By: David A. Smith

… is affordability?

Am I up when you’re down?

When the homeownership rate drops, what happens to apartment occupancy?  As illustrated by this Wall Street Journal article, the answer depends on two factors:

1. Why homeownership rates are dropping

2. How long it has been since the homeownership drop began

Start with a fact. 

Start with just the facts, ma’am

Apartment vacancies hit their highest point since 1986, surging in cities from Raleigh, NC, to Tacoma, WA –

While the Journal leaves its choice of cities unremarked, neither of these are primary cities, nor are they at the epicenter of foreclosures – Miami, Phoenix, Las Vegas, or California’s Inland Empire.

During the third quarter, vacancies increased in 42 markets, improved in 26 markets and remained unchanged in 11 markets. Omaha, Neb., saw the largest rise in vacancies, with the rate rising 1.1 percentage points to 7.4%. Other big rises were seen in Memphis, Tenn., Indianapolis, Raleigh and Tacoma.

Here’s a hint: dark red is bad

If apartment vacancies are high in such normal-America cities as Raleigh and Tacoma, the cause is not a glut of supply, but a withering of demand:

– as rising unemployment continued to chip away at demand during the traditionally strong summer rental months.

People tend to forget that housing demand is elastic.

The muscles in my mighty arms

Are as strong as rubber bands

When housing is cheap, people consume more – they move out of the house, lose the roommates, buy a larger home with a media room, a home office, or a game room.  Going the other way, when housing becomes expensive: the total number of households shrinks.

Driving the change is the troubled employment market, which is closely tied to rentals. With unemployment at 9.8% –  a 26-year high – 

“Hey, aren’t you as big as you think?”

Young singles double and triple up in larger roommate combinations.

And with the money we save not washing, we can be solvent!

– more would-be renters are doubling up or moving in with family and friends during periods of job loss.

Young adults move back home (’boomerang kids”).

Even if you charge him rent, household consumption has shrunk

Landlords have been particularly battered because unemployment has been higher among workers under 35 years old, who are more likely to rent.

Families put young children two to a bedroom.

Most of us grew up with bunk beds at one time or another

The result is fewer households, and higher structural vacancy:

The U.S. vacancy rate reached 7.8%, a 23-year high, according to Reis Inc., a New York real-estate research firm that tracks vacancies and rents in the top 79 U.S. markets.

When that happens, some landlords, usually of weaker properties, cut their rents as they seek to prop up occupancy, at least in the short term:

Meanwhile, the air leaving the market is driving rents down, most sharply in markets that had been chugging along until a year ago, when unemployment accelerated, including Tacoma; San Jose, Calif.; and Orange County, Calif.

From the WSJ: higher vacancy squeeze rents down

Nationally, effective rents have fallen by 2.7% over the past year, to around $972.

Only 2.7%.  Could be a lot worse.  Still, with structural weakness embedded in the rental sector, as long as the economy continues to shed jobs, we can expect to see apartment occupancies wobbling, even though new construction has largely dwindled to a stop.

Not so flashy any more

For the next six months, occupancy will also drop cyclically, because housing demand expands in the late spring, when people tend to move house and when we graduate a new crop of collegians.

The [vacancy] rate is expected to climb further in the fall and winter, when rental demand is weaker, pushing vacancies to the highest levels since Reis began its count in 1980.

The weakness has even hit that least-American of marketplaces: Manhattan.

Manhattan has all the drivers of structural rental tightness: pernicious and stubborn rent control, severe land restrictions and barriers to development, and a strong employment base.  Even so, New York City landlords are confronting market forces, some for the first time.

In New York, Jennifer Hyman rented a one-bedroom apartment in July at a monthly rate of $1,950 — down from $2,450 for the previous tenant — when she returned to the city after graduating from Harvard Business School. Her first month’s rent was free — and her landlord painted the apartment, scrubbed the floors and added window coverings.

Painting the apartment?  Scrubbing the floors?  Sprucing the window coverings? 

Half of America of ROTFLMAO right now, since in America (the land of the Kleen Rest Room and the free ice tea refill), all those things are de rigueur for landlords upon new rentals.  It’s called “prepping a turnover vacancy.”

