Tenants, left in debt-ridden properties from the Milbank-LNR deal, will be forced to live in unsafe, dangerous buildings that are in utter disrepair
BRONX, NY, August 3, 2010 – Speaker Quinn, Council Member Annabel Palma, joined by the Legal Services of New York City in the Bronx, Northwest Bronx Community and Clergy Coalition, and the Urban Homesteading Assistance Board, today protested in front of one of the 10 overleveraged properties that are part of a predatory equity deal between Milbank, LNR and a new buyer, which will put hundreds of tenants in unsafe living conditions.
The portfolio of 10 Bronx buildings with 548 apartments, with almost 4,500 building violations, is in severe physical distress following a previous overleveraging by Milbank Real-Estate, a private equity firm out of Los Angeles. The properties are expected to be sold tomorrow to an entity that has refused to be identified despite repeated requests from the tenants and the elected officials for the buyer to come forward.
Upon learning that LNR was facilitating a sale of the portfolio to a new owner, Speaker Quinn urged the financial company to name the proposed buyer and to be transparent about the specific financial underpinnings of the deal. LNR refused to name the buyer and produced financial projections that clearly leave the properties saddled with too much debt and no plans for rehabiliation.
“This sale must not happen,” said New York City Council Speaker Christine C. Quinn. “Hundreds of tenants from these properties are living in awful conditions and suffering because of the irresponsible action and speculation of one institution. Milbank speculated when it bought these buildings and has watched as the buildings fell apart. We need to put an end to the cycle of residential buildings with irresponsible, unworkable loans. Otherwise, these residents will continue living in unsafe conditions.”
“It is deeply upsetting and incredibly discouraging that LNR would choose to negatively influence the housing market by not readjusting the mortgages on these properties. This move will unfortunately allow these 10 properties to fall deeper into disrepair,” said Council Member Annabel Palma, Chair of the General Welfare Committee. “Safe and well-maintained housing not only helps stabilize the lives of the residents, but the adjacent communities as well. I strongly urge LNR to take its fiscal and social responsibilities seriously and to reconsider selling these properties to suitable and responsible buyers at a reasonable price.”
“I continue to be concerned about the welfare of all the tenants in my district who have had to live under deplorable conditions,” Council Member Fernando Cabrera said. “With nearly 400 units and over 3,000 violations under Milbank properties in my district, this overleveraged sale of these buildings is not the solution to the hardships that these tenants will continue to endure.”
The tenants have endured horrible living conditions since Milbank over-leveraged their buildings. Water leaks, hazardous molds, cracked and peeling lead paint, collapsing ceilings, broken locks on entrance doors, useless intercoms, rat and roach infestations, busted boilers, and electrical fires are commonplace throughout the portfolio.
LNR, the financial company that controls the $35 million mortgage, is planning to transfer the debt, leaving the properties saddled with excessive debt. The tenants represented by Legal Services NYC- Bronx are planning to file what is known in NYC as a 7a motion, which is an application to have a court-appointed building manager who will then ensure that all rent will go toward repairs and maintenance.
According to Dina Levy, Director of Organizing and Policy for UHAB, “the Milbank deal is the clearest indication we have that predatory speculation in the NYC real-estate market is not over. Unless banks and landlords are held accountable for these actions, this irresponsible flipping of property will continue, and tenants will continue to suffer under some of the worst housing conditions we’ve ever seen.”
The portfolio has been in a steady state of decline since its owner, Milbank Real Estate, defaulted on its $35 million mortgage. In March of 2009, the mortgage holder, a $3 billion commercial mortgage-backed security trust controlled by Wells Fargo and serviced by LNR Partners, Inc., initiated foreclosure proceedings. The foreclosure judge appointed a receiver who is charged with collecting rents and managing the properties, but due to the high number of vacancies in the buildings, along with the already severely distressed conditions in most of the units, the income from rent collection is not adequate to properly maintain the portfolio.
“The tenants of the Milbank buildings have been watching their buildings fall apart around them for years,” said Jonathan Levy, an attorney with Legal Service of NYC- Bronx who has been representing Milbank tenants. “They are very concerned that the scheduled purchase of the buildings, by unknown persons, will only lead to more of the same. The financial plans the purchasers have made available are wholly inadequate to make these buildings safe and habitable. The tenants will not let their buildings problems be kicked down the road. If the purchasers do not show a realistic plan, they are prepared to file actions for court-appointed receivers to manage their buildings, and put every dime of income into their maintenance and renovation.”
Milbank Real Estate purchased the rent stabilized properties in 2007 during the height of the real-estate bubble. Advocates questioned the financial sustainability of the $35 million mortgage debt, and placed the portfolio on their “watch list” of potentially troubled buildings.
“Speculators think they can walk into our neighborhoods and treat tenants like second class citizens,” said Teresa Anderson, President of the Northwest Bronx Community and Clergy Coalition. “We’re not going to stand for it, and who ever this buyer is should know that they are on notice; we are coming after them on every single housing code violation and they will not have a moment’s peace until the buildings are like brand new.”
Milbank unfortunately is not an isolated problem. In December, Speaker Quinn announced the formation of a new Predatory Equity Task Force, which has and continue to will monitor problems resulting from the continued fallout of the housing bubble, and perform rapid response when these problems threaten the welfare of building tenants.
The Task Force has two main goals. First, it tracks buildings that are currently – or at risk of becoming – physically or financially distressed, and respond quickly to urgent problems. The Task Force pressures owners and lenders to maintain their buildings or sell to a responsible owner approved by the City. Second, the Task Force will continue to explore the core issues behind these problems, and propose new initiatives and policy changes at the federal, state, and city levels.
The Task Force has brought together a number of housing advocates and experts, and is co-chaired by Housing and Buildings Committee Chair Erik Martin Dilan, Council Members Inez Dickens and Annabel Palma, and New York City Department of Housing Preservation and Development (HPD) Commissioner Rafael Cestero.