The Real Deal New York

Banks say they were totally blindsided by Public Advocate’s “worst landlords” list

Lenders take issue with the way Tish James’ office handled this year’s edition
By Rich Bockmann | August 30, 2017 07:00AM

From left: Signature’s John Tamberlane, Customer Bank’s Dick Ehst, and Public Advocate Letitia James (Credit: YouTube and Getty Images)

For years, multifamily landlords have griped at the New York City Public Advocate’s “worst landlords” list, decrying that the office unfairly tars them based on an inelegant tally of building violations.

Now, their lenders are joining the chorus, speaking out after Public Advocate Letitia James singled them out as being complicit in their clients’ alleged misdeeds, but offering little warning or information about the loans that landed them on the controversial list.

“It was really odd the way it was handled,” said Dick Ehst, president of the Pennsylvania-based Customers Bank, which ranked third on the list published earlier this month of the top 10 banks that lent to the flagged landlords. “We were notified that the list was coming and two hours later we started to get inquiries from the press. We didn’t actually end up getting the list until a week later.”

Representatives from Customers said the bank is still working with the James’ office to clear up inaccuracies with the information they received, such as erroneous names listed for borrowers.

A spokesperson for the public advocate’s office, however, told The Real Deal that the office identified only a few, immaterial inconsistencies with the list, and stood by the broader message that banks have a responsibility to exert pressure on landlords who appear on the list.

“It’s not too much to ask banks to lend responsibly, which means not fueling the worst practices of the city’s worst landlords,” spokeswoman Anna Brower said.

It was James’ predecessor, now-Mayor Bill de Blasio, who started the “worst landlords” list in 2010. Owners continue to take issue with the methodology, arguing that it unfairly penalizes owners with large portfolios of older buildings that inherently require more repairs.

And landlords say they have erroneously ended up on the list. Former MNS Real Estate partner David Behin, for example, appeared on the list in 2015 after James told him that he wouldn’t be included. Behin found himself on the list the previous year due to a building he bought through a state program that transfers mismanaged buildings to more capable landlords. James eventually removed Behin from the ranking.

But this year James upped the ante, taking the step to add the top 10 banks that finance the landlords on the list, arguing that the lenders should make clearing building violations a condition of granting a loan.

Lenders who spoke to TRD said they receive regular lists of violations on buildings from the city’s department of Housing Preservation and Development and work with their borrowers to rectify them, but there is a limit to what they can legally compel a landlord to do.

The notion that lenders should hold landlords accountable is not, however, a new one. Tenants rights advocates have increasingly been turning up the pressure on banks to intervene with landlords who are accused of harassing tenants.

Signature Bank, notably, found itself in the unwanted spotlight when the state Attorney General’s office and the Association for Neighborhood Housing & Development singled the bank out for loans it provided to controversial landlord Raphael Toledano.

ANHD and its allies had launched a public advocacy campaign to put pressure on Signature, but president Benjamin Dulchin said the group recently let up on their public campaign as the two sides met to negotiate.

“The groups involved in the campaign are still very concerned, but are engaged in a constructive process and dialogue with the bank now,” he said. “For the moment, we are stepping back from the public portion of the campaign.”

He pointed to a recent agreement with New York Community Bank to strengthen its underwriting practices as a step forward in what he said constituted responsible lending.

Signature, which wound up at the top of the public advocate’s lender list, said it has a portfolio of $14 billion in multifamily loans, $11 billion of which are in low- and moderate-income neighborhoods.

Vice chairman John Tamberlane said that exposure inherently means Signature does business with landlords who have an outsized share of building violations, and that pulling back would be counterproductive to the public advocate’s goals.

“The one way to get off this list is, anytime we see a building with violations, don’t lend on it,” he said. “I don’t see how that would help. We help by actually lending to those borrowers who are in fact committed to improving the properties they own; they invest in improvements and cleaning up the violations.”

The public advocate’s landlords list, meanwhile, is facing a legal challenge from landlord Kamran Hakim, whose attorney has argued his client was denied due process by not having a chance to review the list with James’ office before it was published.

A Manhattan State Supreme Court judge in March ruled against Hakim, who has appealed the decision.

Hakim’s attorney, Darren Marks of Borah Goldstein Altschuler Nahins & Goidel, argued in court that the list is defamatory.

“There is a world of distinction, a mile-wide distinction between a watch list that … informs the public of buildings that have violations and calling it a worst landlord list,” he said, according to a court transcript.