DJ Kool Herc celebrates at 1520 Sedgwick Ave.
BY Daniel Beekman
NEW YORK DAILY NEWS
The birthplace of hip-hop has a new lease on life.
The Bronx apartment building where DJ Kool Herc emceed the world’s first hip-hop party was sold at foreclosure auction last Monday to a reputable investment group backed by the city.
Workforce Housing Advisors has vowed to fix up 1520 Sedgwick Ave. in Morris Heights, keep it affordable and build an arts and culture center in the recreation room where Herc famously pioneered the “break beat.”
The graying deejay returned to 1520 Sedgwick Ave. last Thursday with John Crotty and John Fitzgerald of Workforce to reopen the rec room and celebrate.
The room was locked and used for storage under the old landlord Mark Karasick, who bought the 102-unit building in 2008 and then went bust.
Now tenant power, government pressure and music history have saved the Bronx landmark.
“Hip-hop can solve a lot of problems,” said Herc, surveying the rec room with a nostalgic smile. “It all started right here.”
Part of the middle-income Mitchell-Lama housing program when Herc lived there, in the 1970s, 1520 Sedgwick Ave. left the program in 2008 when it was sold to Karasick.
Karasick planned to flip the building for a profit, said Dina Levy of the Urban Homesteading Assistance Board, an advocacy group. But he fell behind on his $7 million mortgage instead and let the high-rise deteriorate.
“The hallways were dirty and the garbage piled up,” said longtime tenant Gloria Robinson, 53. “The elevators kept breaking down. It was a mess.”
Robinson and other tenants called on Herc and his sister, Cindy Campbell, for help. Herc and Campbell threw organized the 1973 “back to school” jam that ignited a music revolution. The Campbells left Sedgwick Ave. in 1977, but never forgot the building.
“We still feel that connection,” said Campbell. “We have friends here and we want the building to remain affordable.”
Under pressure from Rep. Jose Serrano (D-Bronx) and Sen. Chuck Schumer (D-N.Y.), Sovereign Bank agreed in 2010 to sell the debt on the building to Workforce for $6.2 million, with the NYCcity Housing Development Corp. issuing the group a $5.6 million loan.
Workforce has enlisted Boston-based WinnResidential to manage the building and secured $3 million in City Council funds to make repairs, plus federal cash via President Obama’s Neighborhood Stabilization Program.
“The building should have never left the Mitchell-Lama system,” said Marc Jahr, HDC president. “But it did, so we had to recapture it as affordable housing.”
The building was found eligible in 2007 for the National Register of Historic Places, but Karasick turned down the designation. Now Workforce could approve it; 1520 Sedgwick Ave. is already a stop on hip-hop history bus tours.
The group wants to renovate the rec room and revive the building’s creative spirit.
“The past is really important,” said Crotty, a Workforce partner. "But we also need to bring forward the youth of today.”
Workforce is weighing subsidy programs for the building, with the goal of keeping rents down.
“We will never increase the amount of affordable housing in the city if we build housing but lose the units we already have,” said City Council Speaker Christine Quinn. “We need to fight to preserve every unit out there.”
News of the sale was music to Mary Fountain’s ears. Despite three years of stress, the longtime tenant is proud to call the birthplace of hip-hop home.
“We got what we prayed for,” she said. “We wanted to stay.”
Sunday, November 13, 2011
Tuesday, November 8, 2011
The Birthplace of Hip Hop Starts a new Journey
For Birthplace of Hip-Hop, New Life
By ALICE SPERI NY TIMES 11/08/2011
After a long struggle, ownership of a Bronx building known as the birthplace of hip-hop, which had fallen into neglect and foreclosure, was taken over on Monday by a group that specializes in preserving working-class housing.
The building at 1520 Sedgwick Avenue in the Morris Heights neighborhood was, in the early 1970s, the home of D.J. Kool Herc, whose community room parties were pivotal to the early development of hip-hop.
But in recent years, the 102-unit complex had become a symbol for aggressive investment practices and property neglect, so much so that Senator Charles E. Schumer recently called it “the birthplace of predatory equity.”
It was sold in 2008 before the real estate bubble burst to a real estate group that defaulted on the building’s mortgage within two years. The building fell into disrepair and foreclosure.
On Monday, Workforce Housing Advisors, a group focused on salvaging working-class housing in buildings that have been overleveraged, became the building’s owner. In 2010, it bought the building’s mortgage for $6.2 million, with help from the city, and because no bidders came forward on Monday, it will keep the building. A bid of at least $7.9 million at the auction would have been required for another party to take control.
Several residents, accompanied by an advocacy group that supported them through a long struggle, were at State Supreme Court in the Bronx on Monday and broke into cheers and “hallelujahs” when the auctioneer announced that no bidders had registered.
Geraldine Davis, 72, a resident of the building for 37 years, hugged her neighbors and dried a few tears. “I always thought positive,” she said. “We prayed so hard and worked so much to save this building.”
In the last few years, residents watched the building change from the well-maintained, working-class haven it was under the state’s Mitchell-Lama program for middle-income housing, to a roach-infested building with malfunctioning water and heating systems, as well as a closed community room, said Ms. Davis and Gloria Robinson, the president of the Sedgwick tenants’ association.
“When I moved here it was like a hotel. It was beautiful. Now it’s down to nothing,” Ms. Davis said, recalling the days when her son and D.J. Kool Herc, who was born Clive Campbell, were doing “their rapping thing” in the building’s community room. “But where should we go? We stay here and fight. I’m going to stay here till the bricks come loose.”
During the auction, members of the tenants’ association sat silently, holding their hands to their mouths, nervous that a last-minute buyer would outbid them.
Dina Levy, director of organizing and policy at the Urban Homesteading Assistance Board, a tenant advocacy group, said the building had been a victim of “predatory investment” as the real estate market boomed.
“Today is a big victory and a day to celebrate,” Ms. Levy said. “But the hope is that this will be helpful for other buildings that are still deep in the struggle.”
Ms. Levy and Workforce Housing Advisors, which bought the mortgage with the help of a $5.6 million loan from the city’s Department of Housing Preservation and Development, hope the deal can be a model to preserve and rescue affordable-housing buildings across New York.
“Overleveraging has a disastrous impact on the city,” said John Crotty, a partner at Workforce Housing Advisors. “Some companies paid more than the buildings could ever sustain, and when things went badly, they started running the properties to the ground.”
Mr. Crotty said his group was planning to renovate the building and work with tenants to recognize its importance. The group’s investors are more interested in steady, secure returns than making money quickly, he said.
“I’ve never seen a business model that is successful while constantly fighting with residents,” he said. “This is their home, and we respect that. We are in this for the long term.”
Some money for renovations will be provided by the city’s housing department and the Housing Development Corporation, which released a joint statement on Monday after the auction. “In working to recapture affordable housing from overzealous speculators, we are acting affirmatively to preserve the diversity of our city over the long term,” the statement said.
Because of its hip-hop reputation, the building in 2007 was deemed eligible for listing on the National Register of Historic Places, though its owner declined to do so because that would put restrictions on its maintenance. The new owner plans to pursue a listing.
Representative José E. Serrano, who had lobbied with building residents in a failed attempt to buy the building in 2007, said he was “cautiously optimistic” about the auction.
“The new owners have committed to preserving the building as affordable housing, and to engage in efforts to better recognize the building’s historic status as the birthplace of hip-hop,” he said. “If taken, all of these steps will help revitalize and properly recognize this historic location.”
Monday, September 19, 2011
PT Barnum would have been proud!
Housing bust; busted housing
Cycle of resales and landlord neglect continues to hurt affordable-housing tenants; city officials and owners skilled at rehabbing take action.
By Daniel Massey
September 18, 2011
Bluestone principals Eli Tabak, Ari Bromberg and Marc Mendelsohn promised they were in it for the long haul at six Bronx buildings, but flipped them to a new buyer for a steep profit a little more than a year after buying the properties' debt. People usually go to their neighbors for a cup of sugar or a stick of butter. Idalina Padilla, 87, makes a more personal request of fellow tenants in her Bronx building: She asks to use their toilets.
"I'm afraid to use my bathroom," she said, "because the ceiling might fall and hurt me."
Her sagging, dripping ceiling is one of many problems faced by residents of her building, a mile north of Yankee Stadium. In July 2010, Manhattan-based investment firm The Bluestone Group purchased the mortgages on the foreclosed property and five others in the Bronx from Dime Savings Bank for $10 million, promising to end a cycle of neglect wrought by two previous landlords. Tenants feared that Bluestone, which had little experience in fixing dilapidated housing, had overpaid and would be forced to skimp on repairs.
Bluestone principals promised to spend $5,000 to $7,000 per unit and prove the skeptics wrong. (Twenty times more is being spent to rehabilitate similarly run-down buildings in the Bronx.) They had some initial work done-painting walls, laying vinyl tile and rewiring, reducing the number of violations on the portfolio to 225 from almost 3,000.
But tenants are still suffering-many of the violations were fixed with patchwork repairs, leaving underlying problems-and the city Department of Housing Preservation and Development reports "little progress" at the properties.
A bedroom window in Rita Vasquez's apartment is duct-taped to the frame. Part of Martha Garcia's bathroom ceiling fell weeks ago, and she can now see her neighbor's bathtub through a hole 3 feet across. Andres Rios said he has "run out of mousetraps" in a never-ending fight to rid his apartment of rodents.