“The experience was night-and-day different from before,” said Ms. Hyman, who had rented other Manhattan apartments between 2002 and 2007, each time paying a brokers’ fee –

Another sign of a formerly hyper-inflated apartment; the commodity was so scarce people paid finders’ fees to secure one:

– and feeling pressured to sign a lease the minute she found an apartment.

Third sign: haste in closing, because if you don’t take it, there is someone right behind you.

Now, she says, “Renters are the ones with the power.”

Not all the power, but certainly more than the zero they had before.

“When job losses stop, rents will firm and occupancies will firm,” said Richard Campo, chief executive of Camden Property Trust, a Houston-based real-estate company.

“Living inexpensive?”

Well, yes.

The deteriorating rental market comes amid some signs of stabilization in the housing sales market.

Normally, home ownership and rental are countercyclical, so as the demand gradually rises, we can expect apartment occupancy to tick up before home prices do. 

But then there’s our Federal government putting its thumb on the rent-buy scales:

Need rebalancing?

An $8,000 tax credit for first-time home buyers and investor demand helped to boost sales of low- and moderately priced homes this summer.

But some analysts warn demand could fall with the expiration of the tax credit and supply could increase with more foreclosed homes hitting the market.

Both are true: housing will fall again, and supply will probably rise, particularly when one looks at the interest rate resets still before us:

We’re not through the rate resets by any means

While a housing recovery could lead the best quality renters to move out and purchase homes, the move-out rate [into homes – Ed.] isn’t expected to surpass levels seen during the housing boom earlier this decade.

In other words, we have a very long hill to climb.

Mortgage credit standards have tightened considerably since then, which should keep more renters in place.

Can’t support that much, can I?

In the intermediate term, that should be good for rental.

Apartment owners ultimately could gain from the housing bust because the U.S. home-ownership rate has fallen as foreclosures rise. But the housing bust has also flooded some of the most overbuilt housing markets with new apartment inventory as developers have converted unsold condominium developments into rentals.

Reis projects that the vacancy rate will peak at well above 8% in mid-2010.

Folks, this recession is a long way from over.

SIGNS advertise apartments for rent in San Francisco in July. Rents declined during the third quarter, usually a strong period for rentals

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A sky of scrapers … if you can see them through the jungle gym

The Oldest Established Permanent Temporary Sheds of New York

They Go Up on Sidewalks to Save People From Falling Cornices but Never Come Down

Scaffolding and temporary sheds are an inevitable consequence of high-density structural urban living.  The buildings are enormous; their construction takes time, and of necessity happens in situ. 

NEW YORK — What goes up must come down.

But when?

That is a question New Yorkers start asking the minute a truck pulls up to the front door and guys in hardhats jump out and start whacking together a sidewalk shed.

Sidewalk sheds consist of pipes, beams, planks and plywood. They can be a few feet or a few hundred feet long, and they make it possible to walk in New York without getting beaned by bricks falling off buildings. The bricks land on the sheds instead.

It’s a legislative vector cross-product: Prohibit one thing, mandate another, and out pops a third.

(a) Mandate improvements, and (b) prohibit blocking sidewalks, and the result (axb) is ‘temporary permanence

The sheds are informal, yet they are useful.  They are thrown up in a hurry, with ramshackle construction, and they proliferate:

During the real-estate boom, New York had between 4,000 and 6,000 sidewalk sheds. During the real-estate bust, New York still has between 4,000 and 6,000 sidewalk sheds. Construction sites have gone dark, but facades keep buckling and cornices keep cracking as if nothing had happened to the economy.

We have to protect you from falling hammers.

Manhattan is a brutal town for walking.  The sidewalks are not wide enough.  Traffic lights at grid intersections thrust right-turning vehicles into a streaming sea of impatient New Yorkers. 

And bicyclists contend with both vehicles and pedestrians

Shed builders may be the only busy hardhats left in town. In some cities, sidewalk sheds go up when work is in progress. In New York, especially if landlords are broke, sheds go up and stay up because work is making no progress.

We tolerate the sheds under the premise that anything is endurable if it is temporary.  Even if it isn’t.

Good times or bad, the sidewalk shed is one of those things that make New York New York.

