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NYC Apartment Landlords Are Burned In Gentrification Crash

(Bloomberg) – New York’s home investors are suddenly waist-deep in distress. As of December, they were nearly 150 times the year before, with $ 395 million in debt backed by mortgage bonds, according to Trepp commercial mortgage data. secured securities. Tenants in rental-stabilized housing units owe at least $ 1 billion in rent, and wealthier ones are fleeing the city, leaving vacancies and pushing newly built luxury towers into foreclosure. For years, as New York crime fell and rents rose, the investor gobbled up apartment buildings. But with the city’s economy and culture battered by Covid-19, increasing job losses have derailed the gentrification boom and put financial pressure on landlords: “The people who specialize in mortgage training are the busiest people in New York “said Barry Hersh, the developers who are the most in trouble were pushing hard in Harlem and the hipster hubs of Crown Heights, Flatbush and Bushwick in Brooklyn, squeezing working-class residents out by building new expensive units.” Now they’re struggling with eviction bans and new tenant protection as rents in New York are falling. Colony 1209, a steel-gray apartment building, opened six years ago in the heart of Bushwick, an industrial vision of urban chic with a billiard room and a 24-hour doorman. The website made a bedroom available for $ 2,500 for “like-minded settlers” in the mostly black and Hispanic neighborhood known as Brooklyn’s “new frontier”. Now Colony, renamed Dekalb 1209, faces foreclosure after owner Spruce Capital Partners defaulted on a $ 46 million mortgage. The five-year interest-free loan matured in October and not renewed, which triggered the default. This is evident from monthly filings from loan service provider Wells Fargo & Co. The lender applies for the building to be repossessed – as soon as the foreclosure has taken place in New York.The moratorium expires – and at the same time to speak to the borrower about training alternatives. Fichte could not be reached for comment. Just before Covid hit, investors were ready to pay top dollar for luxury buildings like Colony. They wanted alternatives to rent-regulated buildings that had their values ​​cut by a 2019 law that banned tactical landlords who relied on converting rent-regulated units to market prices. “That was the bright spot until the pandemic happened,” said Victor Sozio. Executive Vice President at Ariel Property Advisors, a New York City real estate agency. Plans’ Stymied’Emerald Equities, a fast growing condominium conversion specialist, filed for bankruptcy on buildings in Harlem in December. In its filing, the company said its “well-thought-out plans were hindered by the tenant-friendly law”. Residents organized a rental strike and collections tumbled even more after the pandemic, prompting Emerald to turn ownership over to LoanCore Capital, which had loaned $ 203 million for the project. Doug Kellner, an attorney for emerald tenants, blames New York for the current market problems because it came without financial support: “Everyone recognizes that rent is the green blood that keeps a building running,” said Kellner. In the boroughs, rents are on a downward spiral as landlords try to fill empty apartments with newer and sweeter tenant concessions – just to see the number of vacant properties keep rising. In Manhattan, available units nearly tripled year over year in December, and the median rent fell 17% to $ 2,800, according to Miller Samuel Inc. and Douglas Elliman Properties. Rents have fallen 11% in Brooklyn and 18% in Northwest Queens, where star-eyed developers built glassy apartment fortresses along the boardwalk for young Midtown professionals. In some ways, investors may be more isolated than they were after the 2008 financial crisis. Lenders generally required higher down payments and underwrote loans based on current rents rather than expectations for the future, said Shimon Shkury, president of Ariel. If the vaccine works and students and office workers return, the market will return, too, Shkury said. “I don’t think there will be as much stress as you think there will be,” he said. Regulation of Rent Lenders have already invested $ 1.4 billion in Commercially Assisted Multi-Family Debt on Watchlists due to issues such as rising vacancies or upcoming due dates. That’s 19% of all outstanding debt, compared to 22% at the bottom of the financial crisis. The problems will come from heavily indebted investors who quickly expanded into lenders with the most aggressive underwriting, says NYU’s Hersh: “That will give banks go under,” he said. At the same time, the market for apartment buildings has become weak. According to a report by Ariel.Still, companies like Limekiln Real Estate Investment Management, the total volume of multi-family sales in New York City in 2020 was $ 4.5 billion, a decrease of 61% from pre-pandemic or 2018 the new rental laws correspond to opportunities. The company issued New York multi-family loans of $ 224 million in the second half of 2020, down from $ 9.3 million prior to the pandemic. It’s easier to find better terms in a “lender market,” said Scott Waynebern, President of Limekiln. “It’s difficult to find where the ground is,” he said. 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