Last week, tenants got notices that the buildings had been sold. They were told to send rent to 3200 Cruger Ave., Suite 201, which is the address of Bronx-based Gazivoda Realty Co. The Real Deal reported the sale price at $17.6 million.
The Bluestone portfolio reflects a larger problem that has dogged city officials and threatens the city's affordable-housing stock. A revolving door of owners intent on making a quick killing are overpaying, underinvesting and condemning hundreds of properties to a pattern of neglect, disrepair and foreclosure. At least 80,000 units are in jeopardy, one industry executive said.
Banks are reluctant to discount the mortgages, so some foreclosed buildings are on their second, third and even fourth round of ownership, as groups of overeager investors outbid companies and nonprofit housing groups with track records of rehabilitating distressed housing.
"[The Bluestone] case is emblematic of our overall concerns about how debt sales on distressed buildings are conducted," said RuthAnne Visnauskas, deputy commissioner for development at HPD. "Banks continue to sell to developers that have no real repair plan and often little understanding of the conditions in the buildings they are purchasing. This merely perpetuates the cycle of distress, which is not a good investment for anybody."
An apartment at 1268 Stratford Ave. in the Bronx last summer, just after Bluestone took over. Similarly run-down apartments are getting $100,000 makeovers elsewhere in the borough. An analysis by the Urban Homesteading Assistance Board, a tenant advocacy group, shows that mortgages on nearly a third of some 250 New York City properties that went into foreclosure in the past 18 months have been resold. Many may now be held by owners ready to improve them; data showing what they spent on the mortgages is not public. But Dina Levy, UHAB's director of organizing and policy, is concerned that some investors are repeating others' mistakes.
"Instead of rescuing overleveraged housing, owners are just trading it from one bad actor to the next," she said.
The city has engaged the state Banking Department and the Federal Deposit Insurance Corp. in the hopes that they will hold banks responsible for the conditions of multi-family properties in their loan portfolios. Sources said the Banking Department is preparing to push lenders to encourage landlords to maintain their buildings. The department would not comment.
City housing officials have urged banks to use HPD-approved buyers, in an effort to deter lenders from selling mortgages to the highest bidders regardless of their expertise.
In a recent 12-month period, New York Community Bancorp sold 36 mortgages on buildings with significant violation counts, prompting HPD Commissioner Mathew Wambua to ask the bank to use city-approved buyers. He wrote to Chairman Joseph Ficalora in June, "It cannot be the responsibility of the City of New York to subsidize irresponsible property owners" whose neglect has led HPD to spend "vast resources" on inspections and emergency repairs, and which lowers property values and increases the need for city services.
A bank spokesman said it "responded by opening dialogue with HPD regarding notes for sale."
The bidding on such notes is higher than many experienced housing executives would have thought.
"At some of these prices being paid, it would be very hard to have an extensive rehab," said Eugene Schneur, managing director of Omni New York, a Manhattan developer that buys and fixes affordable housing. "If you don't do the proper rehab, at some point soon-maybe 10 or 15 years from now, maybe less-people are not going to be able to live in some of this housing."
The alternative: discounts
The violation count at the six Bronx buildings decreased under Bluestone, but underlying problems were never addressed. Officials and advocates point to Mr. Schneur's handling of 14 dilapidated Bronx buildings as a model of what should be done.
In late 2009, Omni bought the $23.8 million mortgage from Fannie Mae and Deutsche Bank for $5 million, and is pouring $100,000 per unit into overhauls. The buildings, which were among the city's most run-down, were once part of the same portfolio as the Bluestone properties, but have gone in a different direction largely because Fannie sold the mortgage at a big discount.
Fannie's position as a government-sponsored enterprise enabled tenant groups to exert political pressure and reduce the sale price so Omni could spend on repairs, too. Commercial banks are unlikely to offer such steep discounts, but even smaller breaks could preserve housing, tenant advocates and officials say.
Workers at the Omni buildings are installing new flooring, windows, appliances, doors and fire escapes. They have replaced leaky roofs and rotted beams, straightened sloping floors and repointed bricks. Energy-efficient gas boilers will bring heat to residents accustomed to frigid winters.
"When your child wakes up in the middle of the night and says, 'Mommy, I'm cold,' that's devastating," said Carmen Rodriguez, an 18-year resident of the building, who is about to move back into her renovated apartment.
"In three weeks, I'll be living in a palace," she said. "Compared to where we came from, yes, it's definitely a palace."
Cycle of resales and landlord neglect continues to hurt affordable-housing tenants; city officials and owners skilled at rehabbing take action.
By Daniel Massey
September 18, 2011
Bluestone principals Eli Tabak, Ari Bromberg and Marc Mendelsohn promised they were in it for the long haul at six Bronx buildings, but flipped them to a new buyer for a steep profit a little more than a year after buying the properties' debt. People usually go to their neighbors for a cup of sugar or a stick of butter. Idalina Padilla, 87, makes a more personal request of fellow tenants in her Bronx building: She asks to use their toilets.
"I'm afraid to use my bathroom," she said, "because the ceiling might fall and hurt me."
Her sagging, dripping ceiling is one of many problems faced by residents of her building, a mile north of Yankee Stadium. In July 2010, Manhattan-based investment firm The Bluestone Group purchased the mortgages on the foreclosed property and five others in the Bronx from Dime Savings Bank for $10 million, promising to end a cycle of neglect wrought by two previous landlords. Tenants feared that Bluestone, which had little experience in fixing dilapidated housing, had overpaid and would be forced to skimp on repairs.
Bluestone principals promised to spend $5,000 to $7,000 per unit and prove the skeptics wrong. (Twenty times more is being spent to rehabilitate similarly run-down buildings in the Bronx.) They had some initial work done-painting walls, laying vinyl tile and rewiring, reducing the number of violations on the portfolio to 225 from almost 3,000.
But tenants are still suffering-many of the violations were fixed with patchwork repairs, leaving underlying problems-and the city Department of Housing Preservation and Development reports "little progress" at the properties.
A bedroom window in Rita Vasquez's apartment is duct-taped to the frame. Part of Martha Garcia's bathroom ceiling fell weeks ago, and she can now see her neighbor's bathtub through a hole 3 feet across. Andres Rios said he has "run out of mousetraps" in a never-ending fight to rid his apartment of rodents.
Last week, tenants got notices that the buildings had been sold. They were told to send rent to 3200 Cruger Ave., Suite 201, which is the address of Bronx-based Gazivoda Realty Co. The Real Deal reported the sale price at $17.6 million.
The Bluestone portfolio reflects a larger problem that has dogged city officials and threatens the city's affordable-housing stock. A revolving door of owners intent on making a quick killing are overpaying, underinvesting and condemning hundreds of properties to a pattern of neglect, disrepair and foreclosure. At least 80,000 units are in jeopardy, one industry executive said.
Banks are reluctant to discount the mortgages, so some foreclosed buildings are on their second, third and even fourth round of ownership, as groups of overeager investors outbid companies and nonprofit housing groups with track records of rehabilitating distressed housing.
"[The Bluestone] case is emblematic of our overall concerns about how debt sales on distressed buildings are conducted," said RuthAnne Visnauskas, deputy commissioner for development at HPD. "Banks continue to sell to developers that have no real repair plan and often little understanding of the conditions in the buildings they are purchasing. This merely perpetuates the cycle of distress, which is not a good investment for anybody."
An apartment at 1268 Stratford Ave. in the Bronx last summer, just after Bluestone took over. Similarly run-down apartments are getting $100,000 makeovers elsewhere in the borough. An analysis by the Urban Homesteading Assistance Board, a tenant advocacy group, shows that mortgages on nearly a third of some 250 New York City properties that went into foreclosure in the past 18 months have been resold. Many may now be held by owners ready to improve them; data showing what they spent on the mortgages is not public. But Dina Levy, UHAB's director of organizing and policy, is concerned that some investors are repeating others' mistakes.
"Instead of rescuing overleveraged housing, owners are just trading it from one bad actor to the next," she said.
The city has engaged the state Banking Department and the Federal Deposit Insurance Corp. in the hopes that they will hold banks responsible for the conditions of multi-family properties in their loan portfolios. Sources said the Banking Department is preparing to push lenders to encourage landlords to maintain their buildings. The department would not comment.
City housing officials have urged banks to use HPD-approved buyers, in an effort to deter lenders from selling mortgages to the highest bidders regardless of their expertise.
In a recent 12-month period, New York Community Bancorp sold 36 mortgages on buildings with significant violation counts, prompting HPD Commissioner Mathew Wambua to ask the bank to use city-approved buyers. He wrote to Chairman Joseph Ficalora in June, "It cannot be the responsibility of the City of New York to subsidize irresponsible property owners" whose neglect has led HPD to spend "vast resources" on inspections and emergency repairs, and which lowers property values and increases the need for city services.
A bank spokesman said it "responded by opening dialogue with HPD regarding notes for sale."
The bidding on such notes is higher than many experienced housing executives would have thought.
"At some of these prices being paid, it would be very hard to have an extensive rehab," said Eugene Schneur, managing director of Omni New York, a Manhattan developer that buys and fixes affordable housing. "If you don't do the proper rehab, at some point soon-maybe 10 or 15 years from now, maybe less-people are not going to be able to live in some of this housing."
The alternative: discounts
The violation count at the six Bronx buildings decreased under Bluestone, but underlying problems were never addressed. Officials and advocates point to Mr. Schneur's handling of 14 dilapidated Bronx buildings as a model of what should be done.