The result is a massive disconnection between legal authority and physical reality, a condition of extended informality.  We end up taking for granted this undergrowth of informality, to the point where we scarcely see it any more, in much the same way city dwellers in the global south learn to slide their eyes right past the slums around them.

Invisible even on 57th and Seventh Avenue …

In fact, there’s much more informality in American property and housing than we first realize.  Start looking around and you find it everywhere, as in:

* Abandoned or quasi-abandoned properties, such as overlevered New York apartments being foreclosed by their lenders.

Maybe somebody’s living here?

* Dead-drop housing, such as mule houses for illegal aliens in Tucson.

An underground river of exploited humanity

* Mobile homes, particularly those on rural land.

You sure who owns that land?

* In-law apartments, whether legally zoned or just informally rented.

Can you see its separate entrance?

* Homeless encampments, such as under Providence overpasses or Boston flyovers.

Seen and unseen: East Providence, Rhode Island

* Motels doubling as housing.

Rent by the hour, the day, the week, the month …

However they arise, after a while they become incumbents, and they stay:

“They’re ugly, dismal and ubiquitous,” says Rick Bell, who heads the American Institute of Architects’ New York chapter.

God has given the building one face and we make of it another

“They define our pedestrian experience — like the arcades of Bologna.”

I’ve been to Bologna.  I’ve walked the arcades of Bologna.  You, sir, are no Arcades of Bologna.

Bologna the Red, in ochre and in politics

Italy and the arcades of Bologna didn’t leap to mind on a warm day at the Queensbridge Houses. North America’s biggest public-housing project, Queensbridge sits across the East River from Manhattan. It has 3,142 apartments in chains of six-story brick buildings.

State of the art, 1939 – Queensbridge, New York City

They date to 1939 and don’t look a day younger.

Sidewalk sheds wreath Queensbridge. Pedro Mora was sitting on a bench in front of one that led to the doorway of his building. The brickwork above it looked like stale sponge cake. How long had the shed been there? As Mr. Mora paused to calculate, another man passed by and screamed, “10 years!” Mr. Mora said, “It’s been there long enough that it should have been gone a long time ago.”

An accommodation or a copout?  Queensborough

Wait fifty years and the sheds will be eligible for historic designation – and before you protest at that absurdity, consider that we’re already preserving World War II barracks as national historic sites.

Until the 1980s, the sight of a sidewalk shed in New York actually signified actual work. “If you saw that a wall was leaning, you did something,” says Ken Buettner, president of York Scaffold, one of the city’s big, unionized shed builders. Yet many owners, he says, “maintained a continuing non-maintenance regimen.”

That ended in 1979, when some masonry fell from an apartment house and killed a Columbia University freshman. The city reacted to the news with a 1980 law that makes owners check every facade taller than five stories every five years.

Remember the vector cross-product I mentioned above?  Start with a well-intended law: checking facades.  Then push it in a perpendicular direction, with another law: one requiring sheds.

If anything is ready to drop, up goes a shed. Inspectors prowl with binoculars. If they spot a crack, up goes a shed. When something does fall off a building, which happens, up goes a shed.

These laws were intended to compel improvements.  Instead they compel sheds.

If nothing else, you can get your exercise on them.

To avoid fines, owners often fix buildings. Five years later, they often fix them again. Or not. As Mr. Buettner explains:

“In a market like you got right now, the guy who bought the building 10 years ago that’s approaching underwater — you think he’s going to wrestle $150,000 out of the bank to do the masonry? The bank’s not going to be so friendly.”

In The Man Who Sold the Moon, Robert A. Heinlein said it in 1949: there’s nothing so permanent as a temporary emergency.

That is how sheds become permanently temporary. New Yorkers live with them.

‘Impermanence’ is a slippery concept, when we’ve seen dozens of examples of temporary housing turned into permanent structures; military barracks into public housing, Quonset huts into residences.

Sidewalk sheds obscure storefront signs, but advertisers adore them. For years, sheds functioned as unauthorized billboards. They stayed up forever, many assumed, only to sell cars and blue jeans. In 2006, after the Municipal Arts Society called them “a blight on our city’s streetscape,” most of the ads were removed. The sheds remained.

