NYC To Use Pro Bono Engineers, Architects In Program To Estimate Rehab Costs, Ward Away Would-Be Flippers, Of Over-Leveraged Apartment Buildings

In New York City, The Wall Street Journal reports:

• The City Council plans to announce [...] a new program to detail distressed living-conditions in the city's so-called over-leveraged buildings,(1) aiming to raise awareness about the money required to make the buildings more habitable.

• The program will rely on engineers and architects offering to examine and report on these buildings on a pro-bono basis, according to Council Speaker Christine Quinn. The model for the program is a study done by Baer Architecture Group on a portfolio of 10 Bronx buildings owned by private-equity firm Milbank Real Estate. The buildings went into foreclosure last year when Milbank defaulted on $35 million in debt.(2)

• The Baer report is also expected to be made public on Thursday. It will say that the 10 buildings, which have been short of cash since the default and seen their living conditions worsen, require between $20 million and $25 million in repairs, a higher estimate than previously thought, an official in Ms. Quinn's office said.

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• Ms. Quinn says she hopes the estimates of repair costs will be an eye-opener for other investment firms that may be considering buying the debt of over-leveraged buildings but don't realize the actual costs involved with maintaining the properties. "Some investors hope to flip these buildings and make money," she said. "If it becomes clear how much money is needed, lenders make think twice" before lending money to firms pursuing this strategy.

For the story, see Quinn Warns About Buildings' Excess Debt (City Council Program to Focus on Actual Property Costs; 'Flipping' Strategy Could Backfire on Private-Equity Investors).

(1) Reportedly, the Department of Housing Preservation and Development estimates that 110,000 New York City apartment units are in buildings where the debt exceeds what the property's income can support.

(2) In a related story on this portfolio of 10 Bronx buildings, see Crains' New York Business: New owner cleared for troubled Bronx buildings (Unknown buyer expected to take control next week; residents and officials concerned that badly deteriorated properties are being saddled with too much debt):

• Concern is high among elected officials, tenants and housing activists who worry that the properties—which are saddled with 3,261 code violations—will likely deteriorate further because the new owner is paying too much for the portfolio and won't be able to make needed repairs. [...] Leaks, mold, rats, roaches, collapsed ceilings, missing floorboards and fire damage have made the 548 units virtually uninhabitable, tenants say.