In late 2009, Omni bought the $23.8 million mortgage from Fannie Mae and Deutsche Bank for $5 million, and is pouring $100,000 per unit into overhauls. The buildings, which were among the city's most run-down, were once part of the same portfolio as the Bluestone properties, but have gone in a different direction largely because Fannie sold the mortgage at a big discount.
Fannie's position as a government-sponsored enterprise enabled tenant groups to exert political pressure and reduce the sale price so Omni could spend on repairs, too. Commercial banks are unlikely to offer such steep discounts, but even smaller breaks could preserve housing, tenant advocates and officials say.
Workers at the Omni buildings are installing new flooring, windows, appliances, doors and fire escapes. They have replaced leaky roofs and rotted beams, straightened sloping floors and repointed bricks. Energy-efficient gas boilers will bring heat to residents accustomed to frigid winters.
"When your child wakes up in the middle of the night and says, 'Mommy, I'm cold,' that's devastating," said Carmen Rodriguez, an 18-year resident of the building, who is about to move back into her renovated apartment.
"In three weeks, I'll be living in a palace," she said. "Compared to where we came from, yes, it's definitely a palace."
Tuesday, August 2, 2011
Kelly Street begins a Renewal process
From the NY Daily News
Headline "Will Banana Kelly make blocks more appeeling in South Bronx?"
Banana Kelly is making a comeback. The famed community organization - named after a banana-shaped block in the South Bronx - will help renovate five dilapidated Kelly St. buildings ravaged by years of neglect.
When the organization was founded, in the late 1970s, the borough was burning, and 916, 920, 924, 928 and 935 Kelly St. were the only well-kept buildings in blighted Longwood, said Banana Kelly founder and current director Harry De Rienzo.
Three decades later, Banana Kelly is coming out of a rough patch and the rotting walk-ups desperately need repairs.
The four- and five-story buildings were sold to Workforce Housing Advisors on Monday in a foreclosure auction, with the real estate group vowing to work with Banana Kelly to fix them up.
Banana Kelly nearly folded due to mismanagement in the late 1990s, but De Rienzo, 58, called the organization's new project proof that it will survive. "We worked hard at Banana Kelly to recover and now we can help redevelop the block," he said. "We want to make sure the terrible conditions that tenants have endured come to an end."
In 1976, when De Rienzo first began organizing tenants to save Longwood's housing stock, the Kelly St. buildings were the backbone of the fight, thanks to landlord Frank Potts, a beloved neighborhood leader.
But De Rienzo left Banana Kelly for a period and Potts eventually sold the buildings and moved away.
The block changed hands and now the buildings are among the city's worst, with thousands of housing code violations for abandoned apartments, water damage, mold, broken floors, broken windows, garbage and rats.
Workforce Housing bought the $5 million mortgage on the buildings in January, after they were abandoned by their landlord, a greedy speculator, said John Crotty, of the Mahattan-based group.
The city Department of Housing Preservation Development made emergency repairs at the slums and, in March, a judge tapped Banana Kelly to manage the buildings during foreclosure.
Workforce Housing obtained the slums outright at court on Monday. The group will now seek government financing to overhaul the buildings and keep them affordable, a multi-million project, Crotty said.
Banana Kelly will provide social services and support to tenants on the block, De Rienzo said.
Janice Holloway, 25, a Kelly St. tenant living in a nightmarish apartment with leaks, broken windows and no electricity, is crossing her fingers, but added: "I don't want to get my hopes up."
BY Daniel Beekman
DAILY NEWS WRITER
Tuesday, August 2nd 2011, 4:52 PM
Headline "Will Banana Kelly make blocks more appeeling in South Bronx?"
Banana Kelly is making a comeback. The famed community organization - named after a banana-shaped block in the South Bronx - will help renovate five dilapidated Kelly St. buildings ravaged by years of neglect.
When the organization was founded, in the late 1970s, the borough was burning, and 916, 920, 924, 928 and 935 Kelly St. were the only well-kept buildings in blighted Longwood, said Banana Kelly founder and current director Harry De Rienzo.
Three decades later, Banana Kelly is coming out of a rough patch and the rotting walk-ups desperately need repairs.
The four- and five-story buildings were sold to Workforce Housing Advisors on Monday in a foreclosure auction, with the real estate group vowing to work with Banana Kelly to fix them up.
Banana Kelly nearly folded due to mismanagement in the late 1990s, but De Rienzo, 58, called the organization's new project proof that it will survive. "We worked hard at Banana Kelly to recover and now we can help redevelop the block," he said. "We want to make sure the terrible conditions that tenants have endured come to an end."
In 1976, when De Rienzo first began organizing tenants to save Longwood's housing stock, the Kelly St. buildings were the backbone of the fight, thanks to landlord Frank Potts, a beloved neighborhood leader.
But De Rienzo left Banana Kelly for a period and Potts eventually sold the buildings and moved away.
The block changed hands and now the buildings are among the city's worst, with thousands of housing code violations for abandoned apartments, water damage, mold, broken floors, broken windows, garbage and rats.
Workforce Housing bought the $5 million mortgage on the buildings in January, after they were abandoned by their landlord, a greedy speculator, said John Crotty, of the Mahattan-based group.
The city Department of Housing Preservation Development made emergency repairs at the slums and, in March, a judge tapped Banana Kelly to manage the buildings during foreclosure.
Workforce Housing obtained the slums outright at court on Monday. The group will now seek government financing to overhaul the buildings and keep them affordable, a multi-million project, Crotty said.
Banana Kelly will provide social services and support to tenants on the block, De Rienzo said.
Janice Holloway, 25, a Kelly St. tenant living in a nightmarish apartment with leaks, broken windows and no electricity, is crossing her fingers, but added: "I don't want to get my hopes up."
BY Daniel Beekman
DAILY NEWS WRITER
Tuesday, August 2nd 2011, 4:52 PM
Sunday, April 3, 2011
Saving the Birthplace of Hip-Hop
A Bronx-based building known as the birthplace of hip-hop has been the subject of a high-profile tug of war between gambling real-estate investors and an eclectic yet powerful group of tenants, housing advocates, city agencies, local politicians, and hip-hop artists. The building’s well-publicized plight has helped shine a light on the threat predatory equity poses to affordable multifamily housing.
By James Fergusson
In the battle to preserve affordable housing in New York City, few buildings have attracted as much attention as 1520 Sedgwick Ave.
The 18-story high rise, located in the Morris Heights section of the Bronx about seven miles from midtown Manhattan, was purchased in 2008 by a group of private equity investors. Any hopes the new landlord may have had of turning a profit, however, were dashed by the financial meltdown and strong rent regulation laws. Tenants soon began to notice a drop-off in services. Housing violations crept up. Mortgage payments were missed. The building, tenants claimed, was being neglected.
It is, in many ways, a familiar story. Scores of apartment buildings in the Bronx and other low-income areas of the city previously ignored by real-estate investors have recently suffered similar fates. (See Dina Levy’s Fighting Predatory Equity.)
But 1520 stood apart—and continues to stand apart—because of what took place in its first-floor recreation room nearly 40 years ago.
On weekends, tour buses stop outside 1520 Sedgwick Ave. Tourists, cameras in hand, emerge to snap photos of a tall red-brick building next to the Major Deegan Expressway.
This is because it was here, on August 11, 1973, that a Jamaican-born teenage DJ by the name of Clive Campbell began experimenting with a new type of music at a back-to-school party organized by his sister Cindy. Using two turntables, DJ Kool Herc, as he called himself, repeated and isolated the “breaks” in funk records, giving shout-outs—an early form of rapping—over the music. The crowd responded, and in time he graduated to performing in local parks and nightclubs. In this way, 1520 became known as a birthplace—the birthplace, to some—of hip-hop music.
“If you can think back to the ‘70s, New York City was practically bankrupt,” said Cindy Campbell by phone recently. “The Bronx is burning, what good could come out of the Bronx? [The city] wasn’t really focusing on families there. There was a void and my brother and I filled that void.”
The Campbells eventually moved to Long Island, but they stayed in touch with their former neighbors, some of whom still call the building home. And so, when a tenant, fearful of rising rents, reached out to Cindy Campbell in 2007, she was eager to help.
“My parents were able to raise a family in that building and were able to move on and purchase a house because they lived in an affordable housing complex,” she said. “That’s the whole idea.”
Tenants had received letters in the mail hinting at big changes to come. The then-landlord, BSR Management, wanted to pull the property from the state’s Mitchell-Lama program—under which tax incentives, low-interest loans, and government subsidies are given to landlords in return for keeping rents low—and then sell it.
Landlords can typically leave the program after 20 years, providing they pay off the mortgage. “Of the nearly 200 Mitchell-Lama rental properties ever developed in New York City, about half are no longer in the program,” says Vincent Reina of the Furman Center for Real Estate and Urban Policy. “The majority of those opt-outs happened between 2002 and 2007, due to a mixture of factors, including the expiration of affordability restrictions, the belief that there was a considerable potential to mark up rents, and the availability of capital.”
The Urban Homesteading Assistance Board (UHAB), a nonprofit organization and advocacy group that helps renters in New York City become homeowners through limited-equity cooperatives, and Tenants and Neighbors, a tenants’ rights organization, began advising 1520’s residents. The building was the subject of a New York Times article headlined: Will Gentrification Spoil the Birthplace of Hip-Hop?
