The Real Deal New York

Vantage digs out of distress

Landlord unloads troubled NYC buildings with an eye toward picking up new properties elsewhere

July 01, 2012
By David Jones

Vantage CEO Neil Rubler

After years of financial turmoil at Savoy Park, an 1,800-unit Harlem apartment complex, Vantage Properties and Area Property Partners finally unloaded the troubled development for more than $210 million last month.

The sale allows the two firms to pay off the outstanding balance on the senior mortgage that’s been looming over them for years.

While Vantage and Area are still fighting foreclosure suits on several properties in New York City, the mega-sale came just three weeks after the partnership managed to sell off a portfolio of eight distressed Harlem and Washington Heights buildings for $65 million, far less than the original purchase price of $87.7 million.

Analysts say the sale of Savoy Park to the New York Affordable Housing Preservation fund — created by Citigroup and L+M Development — is likely to help Vantage CEO Neil Rubler overcome his firm’s considerable struggles and reposition the company in a market where multifamily properties are showing strong investor interest.

“In general, people in this industry have very short memories,” said Ben Thypin, director of market analysis at research firm Real Capital Analytics.

Indeed, the firm — which was among a handful of investors to buy rent-stabilized multifamily buildings during the boom with the intention of making big returns by raising rents — has already begun a fresh start with new acquisitions outside of New York.

Last year, Vantage partnered with private equity firm Angelo Gordon & Co. to buy a massive portfolio of 2,200 apartment units in central New Jersey. Vantage immediately sold three buildings in the portfolio to a firm called Lighthouse Properties, but held onto about 1,700 units under its new Candlewood Management subsidiary.

And the firm has just agreed to buy — and upgrade — three additional rental properties from AIG in Belleville, Garfield and Highland Park, N.J., totaling 109 units, according to sources familiar with the deal.

Joseph Brecher, executive vice president at Gebroe Hammer, a Livingston, N.J.–based brokerage, said the rental market in central New Jersey and other suburban markets is more conductive to these types of investments. That, he said, is because there is higher tenant turnover, which allows owners to raise rents faster than they can in New York.

“Because of the turnover and vacancy rate in New Jersey, it makes it easier,” Brecher told The Real Deal. “If you execute your game plan you get a cash return much faster than in New York City.”

Meanwhile, sources familiar with Vantage say the firm is “very interested” in Florida, a market undergoing a recovery after a steep recession-related collapse.

Vantage is also exploring a somewhat ambitious move of working with several private equity firms to buy single-family homes that are in foreclosure or some state of distress, and renting them out, sources familiar with the developer said.

Some industry observers said they were surprised that Vantage is starting to regain its footing after a tumultuous six years in New York. But the firm seems to be doing so by targeting recovering markets outside of the city.

In addition, analysts say Vantage is benefitting from the fact that the multifamily market is recovering in New York, helping it unload its troubled properties just a year before the loans on those properties were scheduled to come due.

But the Long Island City–based firm still has plenty of distress on its plate.

From left: Vantage and Area Property Partners sold their troubled Savoy Park apartment complex last month for $210 million. The Beaumont at 730 Riverside Drive; lenders filed a suit claiming that Vantage and Area defaulted on their loan.

A struggling portfolio

Within the last four months, Dallas-based Lone Star Funds has filed at least four foreclosure suits against Vantage alleging it defaulted on loans at various rental buildings in New York City.

In March 2012, Lone Star filed a $57 million foreclosure suit against Area and Vantage on a 10-building portfolio in Harlem, Inwood and other neighborhoods. It also filed a separate $37 million suit in March to foreclose on a four-building Washington Heights portfolio owned by Vantage and New Jersey–based Normandy Real Estate.

Then in May, a state Supreme Court judge appointed a receiver at 344 Fort Washington Avenue, a 48-unit walk-up rental in Washington Heights. At that site Vantage and Area defaulted on a $5.4 million loan with Anglo Irish Bank, which later sold all of its distressed U.S. assets to Lone Star.

That same month, Lone Star filed a lawsuit alleging that the partners defaulted on the Beaumont at 730 Riverside Drive in Harlem in 2010. The lender said the partners, who acquired the building for $20.5 million in 2007, left a $15.3 million mortgage balance on the historic 11-story rental building, which was once home to famed author Ralph Ellison and opera legend Marian Anderson.

Bradley Marks, an attorney and court-appointed receiver at the Beaumont, urged the court to approve a new building manager to oversee the daily operations, citing concerns about years of “neglect,” according to court records. Marks declined to comment beyond the court filings.

Rubler and other Vantage executives declined to comment on the record, but Vantage officials downplay the significance of these actions. They noted that the properties were in their portfolio for longer than normal and have largely been taken over by Area.

Indeed, in 2011, Vantage gave control of much of its multifamily portfolio back to Area while working to sell the remaining stakes. For example, in November of that year, Area took full control of a majority of the Queens portfolio and then named Cooper Square Realty and Bronstein Properties to replace Vantage as the new property managers.

Thypin from Real Capital said Vantage got lucky that it found buyers for its troubled multifamily investments when it did. “At some point, it made sense for Vantage to get out because Vantage was not going to get paid [because it was under water],” Thypin said. “Given their investment horizon, they don’t usually hold things for seven years, and it’s been five already.”

Lone Star and Area officials declined to comment.

