The Real Deal New York

Paydirt: The multifamily market is a reputational minefield

The industry news you need to start your week, and what’s ahead
By Hiten Samtani | August 21, 2017 11:00AM

Investors and lenders active in the multifamily market have to contend with a harsher spotlight.

No document is perhaps as loathed by real estate players as the “Worst Landlords Watchlist.” The scorecard, started by then-Public Advocate Bill de Blasio and continued by his successor Tish James, ranks landlords by the number of outstanding building violations at their properties. It places them on a name-and-shame list that commands a lofty perch on Google and is ammo for tenant advocates and lawyers. It’s also irresistible to the press; if a landlord is on the list, that nugget is almost guaranteed to find itself in the headline of an article about them. Landlords have long complained the list penalizes them for violations incurred under previous ownership, is shoddily compiled and error-prone, and doesn’t reward them for taking actions to address these problems. Some have taken to the courts to try and kill the list, but it remains in place.

Now there’s another cohort that has reason to revile it: banks. Last week, James started naming the banks that most frequently lend to the landlords on the list, in an attempt to put pressure on these lenders to curb practices that advocates say encourage tenant harassment and buyouts. James named the likes of Signature Bank, Capital One, Customers Bank and JPMorgan Chase in her analysis, and said that if lenders opt to lend to any landlords on the list, they should make removing violations a condition of any loan and push for monthly inspections of their buildings.

It’s an initiative that tenant advocates have long pushed for. When Steve Croman, the poster boy for the bad landlord cohort, pleaded guilty to grand larceny and tax fraud in June, housing advocates said the loans were often the source of the problems.

“The bank loan, if it’s set up a certain way, is going to be one of the driving forces behind the bad actor,” Brandon Kielbasa of the Cooper Square Committee told me.

(Related: Paydirt: Go directly to jail. Do not pass Go.)

James’ decision to name lenders is part of a wave of changes that landlords feared would come after the spectacular saga of Croman: In the past year or two, the city and state have been making a concerted and very public push to go after bad actors. In just the past week, The Real Deal reported on a new tenant harassment probe focusing on Icon Realty Management and a lawsuit that seeks class-action status against Kushner Companies. Earlier this month, a City Council subcommittee pushed through a set of bills that, if approved, would make it easier for tenants to prove harassment and boost fines for landlords found guilty of harassment or construction violations.

Investors are becoming less blatant about tactics to monetize their holdings. The language in setups, for example, which used to openly tout the number of rent-stabilized apartments ripe for turnover, is now far more guarded. But some are concerned the heightened scrutiny and new policies will put a damper on the city’s multifamily market, which doesn’t need more hurting.

Bannon is out, thanks in part to NY real estate: Steve Bannon, the vizier who became the chief architect of Donald Trump’s populist message and pushed Trump to ride his nationalist worldview all the way to the White House, is out. Bannon departed Friday, and among the Trump brain trust urging for his removal were the three New York real estate players closest to him – Vornado Realty Trust’s Steve Roth, LeFrak Organization’s Richard LeFrak and Colony NorthStar’s Tom Barrack.

Bannon, who returned to the helm of Breitbart News immediately after his exit, has already made clear his intent to use his powerful perch to attack senior adviser Jared Kushner, Vanity Fair reported. Could the three moguls be next in his crosshairs?

The timing of Bannon’s departure was complicated by the backlash to Trump’s reaction to Charlottesville, according to the Times. Trump’s response, in which he blamed “many sides” for the deadly violence there, also rattled the real estate community. Though many of the biggest players remained silent, as my colleagues and I reported, Trump’s equivocation drew an extraordinary rebuke from John Banks, the president of the Real Estate Board of New York – extraordinary both for how blunt he was, calling Trump’s statements “flat-out wrong and reprehensible,” and for how rare it is for REBNY to actually speak up.

(Paydirt is a weekly column that riffs on the biggest NYC real estate news of the moment, providing analysis and historical context on the deals and players that make this town tick. Read more from Paydirt here.)