With the recent announcement that Omni New York LLC would take over the mortgage on 14 low-income Bronx apartment buildings, the last of the notorious Ocelot properties started the transition from foreclosure limbo to new ownership.
The properties are a 25-building package in full, all sharing the name of the real estate investment firm that bought them in 2006 and 2007, and the problems that came with the Ocelot Capital Group’s absentee ownership and subsequent abandonment in 2008. Those include holes in the floors and the ceilings, broken doors, vermin and mold, according to residents and the city Department of Housing Preservation and Development.
Now the fates of these run-down buildings are diverging. While tenants of the Omni buildings anticipate repairs and relief, the residents of the other former Ocelot buildings — purchased last spring and summer by Hunter Property Management and Paradise Management — are still waiting for a happy ending.
“We just lost them too early on,” said Megan Reed, an organizer with the Urban Homesteading Assistance Board (UHAB), a nonprofit advocacy group that’s fought to improve the plight of tenants in the 25 buildings.
New owner, new optimism
When mortgage-holder Fannie Mae attempted to sell the 14-building portfolio at auction this summer, the city stepped in, hoping to spare tenants from another cycle of speculation and abandonment. Officials created a review process for potential owners, resulting in the Omni selection, which the homesteading board terms “a victory.” (See How To Structure A Good Purchase of Bad Debt, City Limits, July 27, 2009.)
“We made a commitment to the residents that we would not allow the buildings to fall into the wrong hands and let the cycle repeat itself,” said Mayor Michael R. Bloomberg in a statement.
Other local luminaries spoke glowingly of Omni’s development record, including City Council Speaker Christine Quinn, U.S. Sen. Charles Schumer, and HPD Commissioner Rafael Cestero.
Co-owned by former New York Mets first-baseman Mo Vaughn along with Eugene Schneur, Omni has already committed $1 million for emergency repairs for the time between now and when the company takes ownership, which may be as long as a year from now.
“Once we finish the foreclosure process, we’re going to do a big rehab in the neighborhood of $30 million,” said Schneur. “It’s a full overhaul: roofing, brick pointing, some of the buildings are missing whole staircases and floors.”
Taking it to the bank
Rafael Almonte’s apartment in the Soundview section of the Bronx has 43 building code violations, according to the housing department, including lead paint, mold and rats. But the broken kitchen tile where his 2 ½-year-old son Etan tripped and broke his teeth bothers Almonte, 27, the most.
After five calls to the super, he tried to fix it himself, but the hot water pipes beneath the floor kept bursting and the tile buckled into jagged peaks again. Now a gate keeps his two young sons from the kitchen and, he hopes, future accidents.
On a chilly morning in November, Almonte took a half-day off from his job at a grocery store to huddle in the parking lot of a Bronx strip mall. He stood with eight other tenants wearing blankets knotted around their necks like capes. They seemed small and insignificant even in a small, insignificant place. Many had never protested before and rather than waving signs, they clutched them.
Their target was a tired-looking branch of the Dime Savings Bank. Dime holds the mortgage on the building where Almonte lives, 1585 172nd St., and the five other Hunter buildings. The buildings are in bad shape: Combined they have 2,455 New York City building code violations. Of these, 518 fall into the most severe category—class C violations—meaning that conditions are immediately hazardous and must be corrected in 24 hours, according to the housing department. Many were reported months ago and remain unrepaired.
Tenants say that conditions in the rent-stabilized buildings have deteriorated since Hunter took over. Hunter Property principal Sam Suzuki claims that repairs have been made. “Three thousand violations — we can’t do it in one day,” said Suzuki.
Regardless of whether repairs are being made, this November two of the properties, 1636 and 1640 University Ave., joined nine other Ocelot buildings in HPD’s alternative enforcement program: a list of the 200 multi-unit dwellings in most critical need of repair—buildings with the highest number of unrepaired B (hazardous conditions that the owner has 30 days to correct) and C class violations. The city steps in to keep buildings habitable and tenants safe; it has already spent more than $1.3 million on Ocelot properties.
