During the real estate boom of the last decade, the government-supported mortgage giant Fannie Mae took direct equity stakes in at least three majority affordable-housing portfolios in New York City, sources told The Real Deal. That’s two more than previously known.
The newly uncovered equity holdings are approximately $52 million in Urban American’s Kings & Queens, a 2,105-unit portfolio acquired in 2007 for $251 million, and about $40 million in the SG2 portfolio. That portfolio is a joint venture that CBRE Group’s Stephen Siegel and partners purchased in 2007 for $300 million. The 51-building package located in the Bronx had 3,611 units.
TRD reported last month that Fannie Mae had a previously undisclosed, approximately $60 million equity stake in the $1 billion portfolio in Upper Manhattan and Roosevelt Island. Sources say that holding is likely to be sold or control will be transferred to a subsidiary of Brookfield Asset Management.
Fannie Mae’s stakes were not known to housing advocates or several elected officials who were closely tracking these and other private equity investments. Fannie Mae has not confirmed or denied the specific investments. Such private-equity investments attracted criticism during the run-up to the financial crisis and in its aftermath.
A representative for SG2 declined to comment, and Siegel was not available to comment. Urban American, led by Philip Eisenberg, did not immediately respond to a request for comment.
In a statement, a spokesperson for Fannie Mae said the government-sponsored enterprise has enormous equity stakes in the city. The statement also noted that Fannie Mae did not break out how much of the company’s equity holdings are in direct ownership stakes and how much are in low income housing tax credits, a popular financing tool that is not considered controversial. Insiders speculated that the vast majority are in tax credits.
“Fannie Mae has provided over $1 billion in equity investments across New York City. This equity has helped fund over 55,000 units of affordable and workforce housing for individuals and families in New York City,” the statement said.
Elected officials who loudly called for Fannie Mae to use its financial clout during the downturn to preserve affordable housing have been reticent to call for any action following the revelations of the equity stakes. Insiders questioned why Fannie Mae would make an equity investment in a portfolio like Putnam with a business plan that sources said was predicated on raising rents substantially.
U.S. Senator Charles Schumer, who in 2009 pushed Fannie Mae to block an auction of the debt on a package of severely distressed rent-regulated properties in the Bronx, has not responded to several requests for comment on the newly-revealed equity stakes.
And U.S. Representative Carolyn Maloney, who is planning to reintroduce legislation that would overhaul Fannie Mae, responded with a statement (focused on the Putnam portfolio) that said in part: “Fannie Mae’s investment in the Putnam portfolio underscores the need for legislation that would sharply curtail the ability of Fannie Mae, Freddie Mac, and other government-sponsored enterprises (GSEs) to invest in future transactions that reduce the availability of affordable housing both in New York and nationwide.”
Housing advocate Kerri White, director of organizing and policy at Urban Homesteading Assistance Board, said such equity stakes can put Fannie Mae’s interests at odds with those of tenants.
White had no independent knowledge of the Fannie Mae equity stakes, and said representatives from the mortgage giant in recent meetings would not confirm or deny the stakes, but they caution the advocates not to “believe everything you read in the press.”
Nevertheless, Schumer, Maloney and other elected officials should pressure Fannie Mae to disclose other rent-regulated portfolios in the city where it has a stake, White said.
“Fannie Mae needs to be transparent with these deals where it has equity,” White said.