On May 9, 6:18 am, dusty <trackdu...@[EMAIL PROTECTED]
> wrote:
> On May 9, 4:31 pm, Tom Cod <t...@[EMAIL PROTECTED]
> wrote:
>
> > Questions of Rent Tactics by Private Equity
> > by Gretchen Morgenson
> > New York Times, 5/9/08
>
> > Private investment firms have been amassing what may seem like unusual
> > stakes in New York real estate: they have bought hundreds of apartment
> > buildings with thousands of rent-regulated units across the city that
> > produce decidedly meager returns. As regulatory filings and
> > promotional materials show, the companies expect to generate higher
> > returns quickly by increasing rents after existing tenants vacate
> > their units. Their success depends upon far higher vacancy rates than
> > are typical in rent-regulated apartments in New York.
>
> > Some residents and tenant advocates say that they began seeing what
> > they consider a pattern of harassment of low-income tenants this year
> > and suspect that it is a result of the new owners=92 business models.
> > Tenants have been sued repeatedly for unpaid rent that has already
> > been received by the landlords; they have been sent false notices of
> > rent bills, lease terminations and nonrenewals; and they have been
> > accused of illegal sublets.
>
> > The companies dispute the charges of harassment and say they are
> > protecting their rights.
> > Nevertheless, tenants must answer the notices in court, but many have
> > responded by moving out, court do***ents indicate. When they vacate
> > the apartments, the owners can increase the rents substantially.
> > =93Predatory equity is undermining the best efforts of New York City
and=
> > state elected officials to slow the loss of affordable housing,=94
said
> > Benjamin Dulchin, deputy director of the Association for Neighborhood
> > and Housing Development, a nonprofit organization. =93Both the private
> > equity funders and the lending institutions are aware, or should be
> > aware, that harassment of tenants is taking place as a result of their
> > financial models.=94
>
> > Private investment funds have boomed in recent years, buying companies
> > they considered undervalued in industries as diverse as
> > communications, hotels and energy, streamlining operations and then
> > selling them at a profit. For example, private equity firms have
> > bought nursing homes, often sla****ng expenses and reducing staff to
> > increase their profit. New York provides an unusual op****tunity
> > because it is one of the few cities with a large inventory of
> > apartments whose rental rates are regulated and kept below market
> > levels.
>
> > In the last four years, developers backed by private equity firms have
> > acquired almost 75,000 rent-regulated apartments, Mr. Dulchin said, or
> > about 6 percent of the city=92s 1.2 million such units. Major private
> > equity-backed participants in this market include Vantage Properties,
> > which has partnered with Apollo Real Estate Advisors; the Pinnacle
> > Group, a unit of Praedium Capital; and Normandy Real Estate Partners.
>
> > These companies often make clear that raising rents is crucial to
> > their financial goals. On its Web site, Normandy Partners states
=93the
> > increased institutional appetite for New York City rent-stabilized
> > housing transactions=94 and adds: =93There is a near-term op****tunity
to=
> > increase cash flow by converting rent-stabilized apartments to market
> > rate as tenants vacate units.=94 The companies say that they are not
> > harassing tenants and that they are only trying to protect their
> > rights by enforcing legitimate rules governing regulated apartments.
>
> > But the New York City Rent Guidelines Board says the vacancy rate on
> > rent-regulated apartments is 5.6 percent each year. Buildings with
> > vacancy rates far higher suggest resident harassment, tenant advocates
> > say. Vacancy rates have risen above 20 percent in some buildings owned
> > by Vantage Properties; in some Normandy buildings, the rates exceed 30
> > percent.
>
> > If an apartment is rent regulated, yearly increases cannot exceed the
> > amount set annually by the Guidelines Board. Most recently, it was 3
> > percent on a one-year renewal lease. When an apartment becomes vacant,
> > rents can climb as much as 20 percent. When that rent rises above
> > $2,000, regulations no longer apply, and tenants must pay market
> > prices.
