Thursday, October 09, 2008

Report: As Many As 54,000 NYC Tenants In Working Class Neighborhoods May Face Impact Of Foreclosure Squeeze On Private Equity Firms

In New York City, The New York Times reports:
  • In recent years, private equity firms that once rarely ventured outside Midtown Manhattan began investing in Harlem, the South Bronx, East New York and other working-class neighborhoods, paying top dollar for tenement buildings in the belief they could make big profits by replacing rent-regulated residents with higher-paying tenants.

  • But there is growing evidence that those investments are not paying off. Tenant advocates and bond rating agencies say that many of those firms’ properties are in danger of foreclosure because optimistic profit projections have fallen short, leaving enormous gaps between the rent rolls and mortgage payments. As many as 54,000 of the 90,000 apartments acquired in those deals, or 60 percent, are at risk, according to a new report by the Association for Neighborhood Housing and Development, a nonprofit advocacy group for low- and middle-income tenants.


  • Tenant advocates say that the trend could lead to deferred maintenance and cuts in services, which could undermine surrounding neighborhoods. They also contend that because the loans were based on unrealistic revenue projections, rather than current rents, landlords would be able to make profits only by aggressively displacing tenants and then raising rents.

  • These predatory equity investors have dug a deep financial hole for themselves,” said Benjamin Dulchin, deputy director of the Association for Neighborhood Housing and Development. “But if policy makers allow the 54,000 affordable apartments that are at risk of default to go into financial and physical distress, then many communities will be dragged down into that hole with them.”

For more, see Mortgage Crisis Is Foreseen in Housing Owned by Private Equity Firms. TenantRentSkimmingAlpha