Well, they’re retail outlets, anyhow

“Sheds look better dressed than undressed,” says Rick Delmastro, who runs City Outdoor, Inc., a billboard company that was responsible for dressing hundreds of sheds.

Better dressed than undressed?

Now the City Council has a bill before it to legalize ads as a revenue source.

Once the City Council is siphoning revenue, judicial amnesty is barely a step away. 

In New York City, formalization of sheds is literally just around the corner:

But others have higher ambitions: They want an all-new sidewalk shed — airy and elegant. The talk among architects, in fact, is that the city is about to launch a competition to design one.

Given time, New York’s sheds may become formal arcades – if not rivaling Bologna’s, then maybe New Orleans‘ French Quarter.

Formalizing the pedestrian shed: New Orleans arcades

In this post, I came bury sheds, not to praise them – but when you think about it, making sheds permanent by arcading them solves everyone’s problem.  It claims more city space for pedestrians, and more air space for additional structures.  The city becomes more dense, yet more livable.  The informal leads the formal, and in that lead, it changes the city.

The future of New York City’s sheds?  Torino’s arcades

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Just say yes, and an anonymous person vanishes

A moral-philosophy question rattling through cyberspace asks, If you were offered $1,000,000 to make someone disappear, would you?

Happy to make the stain of homelessness vanish?

Actually, as documented in this New York Times article, the cost is much less than that:

They are flown to Paris ($6,332), Orlando ($858), Johannesburg ($2,550), or most frequently, San Juan ($484).

Outward bound: from NYC to somewhere else

They are not executives on business trips or couples on honeymoons. Rather, all are families who have ended up homeless, and all the plane tickets are courtesy of the city of New York (one-way).

Have a nice trip!

The Bloomberg administration, which has struggled with a seemingly intractable problem of homelessness for years, has paid for more than 550 families to leave the city since 2007 –

Although this rate is a modest one every two days, something about this smacks of human trafficking … or does it?

– as a way of keeping them out of the expensive shelter system, which costs $36,000 a year per family.  

National and state borders are more than merely economic gradients, they are also judicial ones.  A poor person in New York City represents a municipal liability much greater than the cost of that same person back home.  So it’s well worth New York’s while to expel those it can – provided it’s done voluntarily..

All it takes is for a relative elsewhere to agree to take the family in.

Faced with a civic obligation to deal with epidemic severe poverty, municipalities try two strategies.  The first is overcrowding, used two centuries ago in eighteenth-century London, as I’ve previously posted, when English packed the poor like sardines into hulks:

Back in the late eighteenth century, when it was easier to maintain the comforting notion that people with more money were intrinsically better than those without, the hopeful theory arose that ‘those people’ were genetically different — predisposed to failure, crime, and squalor — so if we could just isolate them from the rest of us, society would be cured.  (Much talk of “ridding the body of society from disease” and so on.)  And back then, although being poor was by itself not a crime, taking such steps as stealing a loaf of bread (thanks, Victor Hugo!) were enough to land you in prison indefinitely, so there was an explosion in the prison population that happened also to coincide with a huge growth in the urban poor.

The only known photograph of a hulk: HMS Defense

With so many of the urban poor finding their way to prison, London started running out of places to put them.   Enter the hulks:

William Eden, the Home Office secretary to whose lot it fell to deal with the resulting crisis, estimated that alternative accommodations would be needed each year for about a thousand convicts, far more than could be crammed into the already overcrowded gaols and bridewells of England.  A decision was taken to retain in English waters certain of the ships engaged in the convict transportation, and to utilize them there as places of confinement. 

HMS Discovery, home to 500 convicts

The arrangement was viewed as a temporary expedient, and thus it was first authorized by Parliament for only two years.

By the way, note now a ‘temporary expedient’ gets extended, and extended.  Such things happen to governments (see rent control), even when they are indefensible (see rent control):

It was an arrangement that had no defenders. Conservatives condemned it because of the likelihood of its exacerbating the criminality of offenders. Liberals agreed and furthermore deplored its inhumanity. But in spite of these constantly renewed expressions of chagrin from all quarters, it was an arrangement that endured for eighty years.

