Fighting Predatory Equity
When predatory equity investors take a gamble on multifamily housing, it’s the tenants who suffer — whether from harassment or crumbling buildings. Advocates and tenants in New York have won the fight to get some of these buildings into responsible hands, but many are still in limbo, and some are reentering the cycle of speculation.
In July 2007, the Ocelot Capital Group, a New York real-estate company backed by an Israel-based private equity firm, purchased a portfolio of 25 rent-regulated buildings scattered across the Bronx. They were home to 780 low-income, working-class families.
Less than a year later, tenants in those buildings were facing, among other things, a lack of heat and hot water, ceilings caving in, bursting water pipes, and health problems from a toxic mold outbreak. City records show that the portfolio had accrued a total of 13,590 housing code violations, nearly 3,000 of which fell into the most serious class of violation, posing serious health and safety risks.
Eventually nearly half of the buildings were placed into the New York City Alternative Enforcement Program, an initiative that provides emergency repairs to buildings that the agency considers the most physically distressed. By early 2009, Ocelot had essentially abandoned the properties, and at least one foreclosure proceeding was underway.
Distressed housing, particularly in a place like the South Bronx, is not a new phenomenon. Yet even the most seasoned housing advocates were stunned by the conditions and pace of deterioration at Ocelot’s properties. During a visit to one of the buildings, organizers found a single mother caring for three small children who had been living without a working bathroom for more than three months. Her makeshift toilet consisted of a bucket and a hose she managed to connect to the leaky kitchen sink. She explained that she had not moved out because the local housing authority that provided her monthly rental assistance subsidy would not approve her for a transfer to a new apartment.
Before the purchase, tenants had grown used to a non-responsive management company and unanswered complaints, but they have a clear and collective awareness of the day, less than a year after Ocelot’s purchase, when virtually all services came to a complete stop. “When Ocelot bought the buildings they collected rents but they didn’t do anything,” says Carmen Rodriguez, a tenant leader at one of the Ocelot buildings. “We lived with no gas, no heat, and for long periods of time many of us were without running water.” The property management company closed its on-site offices, and tenants were told to mail their rent checks to a PO box somewhere in Manhattan.
Advocates began the familiar routine of forming tenant associations, contacting politicians and media outlets, and analyzing the underlying finances on the portfolio in hopes of shedding light on how a once decent, safe, and affordable housing resource had been so utterly destroyed so fast.
- Commercial Real Estate Losses and the Risk to Financial Stability, Congressional Oversight Panel, February 2010
- On Bluestones purchase of the Hunter properties: "The New Guys," by Daniel Massey and Amanda Fung. Crain's New York Business, July 11, 2010