There were concerns, too, about who was eyeing the property. A group of real-estate investors, including the well-known Mark Karasick, were willing to pay a hefty price. Dina Levy, UHAB’s director of organizing and policy, was perplexed by their interest. “Mathematically, it didn’t pencil out,” she said. On leaving Mitchell-Lama, the building would fall under rent stabilization laws, and to make a profit, the investors would have to somehow skirt these laws, she said. Even then, what difference would it make? UHAB had conducted an analysis of other buildings in the area. They found the price difference between rent-regulated apartments and market-rate ones negligible. “Even if you could theoretically get it out of rent regulation, the market was not really bearing a much higher rent in that neighborhood,” Levy said.
That July, housing advocates and tenants held a press conference in the building’s recreation room, where Campbell had played all those years before, to draw attention to their efforts to stop the buy-out and subsequent sale. Campbell and his sister showed up, as did several other early hip-hop pioneers, including Afrika Bambaataa. Rep. Jose Serrano, whose district includes Morris Heights, and New York Sen. Charles Schumer were also present to show their support. The room was abuzz with excitement.
“Elvis has Graceland; we have here,” Clive Campbell told the crowd, to whoops of “1520, 1520.”
The state had recently determined that 1520 was eligible for the state and national registers of historic places, despite the building being less than 50 years old (the usual requirement). Landmark status protects the building, but tenant advocates hoped it could also stall the buy-out and protect its occupants. None of this was possible, however, without the owner’s consent, which wasn’t forthcoming.
The tenants and their supporters refocused their energy. With funding from the city, they and UHAB looked at buying the building themselves and turning it into an affordable cooperative. BSR Management, the original owners, already had a contract with Karasick, who had previously made headlines for buying and then selling the famed Bank of America Center in San Francisco, and so UHAB had to negotiate with him directly. Levy said Karasick was willing to step aside, but only if they paid an astronomical price for the building, earning him millions of dollars in the process. “It was too hard a pill for everyone to swallow,” she said.
In 2008, in what was described as a highly unusual move, the city’s Department of Housing Preservation and Development (HPD) tried to block the sale. The agency was concerned about Karasick’s financing and the building’s future. But their plan failed. That fall BSR Management was able to exit the Mitchell-Lama program and sell the building to Karasick and his fellow investors. They paid approximately $9 million, taking a $7 million-plus mortgage with Sovereign Bank.
Geraldine Davis moved into 1520 Sedgwick in the ‘70s, soon after it was built. “This place was like a hotel. It was beautiful,” she said. But pride has given way to anger in recent times. When Karasick took over, the floors in the building’s lobby and corridors were rarely cleaned, Davis says, and heat and hot water outages became more common. The two elevators—troublesome for years—began to break down more regularly and stay broken for weeks at a time. The management company and its staff were slow to make repairs, Davis added, and the lock on the front door was often broken, allowing strangers in. “There have been people sleeping in the stairwells,” she said.
Sitting in her living room one recent evening, the hum of the Major Deegan Expressway audible below, Gloria Robinson, the building’s tenants association president, echoed many of Davis’s complaints. Contacting management about a problem in your apartment was like “talking to the wind,” she said.
Several tenants, sick of the neglect, moved out, but Robinson stayed put.
“I like it right here in the Bronx,” she said. “And I like this building and my apartment, I really do. ... If you like where you live, you’re not going to go anywhere. You just hope there’s some improvement, and you keep fighting for it.”
In a Times article published in January 2010, the director of the company that controls the management firm brushed off tenants’ concerns, insisting that the building was “immaculate at all times.” But in a little over a year, the number of housing code violations at 1520 Sedgwick recorded by HPD shot up from 82 to 598, according to the article.
“It’s sort of amazing how quickly this all panned out exactly as we feared,” Levy said. “We met Karasick before . . . and begged him not to do this deal. We said ‘We don’t understand your financing, we don’t understand your numbers,’ and he said, ‘I know what I’m doing.’ He’s a billionaire and we’re just these organizers from UHAB, and you start to think maybe he does know what he’s doing. But he didn’t.”
Last fall, with Karasick missing mortgage payments, a new group, Workforce Housing Advisors and its Boston-based partner, Winn-Residential, bought the building’s mortgage for $6.2 million, using a $5.6 million loan from the city. The loan was financed by a new $750 million city program designed to maintain physically and financially strained buildings and help stabilize neighborhoods.
“We are putting our financial power to work with owners and lenders to restructure buildings’ financing to a sustainable level and in doing so preserving and keeping affordable our city’s housing stock,” said then-HPD Commissioner Rafael E. Cestero in a statement at the time. The New York City Council, meanwhile, committed $3 million to help with improvements inside 1520.
Workforce, whose staff have close ties to HPD and the city’s Housing Development Corporation (HDC), immediately foreclosed on the building, and a receiver has taken over the day-to-day operations. John A. Crotty, a Workforce founding member and former HDC employee, said the organization is committed to affordable housing.
“When you work with the people who represent these buildings, who live in these buildings, and come from these buildings . . . you understand that these are people and homes,” Crotty said. “When you’re a private equity person, these are financial assets that float around, and do well or don’t do well, and whatever happens, happens. It totally ignores the human consequence of the action.”
A foreclosure auction will likely be held this year. If there’s no bid higher than what Workforce is owed, Workforce could soon own the building.
In a statement, Schumer said the news was a “huge victory for Sedgwick residents that will serve as a model for preserving affordable housing throughout New York City.” He added: “The message here is clear: residents should not be used as pawns for predatory equity investors to make quick profits.” (The building wasn’t Karasick’s only Bronx acquisition; in 2007 his group purchased Robert Fulton Terrace and Fordham Towers for $44 million. Both had just lost their Mitchell-Lama status and both have now been foreclosed on.)
The tenants themselves, disappointed so many times before, remain cautious. “Everything is just a bit up in the air,” Robinson said, noting that the management office downstairs is still empty. “I’m just hoping there will be some improvements soon, real soon.”
Davis was blunter; “We really don’t know what’s happening with the building. Ain’t nobody telling us right now.”
Tenants say they’ve already had discussions with Workforce about the possibility of turning 1520 into an affordable cooperative down the road, with UHAB’s help and guidance.
Serrano says that he’ll support whatever decision they make, and stressed how important it was that they stay organized. But he’s hopeful for a positive outcome: “Historically, the building played an important role in hip-hop and now it may have [also] played a role in the preservation of good buildings.”
By James Fergusson
In the battle to preserve affordable housing in New York City, few buildings have attracted as much attention as 1520 Sedgwick Ave.
The 18-story high rise, located in the Morris Heights section of the Bronx about seven miles from midtown Manhattan, was purchased in 2008 by a group of private equity investors. Any hopes the new landlord may have had of turning a profit, however, were dashed by the financial meltdown and strong rent regulation laws. Tenants soon began to notice a drop-off in services. Housing violations crept up. Mortgage payments were missed. The building, tenants claimed, was being neglected.
It is, in many ways, a familiar story. Scores of apartment buildings in the Bronx and other low-income areas of the city previously ignored by real-estate investors have recently suffered similar fates. (See Dina Levy’s Fighting Predatory Equity.)
But 1520 stood apart—and continues to stand apart—because of what took place in its first-floor recreation room nearly 40 years ago.
DJ Kool Herc and the Birth of Hip-Hop
On weekends, tour buses stop outside 1520 Sedgwick Ave. Tourists, cameras in hand, emerge to snap photos of a tall red-brick building next to the Major Deegan Expressway.
This is because it was here, on August 11, 1973, that a Jamaican-born teenage DJ by the name of Clive Campbell began experimenting with a new type of music at a back-to-school party organized by his sister Cindy. Using two turntables, DJ Kool Herc, as he called himself, repeated and isolated the “breaks” in funk records, giving shout-outs—an early form of rapping—over the music. The crowd responded, and in time he graduated to performing in local parks and nightclubs. In this way, 1520 became known as a birthplace—the birthplace, to some—of hip-hop music.
“If you can think back to the ‘70s, New York City was practically bankrupt,” said Cindy Campbell by phone recently. “The Bronx is burning, what good could come out of the Bronx? [The city] wasn’t really focusing on families there. There was a void and my brother and I filled that void.”
The Campbells eventually moved to Long Island, but they stayed in touch with their former neighbors, some of whom still call the building home. And so, when a tenant, fearful of rising rents, reached out to Cindy Campbell in 2007, she was eager to help.
“My parents were able to raise a family in that building and were able to move on and purchase a house because they lived in an affordable housing complex,” she said. “That’s the whole idea.”
Tenants had received letters in the mail hinting at big changes to come. The then-landlord, BSR Management, wanted to pull the property from the state’s Mitchell-Lama program—under which tax incentives, low-interest loans, and government subsidies are given to landlords in return for keeping rents low—and then sell it.
Landlords can typically leave the program after 20 years, providing they pay off the mortgage. “Of the nearly 200 Mitchell-Lama rental properties ever developed in New York City, about half are no longer in the program,” says Vincent Reina of the Furman Center for Real Estate and Urban Policy. “The majority of those opt-outs happened between 2002 and 2007, due to a mixture of factors, including the expiration of affordability restrictions, the belief that there was a considerable potential to mark up rents, and the availability of capital.”
The Urban Homesteading Assistance Board (UHAB), a nonprofit organization and advocacy group that helps renters in New York City become homeowners through limited-equity cooperatives, and Tenants and Neighbors, a tenants’ rights organization, began advising 1520’s residents. The building was the subject of a New York Times article headlined: Will Gentrification Spoil the Birthplace of Hip-Hop?
