Mae says it goes to a responsible owner, that is a good thing. Hopefully that's what they are committing to," he said.
Do the right thing
That's an open question. Housing advocates who have been sounding the alarm for years on the danger posed to tenants by over-leveraged buildings are skeptical. They fear the sale planned for August 12 (when sealed bids will be accepted for one, some or all the buildings) may simply transfer the apartments to yet another owner who is unwilling or unable to maintain them as decent homes for low-income New Yorkers. Nonprofit community development organizations can't compete with deep-pocketed private investors, and shouldn't have to, said Dulchin.