When overcrowding fails – lack of space, lack of health, endless cost – cities often try the second strategy – transportation.  England’s use of hulks overlapped with transportation to America (ended 1776) and Australia (begun 1788):

Transportation punished both major and petty crimes in Great Britain and Ireland from the 17th century until well into the 19th century.  A sentence could be for life or a specific period.  Exile was an essential component and thought a major deterrent. Transportation was also seen as a humane and productive alternative to execution, which would most likely have been the sentence to many if transportation had not been introduced.

Do you know the way/ to Botany Bay wo wo wo

Today’s transportation, unlike the eighteenth century’s, is voluntary for the transportees, and hence welcome.  It’s also in reverse, sending people back from the dark side of the economic moon they have found themselves.

Many of them are longtime New Yorkers who have come upon hard times, arrive at the shelter’s doorstep and jump at the offer to move at no cost. Others are recent arrivals who are happy to return home after becoming discouraged by the city’s noise, the mazelike subway, the difficult job market or the high cost of housing.

“I didn’t expect the city to be the way it is,” said Hector Correa, who was in a homeless shelter last week and flew home to Puerto Rico on Tuesday.

Nothing but ggreen?

“I was expecting something different, something better.”

“You think we’re made of money?”

Mr. Correa and his companion, Elisabeth Mojica, and their two young sons, both also named Hector, arrived in New York in May to live with his mother.

Social liberals out there, take note: the profiled family is unwed, both parents are unemployed, and they came to New York to stay with the children’s grandmother.

But after they failed to find jobs and the bills began to mount, his mother threatened to kick them out.

I wonder why.

Out of cash, they checked into the city intake center for homeless families in the Bronx.

Social-support networks are predicated on the Pelagian principle that all of us are born innocent.  Work long enough in a social-service agency and you may convert to Augustinian skepticism about the observant herd.  Do not romanticize the poor.

“The person I spoke to in the shelter informed me that if I have a person I could stay with in Puerto Rico, that I could get help to go,” said Mr. Correa.  They will stay with Ms. Mojica’s father.

Hector Correa and Elisabeth Mojica were at Kennedy Airport on Tuesday to fly home to Puerto Rico, to stay with her father (Michelle V. Agins/The New York Times).

The promise of a better job draws many a rural immigrant to the bright lights and big city.  But sometimes the jobs are back home, and so should be the family.

[Mr. Correa had] worked as a mechanic in Carolina, on the north shore of the island. 

“I feel very happy because I’m going to be able to get back to do the things that I know how to do,” he said.

Moving Mr. Correa back home not only lightens the city’s economic burdens, it should make Mr. Correa economically more productive.  A win for everyone, especially when cities have only so many economic lifeboats, and we’ve seen the powerful correlation between a fixed address and gaining a toehold into the job market.

I emphasize again, all this is voluntary:

At the intake center, social workers ask families about their housing options in other places. If a family says that they have relatives who might be willing to take them in, and social workers confirm their report, the family could be on a plane, bus or train within hours, although the city will sometimes wait a few days to avoid the expense of last-minute fares. The Correas flew to San Juan for less than $1,000.

City officials said there were no limits on where a family can be sent, and families can reject the offer and stay in city shelters.

Here’s your alternative

Those transported to Australia had no say in the matter.  A critical difference between then and now.

 “We want to divert as many families as we can that need assistance,” said Vida Chavez-Downes, the director of the Resource Room, a city office with 11 social workers, two managers and an administrative assistant who help relocate families. “We have paid for visas, we’ve gone down to the consulate, we’ve provided letters, we’ve paid for passports for people to go.” 

Odd how the morality of something swings based on optionality and choice.  Glowing through Ms. Chavez-Downes’ words is the genuine desire to help.  She sees them not as miscreants or paupers but as customers.

“Anyone who comes through our door.”

Indeed, those who have relocated their whole families can be seen, like the Depression’s great Dust Bowl migrants, as economic dislocation’s unlucky victims.

Dust poor and getting by

Immigrant homelessness can even be seen as an extended form of family stranding:

In the past, the city contracted with the Salvation Army for a now-defunct program called Homeward Bound, but only for single adults and couples, not families with children. Both versions followed the example of Travelers Aid, a 150-year-old nonprofit organization that provides stranded and homeless people emergency aid so they could return to their homes, and which still exists today. Other cities have experimented with similar programs, but they are largely focused on adults without children.

