New from the Norwood News

The latest action-packed edition of the Norwood News is out on streets and online now. We've got a great lineup of compelling stories for your reading enjoyment. Here's a quick preview:

We profile a father and Stella D'oro cookie factory worker who's struggling to provide for his family as the workers' strike stretches into its ninth month.

The Kingsbridge Armory Redevelopment Alliance and Community Board 7 are going to work with new borough president Ruben Diaz, Jr. to negotiate a Community Benefits Agreement for the Armory mall project. It would be an unprecedented government-community partnership for city development projects.

The Health Department says its willing to open up a portion of the vacant old Fordham Library for community space. The agency is also willing to look at cheaper alternatives to installing a full-service animal shelter in the building, like a low-cost spay and neuter clinic, which pet advocates say would go farther toward ending pet homelessness. But first the City Council must change its law that mandates full-service shelters in all five boroughs.

The Northwest Bronx Community and Clergy Coalition looked within to find its new co-executive directors and found two women of color -- the first time women of color are heading the 35-year-old organization.

Our special Real Estate section examines the buyer's market in the Bronx.

A story on the swearing-in of new borough president Ruben Diaz, Jr. Our editorial says Diaz, Jr. could excel in his new role, but he must avoid the the borough's minefield of political pitfalls.

Cops bust a suspect who they say sexually assaulted two teenage girls in the span of 8 days in the same location.

Don't forget to check our Out & About arts, recreation and entertainment calendar, our extensive online Neighborhood Notes guide to neighborhood programs, events and services.

Finally, our Inquiring Photographer asks residents about their thoughts on mayoral control of public schools, which is up for renewal on June. 30.

Private Equity “Highlights” from the Bronx

Recent developments in the world of private equity-owned Bronx apartment buildings continue to show the far reaching impact of the financial downturn and related collapsing real estate bubble.

The Real Deal picked up on the Botanical Square buildings and others owned by Hudson Realty Capital and managed by Pinnacle that, as reported on the Bronx News Network and the Norwood News are for sale at a loss (or were, as the listings have been pulled from the website). The article brings up the larger question of whether the buildings are over-financed, with varying responses from tenant advocates, owners, banker and realtor as to whether the income of the buildings can support the mortgage payments.

The City Room blog also takes a look at these same buildings, focusing more on the conditions in the apartments. (Photo from the NY Times) Their piece highlights tenant advocates protesting outside a New York Community Bank branch, who they partially blame for the conditions.

Finally, seven buildings owned by another private equity group that may now be defunct have gone into foreclosure. According to foreclosure data from RealQuest, Fannie Mae commenced foreclosure filings on February 27 against 7 buildings owned by Ocelot Properties. The outstanding mortgage balance appears to be about $18 million for the 205 apartments, or about $87,000 per unit. If history is any guide, the conditions for tenants at 1744 Clay Ave, 1663 Eastburn Ave, 2254 Crotona Ave, 422 E 178th Street, 1271 Morris Ave, 806 E 175th Street and 1269 Morris Ave are likely to deteriorate before they improve.

What's Going on with Botanical Square's New Owners?

Thanks to the folks at Boogie Downer for picking up on Botanical Square's availability. What's most bizarre here is that these two buildings, along with a few dozen others, were just sold this past June. While Pinnacle was cited as the owner in the past, it seems they were and still are the manager. What we belive happened in June was that one private equity firm replaced another, with Praedium getting out of the deal and Hudson Realty Capital became the new investor.

Praedium appears to have made a killing on the deal, selling to Hudson for about 32% above what they had bought the whole portfolio for four years earlier. But now Hudson looks to be selling a few of these buildings, including BotSq, at a major loss.

From what I could glean from the realtor's website compared to our own sales price data, they are selling 9 of buildings they just recently purchased with over 600 apartments for $46.5 million. While that sounds like a lot of money (indeed, it is), even if they get what they are asking they will be selling at a loss of more than $10 million, from just this June.

I guess they won't be the only ones who've taken a huge loss on their investments since this summer!

Is the Bronx Real Estate Bubble Finally About to Burst?

Opinion by Gregory Lobo Jost
The morning after the 2000 election, when many of us were learning about the fascinations of the electoral college and wondering who would be our next president, University Neighborhood Housing Program convened a forum at Fordham University's Lincoln Center campus on the early signs of a housing bubble in the Bronx. While no one knew just when such a bubble might burst, we were able to document a growing disparity between sales prices and the profitability of apartment buildings or, in other words, the emergence of a speculative bubble. With the help of the Citizens Housing and Planning Council, we refined the research and in 2003 released a report, A Real Estate Bubble in the Bronx? that showed it was impossible to prove we weren't experiencing a speculative bubble.

Fast-forward to 2007 and the release of another UNHP report on the topic, Shrinking Affordability, documented how the disparity between profitability and sales prices was continuing to increase to previously unimaginable levels, fueled primarily by private equity investor groups. In the west Bronx, private equity groups such as SG2, Pinnacle, Prana, Ocelot and Normandy have purchased large numbers of rent stabilized buildings, often paying significantly more per unit than other owners. In 2007, for instance, Private Equity groups paid on average about $83,300 per unit while the rest of the purchasers paid an average of about $76,000 per unit. Adjusted for inflation, the overall average sales price had more than doubled since 2001. Yet the buildings themselves are only about as profitable as they were back in 1990, as the operating expenses have climbed at least as fast as rents (according to Income and Expense Studies from the Rent Guidelines Board).