>
> > To generate returns expected by private equity investors and to pay
> > off the debt used for their purchases, tenant advocates say that
> > managers of the properties are intimidating residents in the hopes of
> > forcing them to leave so that rents can be raised. Rent-regulated
> > apartments account for 57 percent of the total in the Bronx, 42
> > percent of the apartments in Brooklyn, 59 percent in Manhattan, 43
> > percent in Queens and 15 percent of those on Staten Island, the
> > Guidelines Board says. Many of the buildings bought by private equity
> > investors are in neighborhoods that are being gentrified.
>
> > Vantage Properties, led by Neil L. Rubler, has paid more than $1
> > billion in the last two years to buy 9,200 rent-regulated apartments
> > in Queens and Upper Manhattan. Investing alongside Vantage in many
> > buildings is Apollo Real Estate Partners, an investment firm founded
> > by William Mack in partner****p with Apollo Management, a private
> > equity firm created by Leon D. Black, a former Drexel Burnham Lambert
> > banker and acolyte of Michael R. Milken.
>
> > Last month, Mr. Black announced a plan to sell $500 million worth of
> > Apollo Management shares to the public. Apollo Real Estate Partners
> > will not be part of that sale. A spokesman for Mr. Black said it was a
> > separate company in which he had a stake but exercised no control over
> > it. In a group of buildings in Queens with 2,124 apartments, Vantage
> > has filed almost a thousand cases in housing court against tenants
> > since October 2006, according to Robert McCreanor, director of legal
> > services at the Immigrant Tenant Advocacy Project of the Catholic
> > Migration Office in Sunnyside.
>
> > Mr. McCreanor said he searched public records for similar actions by
> > the previous landlord. He found no more than 350 in any year.
=93What=92=
s
> > offensive about these business practices is they seek to generate
> > above-average profits by displacing poor people and people who are
> > vulnerable,=94 Mr. McCreanor said. A spokeswoman for Apollo Real
Estate
> > declined to comment on the accusations. But Mr. Rubler called them
> > baseless. =93Any exploration of the way we conduct business would
reveal=
> > that we are steadfastly determined to uphold the rights of our
> > residents and have absolutely no interest in harassing them,=94 he
said.=
> > =93They are our valued customers, and we treat them as such.=94
>
> > Mr. Rubler said most of his tenants have positive experiences. Claudia
> > Williams, of Corona, Queens, was asked by Mr. Rubler to talk with a
> > re****ter. She said that Vantage was allowing her to live in her
> > mother=92s apartment even though she had not been the primary
> > leaseholder. Phyllis Miller, a resident of Savoy Park in upper
> > Manhattan, said she believed that tenants who were unhappy with
> > Vantage simply disliked change.
>
> > But Jose Ricardo Aguaiza, 45, who works as a doorman in Manhattan,
> > said he has lived in the same apartment in Woodside for 14 years and
> > never had a problem until Vantage took over in 2006. Since July 2007,
> > Mr. Aguaiza has been sued by Vantage three times, twice for nonpayment
> > of rent that he was able to demonstrate the company had received.
> > =93They refused to give me a renewal contract,=94 Mr. Aguaiza said.
=93A=
nd
> > in court, the lawyer from Vantage offered to give me three months=92
> > free rent for moving out.=94 Mr. Aguaiza said he turned down the
offer.
>
> > On April 10, Mr. Aguaiza and five other rent-stabilized tenants living
> > in Queens sued Vantage. The plaintiffs say the company has engaged in
> > deceptive practices that violate New York=92s consumer protection
laws.
> > Five more tenants are joining the suit.Janice Williams, who works as a
> > freelance producer in television, has lived in a Vantage building in
> > Sunnyside since July 2005 and is a plaintiff. When she moved in, the
> > building was owned by Nathan Katz Realty.