Hunter tenants are now pressuring Dime to enforce a common but mostly ignored clause in the mortgage that says the bank can make repairs or declare regulatory default if the property falls into disrepair. However, the bank is under no obligation to do so.
Gladys Ortiz, who has lived at 1585 172 St. for almost three decades, would welcome the help. She shares the apartment with her 17-year-old daughter, two Chihuahuas and what she calls “my little pets” – sticky traps covered with cockroaches.
Ortiz stopped babysitting in the apartment one year ago because of infrequent heat and hot water. “The kids would get sick,” she said. At the time, Ocelot owned the building, but Hunter managed it.
A widespread problem
What has been dubbed predatory equity has been common in recent years, as investors snapped up rent-regulated housing to convert to market-rate rentals. The properties were overleveraged from the start, meaning that the low-income rents of the existing tenants were too meager to pay the mortgages. So turning a profit involved getting them to leave, often through illegal tactics like letting conditions deteriorate until only the very desperate or the very stubborn remained.
The gamble failed when the housing crisis hit. Many overleveraged properties fell into foreclosure and conditions went from bad to worse. According to a new report released by the nonprofit Association for Neighborhood and Housing Development, there are some 100,000 overleveraged units in the city – about 10 percent of the city’s affordable housing stock. In these overleveraged buildings, the rent pays an average of 55 cents on every dollar of debt owed on the property.
ANHD executive director Benjamin Dulchin said that the city has done as much as it can to stop overleveraging. “It really comes down to the banks,” Dulchin said. “They have to restructure the value of the mortgage to what it’s worth. Unfortunately, they want to hang on to as much value as they can, so they try and wait until the market comes back up.”
They’re also happy to take full price.
Dime transferred Ocelot’s original $13 million loan to Suzuki in May, an amount that UHAB finds too high. “Anybody else would have looked at those buildings and said, ‘No way,’” says Dina Levy, UHAB’s director of organizing and policy.
Suzuki said his properties were not overpriced or overleveraged: “We buy properties based on valuation of affordable housing.”
In fact, he would have liked to buy more. His company signed a no-cash deal to take on Ocelot’s debt with Fannie Mae in November 2008, but he never made payments. In October, he talked about buying Ocelot buildings again—this time the 14-building portfolio just won by Omni.
Dime asked to make change
Tenants of the Hunter-owned buildings sent a letter to Dime earlier this fall asking for enforcement of the repair clause.
“The bank basically said, ‘Thank you for your concern, it’s not something we can take up,’” said Dan DeSloover, a homesteading organizer. According to his colleague Levy, “Banks don’t want to be in the business of managing properties. But Dime is equally culpable. …Unfortunately, predatory equity left thousands of units across the city in this predicament and the whole process was enabled by banks underwriting loans.”
So last month, tenants crowded into the Dime branch in the Soundview neighborhood of the Bronx and told employees that they were moving in.
“We can’t do anything about this. Could you please step outside? You have to call the main offices,” assistant branch manager Michelle Lopez told the assembled. “We’re working. We’re not responsible for this.”
The tenants obliged and stepped outside, chanting slogans along the lines of, “Hey, Dime, our buildings are a crime!” for about 20 minutes. After calls to the main office and the police, Dime announced that it would meet with tenants. The meeting took place a few days later. It was decided that Hunter should raise a modest amount of money for emergency repairs from outside investors, according to Levy.
She is doubtful about Hunter’s ability to raise the money and said that even if it does, the amount would be futile given the buildings’ deterioration—they all require major work. She is, however, encouraged by the fact that another meeting is scheduled for December with the bank, the tenants and Hunter.
“It went from, ‘We won’t meet with you and if you don’t like it you can find another place to live’ to ‘Let’s meet again soon,’” said Levy.
“We always intended to be a positive community loan-maker,” said Ken Ceonzo, the director of investor relations at Dime. “We are more than happy to sit down with the parties and come to a mutually beneficial outcome with the situation involved.”
Of a mutually beneficial outcome, Ceonzo said that, ideally, “Tenants will be happy, they will begin to pay their rents again. The new owners will be able to pay their mortgage.”
Additional reporting contributed by Della Hasselle.