There were concerns, too, about who was eyeing the property. A group of real-estate investors, including the well-known Mark Karasick, were willing to pay a hefty price. Dina Levy, UHAB’s director of organizing and policy, was perplexed by their interest. “Mathematically, it didn’t pencil out,” she said. On leaving Mitchell-Lama, the building would fall under rent stabilization laws, and to make a profit, the investors would have to somehow skirt these laws, she said. Even then, what difference would it make? UHAB had conducted an analysis of other buildings in the area. They found the price difference between rent-regulated apartments and market-rate ones negligible. “Even if you could theoretically get it out of rent regulation, the market was not really bearing a much higher rent in that neighborhood,” Levy said.
That July, housing advocates and tenants held a press conference in the building’s recreation room, where Campbell had played all those years before, to draw attention to their efforts to stop the buy-out and subsequent sale. Campbell and his sister showed up, as did several other early hip-hop pioneers, including Afrika Bambaataa. Rep. Jose Serrano, whose district includes Morris Heights, and New York Sen. Charles Schumer were also present to show their support. The room was abuzz with excitement.
“Elvis has Graceland; we have here,” Clive Campbell told the crowd, to whoops of “1520, 1520.”
The state had recently determined that 1520 was eligible for the state and national registers of historic places, despite the building being less than 50 years old (the usual requirement). Landmark status protects the building, but tenant advocates hoped it could also stall the buy-out and protect its occupants. None of this was possible, however, without the owner’s consent, which wasn’t forthcoming.
The tenants and their supporters refocused their energy. With funding from the city, they and UHAB looked at buying the building themselves and turning it into an affordable cooperative. BSR Management, the original owners, already had a contract with Karasick, who had previously made headlines for buying and then selling the famed Bank of America Center in San Francisco, and so UHAB had to negotiate with him directly. Levy said Karasick was willing to step aside, but only if they paid an astronomical price for the building, earning him millions of dollars in the process. “It was too hard a pill for everyone to swallow,” she said.
In 2008, in what was described as a highly unusual move, the city’s Department of Housing Preservation and Development (HPD) tried to block the sale. The agency was concerned about Karasick’s financing and the building’s future. But their plan failed. That fall BSR Management was able to exit the Mitchell-Lama program and sell the building to Karasick and his fellow investors. They paid approximately $9 million, taking a $7 million-plus mortgage with Sovereign Bank.
Building Conditions Deteriorate
Geraldine Davis moved into 1520 Sedgwick in the ‘70s, soon after it was built. “This place was like a hotel. It was beautiful,” she said. But pride has given way to anger in recent times. When Karasick took over, the floors in the building’s lobby and corridors were rarely cleaned, Davis says, and heat and hot water outages became more common. The two elevators—troublesome for years—began to break down more regularly and stay broken for weeks at a time. The management company and its staff were slow to make repairs, Davis added, and the lock on the front door was often broken, allowing strangers in. “There have been people sleeping in the stairwells,” she said.
Sitting in her living room one recent evening, the hum of the Major Deegan Expressway audible below, Gloria Robinson, the building’s tenants association president, echoed many of Davis’s complaints. Contacting management about a problem in your apartment was like “talking to the wind,” she said.
Several tenants, sick of the neglect, moved out, but Robinson stayed put.
“I like it right here in the Bronx,” she said. “And I like this building and my apartment, I really do. ... If you like where you live, you’re not going to go anywhere. You just hope there’s some improvement, and you keep fighting for it.”
In a Times article published in January 2010, the director of the company that controls the management firm brushed off tenants’ concerns, insisting that the building was “immaculate at all times.” But in a little over a year, the number of housing code violations at 1520 Sedgwick recorded by HPD shot up from 82 to 598, according to the article.
“It’s sort of amazing how quickly this all panned out exactly as we feared,” Levy said. “We met Karasick before . . . and begged him not to do this deal. We said ‘We don’t understand your financing, we don’t understand your numbers,’ and he said, ‘I know what I’m doing.’ He’s a billionaire and we’re just these organizers from UHAB, and you start to think maybe he does know what he’s doing. But he didn’t.”
Hope for a Brighter Future?
Last fall, with Karasick missing mortgage payments, a new group, Workforce Housing Advisors and its Boston-based partner, Winn-Residential, bought the building’s mortgage for $6.2 million, using a $5.6 million loan from the city. The loan was financed by a new $750 million city program designed to maintain physically and financially strained buildings and help stabilize neighborhoods.
“We are putting our financial power to work with owners and lenders to restructure buildings’ financing to a sustainable level and in doing so preserving and keeping affordable our city’s housing stock,” said then-HPD Commissioner Rafael E. Cestero in a statement at the time. The New York City Council, meanwhile, committed $3 million to help with improvements inside 1520.
Workforce, whose staff have close ties to HPD and the city’s Housing Development Corporation (HDC), immediately foreclosed on the building, and a receiver has taken over the day-to-day operations. John A. Crotty, a Workforce founding member and former HDC employee, said the organization is committed to affordable housing.
“When you work with the people who represent these buildings, who live in these buildings, and come from these buildings . . . you understand that these are people and homes,” Crotty said. “When you’re a private equity person, these are financial assets that float around, and do well or don’t do well, and whatever happens, happens. It totally ignores the human consequence of the action.”
A foreclosure auction will likely be held this year. If there’s no bid higher than what Workforce is owed, Workforce could soon own the building.
In a statement, Schumer said the news was a “huge victory for Sedgwick residents that will serve as a model for preserving affordable housing throughout New York City.” He added: “The message here is clear: residents should not be used as pawns for predatory equity investors to make quick profits.” (The building wasn’t Karasick’s only Bronx acquisition; in 2007 his group purchased Robert Fulton Terrace and Fordham Towers for $44 million. Both had just lost their Mitchell-Lama status and both have now been foreclosed on.)
The tenants themselves, disappointed so many times before, remain cautious. “Everything is just a bit up in the air,” Robinson said, noting that the management office downstairs is still empty. “I’m just hoping there will be some improvements soon, real soon.”
Davis was blunter; “We really don’t know what’s happening with the building. Ain’t nobody telling us right now.”
Tenants say they’ve already had discussions with Workforce about the possibility of turning 1520 into an affordable cooperative down the road, with UHAB’s help and guidance.
Serrano says that he’ll support whatever decision they make, and stressed how important it was that they stay organized. But he’s hopeful for a positive outcome: “Historically, the building played an important role in hip-hop and now it may have [also] played a role in the preservation of good buildings.”
Wednesday, January 26, 2011
Who Invests in Low-Income Housing? Google, for One
by Terry Pristin NYTimes
Melbourne Apartments is a new 84-unit building in Des Moines, where a three-bedroom apartment rents for $775 a month but comes with restrictions — a family of five, for example, can earn no more than $47,460 a year. What is remarkable about this otherwise modest project is that the equity came from the search-engine giant Google, whose Mountain View, Calif., headquarters are more than 1,500 miles away.
The investment by Google and other large corporations in Melbourne Apartments and similar projects is one reason a cloud of gloom has lifted for developers of income-restricted housing. These developments depend heavily on low-income-housing tax credits, which provide the equity that makes the difference between whether a project gets built or not.
But when the economy collapsed in 2008 the market for these tax credits dwindled, and many projects never got off the ground. Just $4.5 billion in tax credit equity was raised in 2009, compared with $9 billion in 2006, said Frederick H. Copeman, who heads the tax credit practice at the Reznick Group, a national accounting and consulting company. “People were ready to walk off gangplanks,” he said. Mr. Copeman estimated that $7 billion was raised last year.
Created more than two decades ago to instill market discipline into the development of subsidized housing, low-income-housing tax credits are allocated by the federal government and awarded by the states to projects that meet strict requirements. Developers sell the credits to investors — generally financial institutions — that are seeking to reduce their federal income tax over a 10-year period. The banks have another incentive, because investing in tax credits helps them fulfill their obligations under the Community Reinvestment Act to invest in poorer neighborhoods where they have customers.
But after the collapse of Lehman Brothers, “the banks were focused on their long-term liquidity,” rather than on offsetting profits, said another income-restricted housing expert, Michael Novogradac, the managing partner in the San Francisco office ofNovogradac & Company. Fannie Mae and Freddie Mac, which had been major investors in tax credits, stopped buying them in 2007. Weakened demand for tax credits led to lower prices, which made them less valuable to developers.
But if you can buy $1 worth of tax credit for 59 cents, you are getting a better return on your investment. That made the credits attractive to a new class of investors looking for double-digit yields. In addition to Google, new investors include Verizon and the insurance companies Liberty Mutual and Allstate, said James L. Logue III, chief operating officer of Great Lakes Capital Fund, in Lansing, Mich., which invests in income-restricted housing in the Midwest and upstate New York.
Now that the pool of investors has grown and many financial institutions are once again healthy, prices for tax credits are rising and many long-delayed projects are getting under way.
John Hayes, the chief executive of Ginosko Development Company in Milford, Mich., said he waited almost two years to begin a $7.7 million rehabilitation of Devon Square, a 1970s garden apartment complex in Ferndale, Mich., a suburb of Detroit. “We closed five deals in 2008, and then we had nothing from September 2008 on,” Mr. Hayes said. “Our next closing was in April 2010.” Great Lakes provided more than $3 million credit equity.
