No landlord at all: Part 1, the vanished landlord
Residential property is an exoskeletal shell that, like the chambered nautilus, is alive only when inhabited, the occupant playing the important role of eternal vigilante.
I may not own it, but I occupy it!
These two roles are best fused via homeownership, where the occupant and the owner are one and the same, but can also be achieved through an effective partnership between two uneasy allies, the responsible tenant and the beneficent landlord.
[Readers who spend their professional careers associating with only one of the two species may instinctively recoil from my flattering adjectives for tenants and landlords … but trust me, I've met many from both species worthy of the appellation. – Ed.]
Though seldom aware of it, residents come to rely on their landlord’s self-interest to assure a property is well maintained and secured, and when that collapses, because the landlord has negative equity, an essential function collapses with it. Even a bad landlord is better than no landlord at all, as revealed in this New York Times article:
No landlord at home here – abandoned apartment,
As property owners run into trouble paying their mortgages, neighborhoods around New York City have been witnessing a disturbing consequence: Small and large apartment buildings are being abandoned in a state of disrepair, leaving tenants in limbo without basic services or even landlords.
When it comes to rental property, ‘abandonment’ happens in stages. It could mean lack of reinvestment, lack of maintenance, decline in building services, or un-interest in collecting rent.
In the
Lack of security = major decline in building services. (Also a building-code violation, and we’ll come back to that.)
Someone took the front door off the hinges and sold it for scrap metal.
A world without ownership: from Blade Runner
Lack of maintenance – in the extreme!
Drugs have been sold out of vacant apartments.
Drugs sold in here
As we’ve seen, long-vacant apartments are houses of crime.
“A nightmare,” said Cesar Guzman, 29, who lives in the building. “I can’t describe it as anything else.”
In
Can’t blame her, can you?
A 19-year-old man in
I wonder if he’s paid anything by anybody for his work?
Who’s paying him, for doing what?
The two landlords of those buildings were in foreclosure in 2008 and 2009, and have earned a distinction of sorts: They own properties on the city housing agency’s annual list of the most poorly maintained apartment buildings in
This shouldn’t be surprising. Our whole judicial enforcement of building codes and warrants of habitability are premised on the collectibility of fines against the property – which in turn presumes that the property has to have a building equity. When the owner’s equity is underwater, and the owner can disappear from any recourse, the building is simply abandoned … until the foreclosing lender shows up.
Rafael Cestero, the commissioner of the city housing agency, the Department of Housing Preservation and Development, told a City Council committee in April that a “small but significant proportion” of multifamily buildings bought in recent years may be overleveraged, meaning their debt is unsupportable by the income generated by the rents.
From the
Rafe’s a good guy who knows what he’s trying to accomplish.
“We are very concerned and continue to be concerned about the overall problem that Ocelot represents in the city, where you have multifamily buildings in some state of financial distress,” [Cestero] said. “If that financial distress is not corrected quickly, you will ultimately end up with physical distress.”
When the finance fails, the property fails. It’s as simple as that.
The owner of the building on
Here we are!
Ten of Ocelot’s 25 properties in the
Setting aside whether anybody else should have done something, this is an appalling record for the City of
Mr. Cestero said … the conditions not only threatened tenants’ health and safety, but risked destabilizing entire blocks.
This is not a
Naturally.
As a result, he said, the agency had become more aggressive in tracking the buildings, making emergency repairs and working with lenders to find new, responsible owners, as he said the agency was doing with Fannie Mae on the Ocelot buildings.
Tenants have grown frustrated waiting for repairs.
Why haven’t they been done? Point to the slow grinding of the mills of justice:
Fannie Mae, which initiated foreclosure proceedings in March on the 18 Ocelot properties for which it had purchased loans –
As a lender, Fannie Mae (itself in conservatorship, as we know) has no authority to act. Instead it can act only if it becomes the owner (through foreclosure) or gains court authority to appoint a receiver.
– is able to make repairs only in those buildings for which a court has appointed a receiver.
As I’ve written about receivership:
As capital providers, they are circumscribed in their direct control over the property; often they have none. Instead they can gain control only through foreclosure, and depending on the jurisdiction and the asset, this can take many months – even longer if the sponsor elects to throw the mortgagor entity into bankruptcy.
The need for nearly-instant change in control runs smack up against the statutory and judicial deliberation in the change of legal ownership. How to solve this nasty problem?
Enter the receiver.
Does your receiver have good hands?
Receivership is a legal state, one conferred by a court in response to a filing by a creditor, usually the most senior lender. The court takes judicial control of the property on the creditors’ behalf, in very much the same way courts administer bankruptcy. (Bankruptcy is the death of a financial entity the same way a testamentary estate is the death of a living entity.)
Receivership begins when the court enters an establishing order, and ends with the court’s discharge, usually but not always at a foreclosure that collapses the receivership estate, leaving only residual proceeds (if any) to be distributed. The receivership can be short (a few days, even hours) or extended (as in housing authorities that experience years and years of receivership).
Normally receivership is driven by the lender, but:
Residents at one run-down Ocelot building sued the landlord, persuading a judge to appoint an independent administrator to make repairs.
That was a good move, because the landlord has abdicated:
So much for my empire
Ocelot, which described itself in a 2007 Deutsche Bank press release as building a portfolio of subsidized, “income-producing real estate,” has become a kind of phantom.
In view of Ocelot’s flight, I can’t let pass another unindicated co-conspirator in this tragedy –
Let’s conspire to hold rents down, shall we?
Many of these overleveraged buildings — the agency does not have precise numbers — are made up of low-income tenants in rent-regulated or subsidized apartments.
Residents in rent-stabilized properties lose their economic leverage to compel enforcement of habitability and quality because (a) their rents are so far below market they have no good alternative for the same price they’re currently paying, and (b) new supply is choked off by the threat of future rent stabilization, which assures most new construction is occupant ownership (condos and co-ops) rather than rental.
International developers and private equity firms have borrowed hundreds of millions of dollars to buy buildings with rent-regulated units in the belief that they could profit by replacing existing residents with higher-paying ones, a trend tenant advocates call predatory equity.
A mite predatory, you say?
Even without speculating on these shadowy international financiers who’ve borrowed these uncounted centimillions, it’s easy enough to see how a rent-stabilized inventory coupled with a flood of cheap money would encourage the raising of a large private-equity investment fund.
Once the expected value play disappears, so does the speculative absentee-landlord investor:
“The owner is making no attempt to repair the buildings or fix the violations or make them decent places to live,” said Mr. Cestero, whose agency has so far paid for roughly $850,000 in emergency repairs in the 25 buildings, money Ocelot now owes the city.
Nice of the Times to mention that the vanished owner is legally liable to the city for these repairs; the city can whistle for its money.
Rachel Arfa, Ocelot’s president, did not return phone calls seeking comment.
I wonder why.
“He’s away from his desk now …”
But an expose story without an owner to blame lacks essential minerals. Leave is to the Times to find and impugn one:
[Continued tomorrow in Part 2.]
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