>
> > In October 2006, Vantage bought the building. Ms. Williams said the
> > property managers rejected her request for a lease renewal in April
> > 2007. They said she was not entitled to the rent-regulated unit
> > because her primary residence was in Greenwich, Conn. But the
> > Sunnyside apartment has been her primary residence since September
> > 2005, Ms. Williams said, and is on her driver=92s license and her
voting=
> > card. She appealed to the New York State division of housing and
> > community renewal and won. =93Our apartment building is 72 units, and
a
> > little over 20 apartments in the span of a year and a half have turned
> > over since Vantage bought it,=94 said Ms. Williams, who has organized
> > tenants.
>
> > The turnover Ms. Williams cited is in keeping with a description of
> > Vantage=92s strategy in a 2007 do***ent filed with the Securities and
> > Exchange Commission after its purchase of 455 rent-regulated
> > apartments in Wa****ngton Heights. The filing described the company=92s
> > business model as a =93recapturing=94 strategy. Under the plan,
Vantage
> > expected in its first year to turn over 20 percent to 30 percent of
> > the units, five times the typical vacancy rate. Vantage aimed to
> > recapture 10 percent of the units each year afterward.
>
> > Only 5 of the 455 units were empty at the time of the filing. All but
> > one unit was regulated, with average monthly rent of $752, or 65
> > percent below market. Once the apartments become vacant, the do***ent
> > said, Vantage will renovate the units and raise rents =93to market
> > levels.=94 That will generate enough cash to service the $70 million
in
> > debt that comes due in 2014. Vantage=92s debt service is an estimated
> > $1,098 monthly on each unit, almost 50 percent more than the average
> > rent. Mr. Rubler said that the description of the recapture program
> > was =93not our words,=94 but those of the debt security=92s
underwriter,=
> > Credit Suisse Securities. =93I think they overstated significantly the
> > focus on turnover in the business plan,=94 he said.
>
> > When asked about legal actions taken against tenants, Mr. Rubler said
> > all were mounted solely to protect his company=92s rights. =93Only in
> > instances where we need to act to protect our own rights do we ever
> > find ourselves in any litigation with a tenant and it is never with
> > the intention to harass them,=94 he said. The company is also meeting
> > with its tenants to improve communications, he said.
>
> > Normandy Partners, with almost 2,000 rent-regulated apartments in 42
> > buildings in the Bronx, East Village and Sunnyside Queens, is another
> > significant landlord backed by private equity. It is a partner with
> > Vantage in 1,650 units in Queens, the Bronx and Brooklyn. Mr. Dulchin
> > said the Normandy Partners=92 buildings have also had high turnover
=97
> > more than 30 percent =97 since they were purchased by the investors.
>
> > A spokesman for Normandy declined to comment. Pinnacle Group is a
> > third big developer that has joined forces with a private equity firm,
> > Praedium Capital of Chicago. In December 2006, Pinnacle settled a suit
> > brought by the New York attorney general=92s office accusing it of
rent-=
> > gouging. Pinnacle paid $100,000 without admitting to or denying the
> > accusations. The company did not return a phone call seeking comment.
>
> > Responding in part to indications that harassment is systemic, Mayor
> > Michael R. Bloomberg signed legislation in March making it illegal for
> > a landlord to file repeated and baseless court proceedings to force a
> > tenant to vacate an apartment. Under previous rules, tenants could
> > take their landlord to housing court only over the apartment=92s
> > condition or for a failure to provide essential services.
>
> Great piece, Cod (pardon the play on words), and deeply human.
>
> The private equity crowd one day will be strung up by the balls. As
> will the perpetrators, beneficiaries and conscious obfuscators of
> 9-11. No Pacific island for them as was so charitably bequeathed by
> the Old Man to the =93Sixty Families=94.
I agree with Dusty. Every New Yorker has had the experience of living
the GI era of rent-control if one is old enough. My first 10 years or
so was in rent controlled housing. It was a great victory of working
people to get it insituted, and long under attack.
A high school friend of mine vacated his rent-controlled apartment in
the West Village ($600/month) because the land lord offered him 50,000
USD to leave (with the law as it is when an apartment is vacated the
price automaticaly goes to market value...in tis case $3200/month.)
David
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