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Bloomberg
New York apartment owners get burned in gentrification accident
(Bloomberg) – New York apartment investors are suddenly in dire straits: In December, they were behind on $ 395 million in mortgage-backed debt, nearly 150 times the level of the previous year , according to Trepp data on commercial mortgages. backed titles. Tenants in rent-stabilized homes owe at least $ 1 billion in rent and the wealthiest flee the city, leaving vacant homes behind and pushing newly-built luxury towers to foreclosure. For years, as crime continues was falling and rent was rising in New York City, investors swallowed up Apartment Towers. But with the city’s economy and culture crushed by Covid-19, growing job losses have derailed the gentrification boom and put financial pressure on homeowners. , a clinical associate professor of real estate at New York University.The most struggling developers have rushed to Harlem and Brooklyn’s hipster hubs of Crown Heights, Flatbush and Bushwick, ousting working-class residents by building new expensive units. Today they grapple with eviction bans and new tenant protections as rent falls in New York City’s Colony 1209, a steel-gray apartment building, opened six years ago in the heart of Bushwick , an industrial take on urban chic, with a billiards room and 24-hour doorman. The website offered a room for $ 2,500 to “like-minded settlers” in the predominantly black and Hispanic neighborhood it has. called Brooklyn’s “new frontier”. Today Colony, renamed Dekalb 1209, faces foreclosure after owner Spruce Capital Partners defaulted on $ 46 million. mortgage. The five-year interest-only loan matured in October and was not extended, which triggered the default, according to monthly deposits from loan manager, Wells Fargo & Co. The lender is asking for resumption of the building – upon foreclosure in New York. the moratorium expires – while simultaneously discussing drive alternatives with the borrower. Spruce could not be reached for comment. Right before Covid hit, investors were willing to pay top dollar for luxury buildings like Colony. They wanted alternatives to rent-regulated buildings, which saw values set by a 2019 law on which landlords depended on banned tactics to convert rent-stabilized housing into market-rate housing. “That was the bright spot until the pandemic hit,” said Victor Sozio, executive vice president of Ariel Property Advisors, a New York-based trading brokerage firm, Stymied’Emerald Equities, a specialist in converting fast-growing condos, filed for bankruptcy in December on buildings in Harlem. In its filing, the company said its “well-crafted plans were hampered” by favorable tenant law. Residents staged a rent strike, then collections plunged even further after the pandemic, prompting Emerald to cede the property to LoanCore Capital, which loaned $ 203 million for the project Doug Kellner, an attorney for tenants at Emerald, attributes the current market turmoil to the eviction from New York. “Everyone realizes that rent is the green blood that keeps a building operational,” Kellner said. In the boroughs, rents are on a downward spiral, as landlords try to fill empty apartments with ever – softer rental concessions – only to see the number of vacant listings rise further. In Manhattan, available units have almost tripled in December from the previous year, and the median rent plunged 17% to $ 2,800, according to data from Miller Samuel Inc. and Douglas Real Estate Elliman. Rents are down 11% in Brooklyn and 18% in northwest Queens, where star-eyed developers have built glassy apartment fortresses along the waterfront for young downtown professionals In some ways, investors may be better insulated than after the 2008 financial crisis. Lenders typically demanded larger down payments and guaranteed loans based on current rents rather than expectations for the future, Shimon said. Shkury, president of Ariel. If the vaccine works and students and office workers start to come back, the market will too, Shkury said. “I don’t think there will be as much distress as you think,” he said. Lenders have already invested $ 1.4 billion. multi-family debt backed by companies on watch lists due to issues such as rising vacancies or looming deadlines. This represents 19% of the outstanding debt, against 22% at the bottom of the financial crisis. The problems will filter from heavily indebted investors who have quickly developed into lenders with the most aggressive underwriting, NYU’s Hersh says. “There will be banks that go bankrupt,” he said. At the same time, the market for multi-family buildings has weakened. The total dollar volume of multi-family sales in New York was $ 4.5 billion in 2020, a drop of 61% from 2018, before the pandemic or new rent laws, according to an Ariel report. Opportunities. The company made $ 224 million in multi-family loans in New York City in the second half of 2020, up from $ 9.3 million before the pandemic. It’s easier to get better terms in a “lender’s deal,” said Scott Waynebern, president of Limekiln. “It’s hard to find where the bottom is,” he said. For more articles like this, please visit us at bloomberg.com. ahead with the most trusted source of business information. © 2021 Bloomberg LP
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