Some tax credit specialists say that coastal states have an unfair advantage over other regions where the need for this type of housing is just as pressing. In the Midwest, for example, the going price for a dollar’s worth of tax credits is about 70 cents or so, with some metropolitan areas getting 80 cents, Mr. Logue said. In New York, by contrast, Capital One Bank is paying 97 cents on the dollar for about $29 million worth of tax credits for Sugar Hill, an ambitious project that will replace a former garage on 155th Street between Saint Nicholas Avenue and Saint Nicholas Place in Harlem. Just two years ago, though, a dollar’s worth of tax credits in New York was selling for about 20 cents less, said William Traylor, the president of Richman Housing Resources, a New York-based division of the Richman Group of Greenwich, Conn., which brought together Capital One Bank and the Sugar Hill developer, Broadway Housing Communities.
Mr. Copeman attributed the differential today in tax credit prices from one region to another to “the unintended, perverse consequences” of the Community Reinvestment Act, despite what he said was a need for five million more units in all 50 states. He said banks generally did not make these investments in places where they had no depositors.
Joe Hagan, the president and chief executive of the National Equity Fund, a nonprofit organization based in Chicago that raised $800 million in tax credit equity last year, said he favored a regional approach so that a financial institution with branches only in New York could fulfill its community reinvestment duty in Albany.
A second reason for the spread in tax credit prices is the perceived risk in communities where market-rate housing has declined in value. Tax credits are forfeited if a foreclosure occurs.
But demand is so high in New York that the 124 units at Sugar Hill will be allocated by lottery. A three-bedroom apartment at Sugar Hill will rent for about $1,200, less than half of market rent, Broadway Housing officials said. About 5,000 applications are expected, they said.
Perched on the promontory known as Coogan’s Bluff, near where the old New York Giants played baseball at the Polo Grounds, the $73 million Sugar Hill development will also include a children’s museum named for the Harlem artist Faith Ringgold, and education and other services for the low-income residents and the surrounding neighborhood. By augmenting housing with services, “we can serve more families than can be accommodated in a residential development,” said Ellen Baxter, the executive director of Broadway Housing, a nonprofit organization that has redeveloped six other buildings in Harlem.
Outside New York and a few other places, investors may worry about whether the units will fill up. Capital One will not invest in a project unless market-rate rents in the area are at least 10 percent higher than the subsidized rents, said Laura Bailey, a managing vice president.
Beth Stohr, the director of the low-income housing tax credit program for the U.S. Bancorp Community Development Corporation, a subsidiary of U.S. Bancorp, said the investors needed to be sure that a project would be viable over a long period of time. “The key to all of this is getting a good market review,” she said, “so you understand the dynamics of the market.”
But for certain types of cash-rich investors, the riskier markets have presented a lucrative opportunity because of the high returns. Robert J. Wasserman, the managing director for tax credit syndications at U.S. Bancorp, said he had logged 170,000 miles since a 2009 meeting with potential new investors like Google. The bank arranged an $86 million fund for Google to invest in 480 income-restricted apartments in the Midwest and California, including the Melbourne Apartments in Des Moines.
Brent Callinicos, a Google vice president, took note in a statement of the “void in affordable housing investment” and said the tax credit investments “allows us to further our goal of providing relief to people who otherwise may not have access to quality housing.” But will tax credits seem less attractive now that the annual rate of return has declined to about 8 percent from a high of 15 percent?
Mr. Wasserman acknowledged that the answer was unknown. “Will these new investors stay in the market?” he said. “So far, we think it will go on for another year. I don’t know what’s going to happen after that.”
Melbourne Apartments is a new 84-unit building in Des Moines, where a three-bedroom apartment rents for $775 a month but comes with restrictions — a family of five, for example, can earn no more than $47,460 a year. What is remarkable about this otherwise modest project is that the equity came from the search-engine giant Google, whose Mountain View, Calif., headquarters are more than 1,500 miles away.
The investment by Google and other large corporations in Melbourne Apartments and similar projects is one reason a cloud of gloom has lifted for developers of income-restricted housing. These developments depend heavily on low-income-housing tax credits, which provide the equity that makes the difference between whether a project gets built or not.
But when the economy collapsed in 2008 the market for these tax credits dwindled, and many projects never got off the ground. Just $4.5 billion in tax credit equity was raised in 2009, compared with $9 billion in 2006, said Frederick H. Copeman, who heads the tax credit practice at the Reznick Group, a national accounting and consulting company. “People were ready to walk off gangplanks,” he said. Mr. Copeman estimated that $7 billion was raised last year.
Created more than two decades ago to instill market discipline into the development of subsidized housing, low-income-housing tax credits are allocated by the federal government and awarded by the states to projects that meet strict requirements. Developers sell the credits to investors — generally financial institutions — that are seeking to reduce their federal income tax over a 10-year period. The banks have another incentive, because investing in tax credits helps them fulfill their obligations under the Community Reinvestment Act to invest in poorer neighborhoods where they have customers.
But after the collapse of Lehman Brothers, “the banks were focused on their long-term liquidity,” rather than on offsetting profits, said another income-restricted housing expert, Michael Novogradac, the managing partner in the San Francisco office ofNovogradac & Company. Fannie Mae and Freddie Mac, which had been major investors in tax credits, stopped buying them in 2007. Weakened demand for tax credits led to lower prices, which made them less valuable to developers.
But if you can buy $1 worth of tax credit for 59 cents, you are getting a better return on your investment. That made the credits attractive to a new class of investors looking for double-digit yields. In addition to Google, new investors include Verizon and the insurance companies Liberty Mutual and Allstate, said James L. Logue III, chief operating officer of Great Lakes Capital Fund, in Lansing, Mich., which invests in income-restricted housing in the Midwest and upstate New York.
Now that the pool of investors has grown and many financial institutions are once again healthy, prices for tax credits are rising and many long-delayed projects are getting under way.
John Hayes, the chief executive of Ginosko Development Company in Milford, Mich., said he waited almost two years to begin a $7.7 million rehabilitation of Devon Square, a 1970s garden apartment complex in Ferndale, Mich., a suburb of Detroit. “We closed five deals in 2008, and then we had nothing from September 2008 on,” Mr. Hayes said. “Our next closing was in April 2010.” Great Lakes provided more than $3 million credit equity.
Some tax credit specialists say that coastal states have an unfair advantage over other regions where the need for this type of housing is just as pressing. In the Midwest, for example, the going price for a dollar’s worth of tax credits is about 70 cents or so, with some metropolitan areas getting 80 cents, Mr. Logue said. In New York, by contrast, Capital One Bank is paying 97 cents on the dollar for about $29 million worth of tax credits for Sugar Hill, an ambitious project that will replace a former garage on 155th Street between Saint Nicholas Avenue and Saint Nicholas Place in Harlem. Just two years ago, though, a dollar’s worth of tax credits in New York was selling for about 20 cents less, said William Traylor, the president of Richman Housing Resources, a New York-based division of the Richman Group of Greenwich, Conn., which brought together Capital One Bank and the Sugar Hill developer, Broadway Housing Communities.
Mr. Copeman attributed the differential today in tax credit prices from one region to another to “the unintended, perverse consequences” of the Community Reinvestment Act, despite what he said was a need for five million more units in all 50 states. He said banks generally did not make these investments in places where they had no depositors.
Joe Hagan, the president and chief executive of the National Equity Fund, a nonprofit organization based in Chicago that raised $800 million in tax credit equity last year, said he favored a regional approach so that a financial institution with branches only in New York could fulfill its community reinvestment duty in Albany.
A second reason for the spread in tax credit prices is the perceived risk in communities where market-rate housing has declined in value. Tax credits are forfeited if a foreclosure occurs.
But demand is so high in New York that the 124 units at Sugar Hill will be allocated by lottery. A three-bedroom apartment at Sugar Hill will rent for about $1,200, less than half of market rent, Broadway Housing officials said. About 5,000 applications are expected, they said.
Perched on the promontory known as Coogan’s Bluff, near where the old New York Giants played baseball at the Polo Grounds, the $73 million Sugar Hill development will also include a children’s museum named for the Harlem artist Faith Ringgold, and education and other services for the low-income residents and the surrounding neighborhood. By augmenting housing with services, “we can serve more families than can be accommodated in a residential development,” said Ellen Baxter, the executive director of Broadway Housing, a nonprofit organization that has redeveloped six other buildings in Harlem.
Outside New York and a few other places, investors may worry about whether the units will fill up. Capital One will not invest in a project unless market-rate rents in the area are at least 10 percent higher than the subsidized rents, said Laura Bailey, a managing vice president.
Beth Stohr, the director of the low-income housing tax credit program for the U.S. Bancorp Community Development Corporation, a subsidiary of U.S. Bancorp, said the investors needed to be sure that a project would be viable over a long period of time. “The key to all of this is getting a good market review,” she said, “so you understand the dynamics of the market.”
But for certain types of cash-rich investors, the riskier markets have presented a lucrative opportunity because of the high returns. Robert J. Wasserman, the managing director for tax credit syndications at U.S. Bancorp, said he had logged 170,000 miles since a 2009 meeting with potential new investors like Google. The bank arranged an $86 million fund for Google to invest in 480 income-restricted apartments in the Midwest and California, including the Melbourne Apartments in Des Moines.
Brent Callinicos, a Google vice president, took note in a statement of the “void in affordable housing investment” and said the tax credit investments “allows us to further our goal of providing relief to people who otherwise may not have access to quality housing.” But will tax credits seem less attractive now that the annual rate of return has declined to about 8 percent from a high of 15 percent?