 

Rubler’s rise

Rubler — who graduated from Cornell University and earned an MBA from the University of Pennsylvania’s Wharton School of Business — originally came on the scene as an investment banker at the now-defunct Donaldson, Lufkin & Jenrette.

But in 2000 he joined the Olnick Organization, which owns a number of high-profile commercial and residential complexes, including Lenox Terrace, the 1,700-unit residential complex in Harlem, and 130 Fifth Avenue.

Rubler went on to serve as executive vice president and chief operating officer at Olnick, where his father-in-law, Richard Lane, was president and later became chairman.

Under Rubler’s tenure, the company angered Harlem tenants for allegedly targeting long-time, rent-stabilized tenants in favor of market-rate tenants at many of its properties.

But around 2004, when Rubler was still COO, it allowed Harlem Rep. Charlie Rangel, a prominent tenant at Lenox Terrace since 1989, to lease three additional rent-stabilized apartments at the complex, which he used as campaign office space.

Other Olnick tenants complained about the arrangement, which imploded in 2008, when Rangel was investigated for tax fraud and other issues. Rangel’s office did not return inquiries on the matter.

A 2010 Congressional probe found that Rangel had been put on a list by Olnick for “special handling.”

In government filings related to the probe, Rubler — who left the company in 2005 to start Vantage with several other Olnick executives — denied ordering anyone to set up the apartments for the congressman.

In his new role at Vantage, Rubler’s plan was to acquire properties in underserved neighborhoods and rehabilitate them for working-class families.

He approached a number of potential partners and got repeatedly rejected by those who considered the deals too risky, according to sources familiar with the firm. But he soon found an interested investor in James Simmons III, an Apollo partner who previously worked as chief investment officer and interim CEO of the Upper Manhattan Empowerment Zone, a nonprofit that encouraged private investment in Harlem and Washington Heights.

Apollo and Vantage embarked on a plan to acquire neglected properties and turn them into profitable investments.

One of their first major deals was their 2006 purchase of Delano Village from owners Axelrod Management for $175 million. The purchase of the complex, which was later renamed Savoy Park, took place around the same time that Stuyvesant Town and the Riverton Houses, two high-profile Manhattan rental complexes, were sold to investors also looking for opportunistic returns. (Those blockbuster deals, of course, would later implode and become emblematic of the downturn.)

According to Securities and Exchange Commission filings, Vantage promised investors it could raise rents by up to 20 percent at Savoy Park by investing millions of dollars to renovate vacant apartments and then leasing to new, higher-paying tenants at market rates.

Savoy Park was not the only multifamily complex Vantage acquired. All told, it snapped up more than 9,500 rental apartments across the city between 2006 and 2008, centered in largely immigrant-dominated neighborhoods such as Sunnyside and Corona in Queens, and Harlem, Washington Heights and Inwood in northern Manhattan.

They “had a fair degree of optimism that rents would continue to climb,” said a source familiar with Vantage.

However, fierce resistance from tenants — and a limited ability to control operating expenses — tempered those plans. In addition, the recession slowed the company’s ability to turn over new apartments, while the rising debt service and operating expenses at the properties added a considerable financial strain. In the end, Vantage emerged as one of the biggest casualties of the downturn, with thousands of apartments either in foreclosure or severe distress.

“They were trying to evict tenants in a number of ways,” recalled Valerie Orridge, a retired nurse and president of the Savoy Park Tenants Association. “The worst thing was the primary tenancy, claiming that this was not their primary residence.”

These tactics caused Rubler to run afoul of authorities.

In 2010, then-Attorney General Andrew Cuomo filed suit against Vantage alleging it had harassed hundreds of tenants by refusing to cash legitimate rent payments and illegally challenging their primary residencies based on little to no evidence. Cuomo reached a $1 million settlement with Vantage, which agreed to reform its practices, but did not admit to any wrongdoing.

Sources close to Vantage defend the company, saying that it was simply exercising its rights and ensuring that tenants were not taking advantage of rent-stabilization laws by claiming their apartments were primary homes when they were not.

To be fair, Vantage wasn’t the only New York landlord accused of engaging in aggressive practices. Pinnacle Group and Praedium Group, two of Vantage’s main competitors during the boom, snapped up thousands of rent-regulated units in Harlem and other neighborhoods and rapidly boosted rental income by turning vacated apartments into market-rate units.

A group called Buyers and Renters United to Save Harlem helped launch a groundbreaking lawsuit against Pinnacle under federal RICO statutes, resulting in a $2.5 million settlement with Pinnacle tenants in September 2011.

 

Learning lessons

Analysts say Vantage and Area have been taught a serious lesson about trying to ride the wave of a boom with a plan that could only work in a perfect investment climate. “The biggest problem with Vantage and Apollo’s strategy was the time they thought they could do this in,” said Thypin.

After the stinging criticism during the Cuomo investigation, Vantage says it has taken a number of steps to improve relations with tenants, spending millions to repair its properties, adding a multilingual response line to its property management company and posting a daily blog with regular information updates.

Dan DeSloover, of the Urban Homesteading Assistance Board, which has worked to organize tenants in several Vantage buildings, said it’s unclear whether these changes are mere window dressing or a sincere overhaul.

“In terms of what their overall intent is, those are the things we don’t [yet] know,” he said.

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