Foreclosure Fears Lead
To Tenants' Conundrum

Though a major victory for the tenants, the cost-prohibitive ruling only added to the doubts some of them harbor about the portfolio's solvency. Though he did not address the sub-metering decision directly, Douglas Eisenberg wrote: "We take residents' concerns seriously and will meet with any to address problems they may have in their apartments."

Urban American contends that its Putnam portfolio is financially viable. But with 100,000 units of affordable housing tied up in private equity deals, many housing groups and tenants fear a new era of abandonment for the city.

Joe Shuldiner, executive director of the Yonkers Housing Authority and the former general manager of the New York City Housing Authority, says the current concerns mirror those of earlier boom-and-bust cycles, although he doubts that New York will return to the level of abandonment that characterized the 1970s and early 1980s. He also cautions against gross generalizations. "You have to distinguish among naïve owners and smart owners who made a good decision and the dirty, rotten, lousy owners who don't give a crap and are just in it for the money," he says. Unlike the 1970's housing crisis, Shuldiner says, these buildings still have value.

Harold Shultz, a senior fellow at the Citizens Housing Planning Council, said that the best possible scenario, given the magnitude of the problem, might be for the buildings to go into default en masse. "It would be good, actually, if they go into foreclosure," he said. "The debt will get wiped out. There will be a buyer at a new price and the property can go on its merry way."

But other housing advocates say that foreclosures often lead to disinvestment in the buildings. The companies that buy the buildings and their debt at auction may not necessarily bring a better business model than past owners. In fact, it's possible that buyers could still overpay through the foreclosure process, which would essentially result in another speculative model.

Nevertheless, all agree that it is crucial that troubled buildings be deleveraged. Shultz says local housing officials and advocates are talking to federal agencies and lawmakers about legislative or administrative ways of ratcheting down bad loans, such as allowing a Federal Reserve asset-purchase fund to buy the "bad" parts of the affected portfolios.

Absent federal help, New York City could only intervene in the worst cases, Shutlz notes. "100,000 units is far more than the city could ever hope to deal with," he says.