Mr. Wasserman acknowledged that the answer was unknown. “Will these new investors stay in the market?” he said. “So far, we think it will go on for another year. I don’t know what’s going to happen after that.”
Thursday, January 6, 2011
Council Approves Safe Housing Act
by Courtney Gross
06 Jan 2011
06 Jan 2011
Taking aim at the city's worst landlords, the City Council expanded a housing program Wednesday that forces property owners to make improvements to the city's most uninhabitable buildings.
The program targets 200 dilapidated apartment buildings a year and requires landlords to address their housing code violations. If they do not fix the problems, the city does it for them and sends them the bill.
Under the expansion, the city will target larger buildings to more than double the number of units under the program. It will also include housing violations directly related to asthma, such as vermin and mold, for the first time.
"Imagine if you were sick and every time you went home it made it worse," said Council Speaker Christine Quinn. "Unfortunately, that is what's happening all over the city."
The bill, Quinn said, would fix that. Dilapidated roofs be gone and say sayonara to some heatless winters.
Despite widespread support for the program, dubbed the Safe Housing Act, it has come under scrutiny since the city failed to capture all of the funds it has invested in improvements from landlords.
Nonetheless, Wednesday's unanimous approval was hailed by tenant and housing advocates, who say the expansion will be a large step toward ridding the city of its most unsafe structures.
"The city will recoup those costs in the future," said Javier Valdes, deputy director for the advocacy group, Make the Road New York. "What's really good for the tenant is that those repairs are done now."
Advocates and residents have horror stories.
Leaky ceilings, mold-infested bedrooms, rats.
Sebastian Riccardi, a staff attorney at the Legal Aid Society, recalled one building that made the city's top 200 in Crown Heights. It had a gaping hole in the roof that was so large someone "nimble" could climb through it, Riccardi said.
To be targeted by the city, these buildings must have the highest ratio of housing violations per unit. Most of them already have tax liens, a city official said. In order to get out of the program, under the initial version of it, all improvements had to be made and all city debt paid.
The initial program, approved in 2007, inadvertently included a disproportionate number of smaller buildings. The expansion will instead target larger buildings.
As a result, the program, which will continue to target only 200 buildings, will go from about 1,000 units to nearly 3,500, said council officials.
In most of the buildings in the program, city officials said, landlords are spurred to make improvements just by landing on the list. But with a third of the owners, who may have abandoned the building, the city is forced to step in to make improvements.
Since the program started, a spokesperson at the Department of Housing Preservation and Development said the city has spent $17 million on improvements to these buildings. It has only received $4.5 million back from landlords.
Arguing in support of the program, officials and advocates say the city will recoup improvement costs plus the cost of any liens on the property eventually.
"It's sort of an investment," said Riccardi.
Over the course of three years, the city has seen only 192 property owners out of 600graduate from the program. Fiscal year 2010 was the city's worst performing year to date with only 57 buildings exiting the program.
To spur landlords to actually pay back the money, the city's retooled program will include a new payment plan that will enable property owners to pay back the city in installments instead of one lump sum.
Council officials and advocates say the cost of the program will eventually even out. To save tenants' lives, Quinn said, it's well worth it.
"You can't have tenants living in that state of disrepair, while we get the money," said Quinn. "We have to make peoples' conditions livable."
The program targets 200 dilapidated apartment buildings a year and requires landlords to address their housing code violations. If they do not fix the problems, the city does it for them and sends them the bill.
Under the expansion, the city will target larger buildings to more than double the number of units under the program. It will also include housing violations directly related to asthma, such as vermin and mold, for the first time.
"Imagine if you were sick and every time you went home it made it worse," said Council Speaker Christine Quinn. "Unfortunately, that is what's happening all over the city."
The bill, Quinn said, would fix that. Dilapidated roofs be gone and say sayonara to some heatless winters.
Despite widespread support for the program, dubbed the Safe Housing Act, it has come under scrutiny since the city failed to capture all of the funds it has invested in improvements from landlords.
Nonetheless, Wednesday's unanimous approval was hailed by tenant and housing advocates, who say the expansion will be a large step toward ridding the city of its most unsafe structures.
"The city will recoup those costs in the future," said Javier Valdes, deputy director for the advocacy group, Make the Road New York. "What's really good for the tenant is that those repairs are done now."
The Expansion
Advocates and residents have horror stories.
Leaky ceilings, mold-infested bedrooms, rats.
Sebastian Riccardi, a staff attorney at the Legal Aid Society, recalled one building that made the city's top 200 in Crown Heights. It had a gaping hole in the roof that was so large someone "nimble" could climb through it, Riccardi said.
To be targeted by the city, these buildings must have the highest ratio of housing violations per unit. Most of them already have tax liens, a city official said. In order to get out of the program, under the initial version of it, all improvements had to be made and all city debt paid.
The initial program, approved in 2007, inadvertently included a disproportionate number of smaller buildings. The expansion will instead target larger buildings.
As a result, the program, which will continue to target only 200 buildings, will go from about 1,000 units to nearly 3,500, said council officials.
In most of the buildings in the program, city officials said, landlords are spurred to make improvements just by landing on the list. But with a third of the owners, who may have abandoned the building, the city is forced to step in to make improvements.
Since the program started, a spokesperson at the Department of Housing Preservation and Development said the city has spent $17 million on improvements to these buildings. It has only received $4.5 million back from landlords.
Arguing in support of the program, officials and advocates say the city will recoup improvement costs plus the cost of any liens on the property eventually.
"It's sort of an investment," said Riccardi.
Over the course of three years, the city has seen only 192 property owners out of 600graduate from the program. Fiscal year 2010 was the city's worst performing year to date with only 57 buildings exiting the program.
To spur landlords to actually pay back the money, the city's retooled program will include a new payment plan that will enable property owners to pay back the city in installments instead of one lump sum.
Council officials and advocates say the cost of the program will eventually even out. To save tenants' lives, Quinn said, it's well worth it.
"You can't have tenants living in that state of disrepair, while we get the money," said Quinn. "We have to make peoples' conditions livable."
Wednesday, January 5, 2011
In the South Bronx, Blight Returns to a Rehabilitated Block
By DAVID GONZALEZ NY Times
The four-story wreck that is 920 Kelly Street is a South Bronx time machine for Harry De Rienzo. Its broken windows, garbage-choked halls, mold-mottled rooms and smoky stench remind him of what much of the area looked like nearly 35 years ago, when he first arrived to work at a settlement house.
Back then, 920 was among a handful of tidy buildings maintained by a landlord who was struggling against the arson and abandonment encroaching all around. His pluck inspired Mr. De Rienzo to organize the block and its beleaguered residents into the Banana Kelly Community Improvement Association, which renovated three crumbling buildings on the street and started Mr. De Rienzo on a career providing housing for poor and working people.
Half a lifetime later, Mr. De Rienzo is back on the block. But this time he is trying to save 920 and four neighboring buildings, which have fallen into such disrepair that they are considered among the city’s worst, with more than 2,000 housing code violations among them.
If Kelly Street was once an outpost of hope, Mr. De Rienzo and others worry that it may now be a harbinger of trouble for the South Bronx and beyond. In the feverish real estate speculation of the past decade, buildings like these were passed back and forth among landlords and banks. But since the bubble burst, the properties have fallen into financial limbo; many owners cannot keep up on mortgage payments, much less repairs.
“This is a real big problem,” said Mr. De Rienzo, 57, a plain-spoken, streetwise New Yorker who is now chief executive of Banana Kelly. “They thought they could always cash out their equity and flip the property. But when the recession hit, that kind of predatory investing stopped — and the tenants got stuck.”
Back in 1976, the fires that would incinerate so much of the South Bronx had begun to nip around the edges of Kelly Street when Mr. De Rienzo, fresh out of Manhattan College, started working at the settlement house, Casita Maria, running a basketball program.
Cooling down after games, he chatted with residents about the neighborhood, where a near-bankrupt city was taking over scores of tax-delinquent and abandoned buildings, but doing little to make them livable.
He befriended Leon Potts, whose father, Frank, a hard-working jack-of-all-trades, owned several buildings on Kelly, living with his family in one of them.
“Potts was totally at variance with everything that was going on in the South Bronx at the time,” Mr. De Rienzo said. “Here was a landlord who was staying put. He used to wake up at 5 in the morning to go to work on the trucks in Hunts Point. Then he’d come back and work on his buildings. He’d be so tired, sometimes I saw him sitting on the stoop, too tired to walk up three steps to his apartment.”
It was wrenching for Mr. De Rienzo to watch adjoining buildings go vacant, but he saw them as an opportunity.
“The city had written off the area,” he said. “Landlords had run away. So all we could do was sweat equity and do it for ourselves, since nobody else was going to do it.”
By the end of the 1970s, the three buildings that prompted the formation of Banana Kelly had been renovated and were being run by tenants. The organization expanded into social services and education. Mr. De Rienzo went to law school, and then to work for a foundation that supported community-based housing groups. And Mr. Potts, long the mainstay of his block, sold his buildings and moved away.
Today, to tour the blocks around Kelly Street is to see a world transformed. On Longwood Avenue, neat brick town houses line the wide street. Modest apartments have risen from empty lots. Even Little Korea, a stretch of Fox Street notorious for its murders, looks suburban with its boxy white homes.