Nor does New York see this as simply dumping its garbage over its neighbor’s fence.  Like outplacement or prisoner reorientation, the service requires pre-service counseling and post-service followup.

Once a family leaves New York, homeless services officials say they follow up with a phone call to make sure they arrive safely, then make a few more calls over the next two to three weeks. In rare cases, they will advance the family up to four months’ rent, a one-month security deposit, a furniture allowance and a broker’s fee.

For a program like this to be defensible, it must reduce recidivism. 

City officials said that none of the families that have been relocated have returned to city shelters.

Is that enough?  At least one of those invested in seeing this problem thinks they do not:

The program fails to address the underlying problems that brought the families here in the first place, said Arnold S. Cohen, the president and chief executive of the Partnership for the Homeless, an advocacy group in New York.

It is neither New York City’s task to improve Puerto Rico’s economy, nor within its power to do so.  Lifting our lamp beside the golden door means an entry to opportunity, not dependency.

A gateway to jobs, not to welfare

“The city is engaged in cosmetics,” Mr. Cohen said. “What we’re doing is passing the problem of homelessness to another city. We’re taking people from a shelter bed here to the living room couch of another family. Essentially, this family is still homeless.”

Except that they are not.  Mr. Correa and his family are returning to their familial support network, and to a job he left.  So too is this family:

Sometimes the journey to and from New York is quick. Justin Little and Eugenia Martin, both 20, owed back rent on their apartment in Fayetteville, N.C., so they came to New York on Saturday with their 5-month-old, Inez.

Fleeing one’s debts for a fresh start is, if not entirely honorable, entirely understandable.

If we left behind our debts, we also left behind our shame

Like those Dust Bowl Okies, Mr. Little and Ms. Martin immediately sought work:

They planned to stay in shelters while they looked for jobs, and went straight to the intake center.

Unlike rural environments, where one can pitch a roadside tent, urban migrants are either sheltered or homeless.

That wouldn’t work in Midtown Manhattan

Then relatives of Mr. Little, who worked at a telephone center serving insurance customers, scraped up enough money to pay their back rent, and homeless services workers confirmed that his mother would be around to help. By Monday night, they were waiting outside Gate 73 at the Port Authority Bus Terminal to board their 7:15 p.m. Greyhound to Greensboro.

Does this sound like ‘engaged in cosmetics’?

Are these people mournful?

“We were going to come here and then find work, you know, because there’s always work in New York,” Ms. Martin said, as Inez bounced on her knee.

Justin Little and Eugenia Martin, with Inez, returned to North Carolina after only a few days when relatives paid their back rent (Michelle V. Agins/The New York Times).

Mr. Little said, “Once we found out we could keep our apartment, there was no point in staying here, because I can go back to my job in North Carolina.”

When it comes to employment, there’s no place like home.

“There’s no place like home.”

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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, Los Angeles

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 Bronx, anybody can walk into a four-story building on East 178th Street near the Cross-Bronx Expressway.  

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 Brooklyn, a woman at 76 Newport Street said the landlord disappeared this year and stopped collecting rent, so she stopped paying it.

Can’t blame her, can you?

A 19-year-old man in Apartment 1F has become the unofficial superintendent, sealing holes in ceilings with cardboard and duct tape.

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 New York City. Of the 200 properties on the 2008 list, at least 77 were in foreclosure from January 2005 to October 2008, according to data from PropertyShark.com.

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 Enterprise Foundation to HPD: Rafe Cestero

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 East 178th Street is a real estate investment company called Ocelot Capital Group.  

Here we are!

Ten of Ocelot’s 25 properties in the Bronx were placed on the city’s worst buildings list in 2007 and 2008, racking up 5,000 serious and immediately hazardous housing maintenance code violations.

Setting aside whether anybody else should have done something, this is an appalling record for the City of New York.  Five thousand ’serious and immediately hazardous’ conditions and the city hasn’t acted?

Mr. Cestero said … the conditions not only threatened tenants’ health and safety, but risked destabilizing entire blocks.

This is not a New York City apartment

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 – New York City’s rent stabilization system.

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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