Our main concern on this issue has been the potential for owners to cut back on services to buildings in order to handle their huge debt service (mortgage) payments and rising operating costs (e.g., fuel, water, insurance). The worst case scenario involves a building going into foreclosure -- a losing situation all around not just for the owner, investor and lender, but more importantly for the building, the tenants and the neighborhood. As we saw in the late 1980s with the rash of multifamily foreclosures in Bronx buildings overfinanced by Freddie Mac, these properties often fell into serious disrepair and communities as a whole suffered.

Is history about to repeat itself? A story in the New York Times earlier this week discusses how the owners of the Riverton, a large middle income and mostly rent stabilized housing complex in Harlem, are warning their lenders that "they are in imminent danger of defaulting on their mortgage." While a number of small Bronx apartment buildings (6 - 15 units) have already gone into foreclosure in recent years, the Riverton may signal a wave of larger defaults stemming from faulty logic made by private equity investor groups in the West Bronx and Upper Manhattan, as a follow-up article in today's Times discusses:

Until a few years ago, places like Upper Manhattan and the Bronx held little allure for investors in residential property. But as the New York real estate market heated up, major real estate companies began competing vigorously for rent-regulated buildings in these neighborhoods in the belief that they could manage them more professionally and, hence, more profitably.

The recent disclosure that the owners of Riverton Houses, a 1,228-unit apartment complex in Harlem, might default on their loan has shocked the real estate industry. And it has raised fears about other apartment building deals from the not-so-distant past, when the frenzy in the market was reaching its peak.

The strategy in these types of investments has been to achieve high levels of turnover in apartments (i.e., force/encourage as many tenants to move out as possible, especially the ones with lower rents) in order to take advantage of rent stabilization laws that allow for a 20% increase in an apartment's rent upon vacancy. Coupled with increases from Major Capital Improvements and the allotted annual increase approved by the Rent Guidelines Board, getting a tenant to move out of an apartment could easily translate into a 25 - 35% jump in the allowable rent for the next tenant. In a gentrifying neighborhood (e.g., northern Manhattan), creating high levels of turnover could dramatically increase a building's income, thereby justifying the high price paid for the property.

With the example of the Riverton leading the way, we are able to see how this strategy might not pan out the way the Private Equity groups are hoping for. First and foremost, tenants are being organized and educated about how to keep their apartments and avoid being forced out. As long-time owner/manager of Bronx and Upper Manhattan buildings Frank Anelante points out in the same Times article today, turnover in his units is closer to 2%. By way of contrast, private equity groups have documented in their filings with the S.E.C. plans to reach turnover rates as high as 30% of the apartments in the first year and 10% percent annually in the following years. With the example of the Riverton, we are beginning to see what may happen to more owners when they can't meet this outlandish target.

And if private equity groups are having a hard time in gentrifying upper Manhattan, their troubles may end up being even worse here in the west Bronx where tenants already typically pay half of their income on rent. For the sake of our neighborhoods, let's all hope for a soft landing.

Is The Bronx Commercial Boom Over?

The Real Deal reports that there are signs that the Bronx commercial real estate boom is cooling off.

WNYC Reports on Foreign Real Estate Investors in the Bronx

WNYC's Cindy Rodriguez has a piece today on how big real estate firms, often from abroad, are buying up apartment buildings in the Bronx and Northern Manhattan. Fueled by the weak dollar, foreign firms are purchasing properties "this cheap stock of housing that’s far from luxurious."

But at the current rents these buildings are barely profitable (if at all), so they still can't be considered bargains even for someone buying with euros or pounds. The deals only work for the investor when they can raise the rents.

While the piece is not very detailed, she does interview Benjamin Dulchin from the Association for Neighborhood and Housing Development (ANHD), who highlights the mass law suits used to force low rent tenants out, similar to the tactics used by Pinnacle, reported on by the Norwood News. (Read about the new lawsuit against Pinnacle on racketeering here).

Rodriguez also interviews an NYU real estate professor who mistakenly says, "They can’t just raise rents and push tenants out..." Obviously this professor is not aware of increases landlords can take when performing Major Capital Improvements (MCIs), or the change in rent stabilization regulations a few years ago that allows landlords to do away with preferential rents whenever a lease is up. (Why do they interview professors from NYU about what's going on in the Bronx, anyway?)

The piece is entitled, Big Real Estate Firms Buy Up in Poor Neighborhoods. But if you'd like to read an in depth report on the topic, check out the Shrinking Affordibility report by University Neighborhood Housing Program.

West Bronx Housing

There's an interesting piece in today's New York Times about 1520 Sedgwick Avenue - a building widely seen as the birthplace of hip-hop. According to the Times, the building's landlord has recently opted out of the state's Mitchell-Lama Housing program, which will allow them to charge higher rents.

This part of Morris Heights has increasing home-ownership, and many buildings - including this one - have views of the Harlem River, the High Bridge, and Washington Heights. When you take into account the plans to renovate the Harlem River waterfront, not to mention the unprecedented development going on one mile south of the neighborhood (the new Yankee Stadium, the redevelopment of the Bronx Terminal Market), it's easy to see why landlords are getting excited.

Still, the west Bronx remains one of the cheapest (the cheapest?) places in the rent and to buy. On Sunday there was this article about buying in Highbridge, where house-hunters, priced out of Harlem and Inwood, can still find one-bedroom apartments for less than $100,000.