Banana Kelly, the group that helped with the rebirth, did not fare so well. Mr. De Rienzo and others watched with alarm throughout the 1990s as the group sought international attention for its ideas on urban development while neglecting the housing that had been its original mission. In 2002 the state attorney general, spurred by complaints of mismanagement, forced out the group’s leadership.
As part of the deal, Mr. De Rienzo was coaxed into returning temporarily to get the group back on solid financial ground. He wound up staying on.
This year, conditions in the old Potts properties became so bad that two advocacy groups, Mothers on the Move and the Urban Justice Center, began speaking with tenants and city officials. In recent years, the city had placed four of the five buildings in a program that made emergency repairs and then billed the landlord.
Mr. De Rienzo began inquiring about the buildings after he noticed several boarded-up apartments while walking on his old block. A few weeks ago, he joined Mothers on the Move on an impromptu inspection and was alarmed by what he saw — particularly because a number of tenants have H.I.V. or AIDS.
Visitors to 935 Kelly Street have to step over a pool of water formed by drips from a gaping hole in the ceiling. A pile of garbage and liquor bottles fills a corner of the lobby. In one of the 32 apartments, Victoria Rosario has laid out brick-size rat traps — she has caught 12 so far — and sealed the holes in the walls with plywood.
At 920 Kelly, doors to empty apartments swing open to reveal garbage and feces-smeared rooms where windows have been knocked off their frames. A smoky odor wafts from the burned-out apartment next to Hector Claudio’s fourth-floor home. Inside, his walls are gray from mildew and soot.
“I threw out my sofa,” Mr. Claudio said in a raspy voice that rose barely beyond a whisper. “I had to throw out my clothes. I have asthma, fatigue and H.I.V. It’s too much. This has to stop.”
Just who owns the buildings is uncertain. While city records identify the owner as John Abraham, the city’s housing agency can find no deed in his name. Tenants said they had been dealing with owners at an office on Washington Avenue, but the people who work there said they no longer managed the building because Mr. Abraham had refused to pay for repairs.
Mr. Abraham did not respond to phone messages, and a letter sent by messenger to the address listed in city records was returned as undeliverable.
Ridgewood Savings Bank holds a $5 million mortgage on the buildings. Mr. De Rienzo said he would try to force the bank to either repair the buildings or assign ownership to his community group.
Joseph T. Curcio, the bank’s vice president and marketing director, said that the properties were in good repair when the mortgage was issued “several years ago,” and that he had no idea of their current state. When told of the worst violations, he said, “Oh, my God.”
Mr. Curcio said the bank had begun foreclosure proceedings. “We’re left holding the bag as much as these poor tenants,” he said. “It’s unconscionable the landlord allowed these conditions to exist.”
The city, which continues to make repairs on the buildings, is now in discussion with Banana Kelly to see if the group can take over the buildings and avail itself of loan and repair programs. City officials have also been talking with banks to alert them to loans they have made to owners of similarly distressed properties in other neighborhoods.
For Mr. De Rienzo, who helped Kelly Street rebuild itself brick by brick, his latest crusade is about a much more personal debt.
“After more than 30 years dealing with this block, these people are like friends and family to me, so I can’t just walk away,” he said. “I’m not looking to save the world. I’m just looking to build something that will last beyond me.”
The four-story wreck that is 920 Kelly Street is a South Bronx time machine for Harry De Rienzo. Its broken windows, garbage-choked halls, mold-mottled rooms and smoky stench remind him of what much of the area looked like nearly 35 years ago, when he first arrived to work at a settlement house.
Back then, 920 was among a handful of tidy buildings maintained by a landlord who was struggling against the arson and abandonment encroaching all around. His pluck inspired Mr. De Rienzo to organize the block and its beleaguered residents into the Banana Kelly Community Improvement Association, which renovated three crumbling buildings on the street and started Mr. De Rienzo on a career providing housing for poor and working people.
Half a lifetime later, Mr. De Rienzo is back on the block. But this time he is trying to save 920 and four neighboring buildings, which have fallen into such disrepair that they are considered among the city’s worst, with more than 2,000 housing code violations among them.
If Kelly Street was once an outpost of hope, Mr. De Rienzo and others worry that it may now be a harbinger of trouble for the South Bronx and beyond. In the feverish real estate speculation of the past decade, buildings like these were passed back and forth among landlords and banks. But since the bubble burst, the properties have fallen into financial limbo; many owners cannot keep up on mortgage payments, much less repairs.
“This is a real big problem,” said Mr. De Rienzo, 57, a plain-spoken, streetwise New Yorker who is now chief executive of Banana Kelly. “They thought they could always cash out their equity and flip the property. But when the recession hit, that kind of predatory investing stopped — and the tenants got stuck.”
Back in 1976, the fires that would incinerate so much of the South Bronx had begun to nip around the edges of Kelly Street when Mr. De Rienzo, fresh out of Manhattan College, started working at the settlement house, Casita Maria, running a basketball program.
Cooling down after games, he chatted with residents about the neighborhood, where a near-bankrupt city was taking over scores of tax-delinquent and abandoned buildings, but doing little to make them livable.
He befriended Leon Potts, whose father, Frank, a hard-working jack-of-all-trades, owned several buildings on Kelly, living with his family in one of them.
“Potts was totally at variance with everything that was going on in the South Bronx at the time,” Mr. De Rienzo said. “Here was a landlord who was staying put. He used to wake up at 5 in the morning to go to work on the trucks in Hunts Point. Then he’d come back and work on his buildings. He’d be so tired, sometimes I saw him sitting on the stoop, too tired to walk up three steps to his apartment.”
It was wrenching for Mr. De Rienzo to watch adjoining buildings go vacant, but he saw them as an opportunity.
“The city had written off the area,” he said. “Landlords had run away. So all we could do was sweat equity and do it for ourselves, since nobody else was going to do it.”
By the end of the 1970s, the three buildings that prompted the formation of Banana Kelly had been renovated and were being run by tenants. The organization expanded into social services and education. Mr. De Rienzo went to law school, and then to work for a foundation that supported community-based housing groups. And Mr. Potts, long the mainstay of his block, sold his buildings and moved away.
Today, to tour the blocks around Kelly Street is to see a world transformed. On Longwood Avenue, neat brick town houses line the wide street. Modest apartments have risen from empty lots. Even Little Korea, a stretch of Fox Street notorious for its murders, looks suburban with its boxy white homes.
Banana Kelly, the group that helped with the rebirth, did not fare so well. Mr. De Rienzo and others watched with alarm throughout the 1990s as the group sought international attention for its ideas on urban development while neglecting the housing that had been its original mission. In 2002 the state attorney general, spurred by complaints of mismanagement, forced out the group’s leadership.
As part of the deal, Mr. De Rienzo was coaxed into returning temporarily to get the group back on solid financial ground. He wound up staying on.
This year, conditions in the old Potts properties became so bad that two advocacy groups, Mothers on the Move and the Urban Justice Center, began speaking with tenants and city officials. In recent years, the city had placed four of the five buildings in a program that made emergency repairs and then billed the landlord.
Mr. De Rienzo began inquiring about the buildings after he noticed several boarded-up apartments while walking on his old block. A few weeks ago, he joined Mothers on the Move on an impromptu inspection and was alarmed by what he saw — particularly because a number of tenants have H.I.V. or AIDS.
Visitors to 935 Kelly Street have to step over a pool of water formed by drips from a gaping hole in the ceiling. A pile of garbage and liquor bottles fills a corner of the lobby. In one of the 32 apartments, Victoria Rosario has laid out brick-size rat traps — she has caught 12 so far — and sealed the holes in the walls with plywood.
At 920 Kelly, doors to empty apartments swing open to reveal garbage and feces-smeared rooms where windows have been knocked off their frames. A smoky odor wafts from the burned-out apartment next to Hector Claudio’s fourth-floor home. Inside, his walls are gray from mildew and soot.
“I threw out my sofa,” Mr. Claudio said in a raspy voice that rose barely beyond a whisper. “I had to throw out my clothes. I have asthma, fatigue and H.I.V. It’s too much. This has to stop.”
Just who owns the buildings is uncertain. While city records identify the owner as John Abraham, the city’s housing agency can find no deed in his name. Tenants said they had been dealing with owners at an office on Washington Avenue, but the people who work there said they no longer managed the building because Mr. Abraham had refused to pay for repairs.
Mr. Abraham did not respond to phone messages, and a letter sent by messenger to the address listed in city records was returned as undeliverable.
Ridgewood Savings Bank holds a $5 million mortgage on the buildings. Mr. De Rienzo said he would try to force the bank to either repair the buildings or assign ownership to his community group.
Joseph T. Curcio, the bank’s vice president and marketing director, said that the properties were in good repair when the mortgage was issued “several years ago,” and that he had no idea of their current state. When told of the worst violations, he said, “Oh, my God.”
Mr. Curcio said the bank had begun foreclosure proceedings. “We’re left holding the bag as much as these poor tenants,” he said. “It’s unconscionable the landlord allowed these conditions to exist.”
The city, which continues to make repairs on the buildings, is now in discussion with Banana Kelly to see if the group can take over the buildings and avail itself of loan and repair programs. City officials have also been talking with banks to alert them to loans they have made to owners of similarly distressed properties in other neighborhoods.
For Mr. De Rienzo, who helped Kelly Street rebuild itself brick by brick, his latest crusade is about a much more personal debt.
“After more than 30 years dealing with this block, these people are like friends and family to me, so I can’t just walk away,” he said. “I’m not looking to save the world. I’m just looking to build something that will last beyond me.”
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