East New York takes it on the chin

Area hit especially hard by credit crisis and housing implosion

Feb.February 01, 2009 05:16 PM

This summer’s credit crisis and the subsequent housing implosion haven’t been good for anyone. But they’ve been especially hard on East New York, one of the city’s poorest neighborhoods.

Like the rest of the city, up until a couple of years ago, East New York was undergoing something of a building boom. The Bloomberg administration emphasized affordable housing and supported developers interested in revitalizing the area. Suddenly two-family houses began cropping up in infill spaces. Other developers became comfortable with the idea of investing in the area and so began buying up land and converting rentals to condos, and residents leapt at opportunities to buy.

The Seaview Estates in the area, for example, sold out in two years with 10 price increases, according to Fillmore Real Estate’s Jean-Paul Ho.

The problem was that unlike the rest of the city, much of this new housing stock was made available to residents via predatory lending. Thus, when the defaulting began, it hit East New York like a tidal wave.

“There were a lot of foreclosures because there was a lot of predatory lending,” says Ho. “People who bought put as low as no money down; prior to this market they had these ridiculous loans where you needed no job, no assets, no income.”

According to New York University’s Furman Center for Real Estate and Urban Policy, East New York witnessed the highest number of foreclosures in all of Brooklyn with 715 lis pendens filed in the first three quarters of 2008. Further, it had the second highest number in the five boroughs, following only Jamaica/Hollis in Queens.

The fallout has been the disappearance of mortgages.

“Right now the numbers in East New York compared to 2007 are down over 50 percent in volume of sales,” says Sam Heskel, executive vice president of HMS Associates, a Brooklyn-based real estate consulting and appraisal firm. “You can attribute that to a lack of financing; these were subprime areas where people literally couldn’t get financing.”

The wave of foreclosures combined with an inability for buyers to get money has everyone wary. Banks are pulling construction financing. Even the government has put holds on certain projects. Almost everything has effectively ground to a halt. (There’s an exception: a boutique hotel is coming to East New York. See Enticing travelers to eastern Brooklyn.)

“No one is putting shovels in the ground until we get rid of this mess,” says John Reinhardt, the president and CEO of Fillmore Real Estate. “Everyone is in a holding pattern.”

Not good for a neighborhood on the rise.

“We’re seeing more boarded-up, abandoned and for-sale buildings all over our neighborhood than we’ve seen since the ’80s,” says Betsy MacLean, division director of Cypress Hills Local Development Corporation.

Cypress Hills had a number of projects in the works when the credit crisis went down. The 12-unit Glenmore Grove began construction in August 2008 and is still on track for completion around this time next year. But Cypress Village, a 23-unit project, is suddenly uncertain.

“Our funding from Cornerstone [a part of the mayor’s New Housing Marketplace Plan, which creates new middle-income and market-rate, multi-family housing on vacant city-owned land] got pulled,” says MacLean. “The city doesn’t want to invest in homeownership projects and low-income neighborhoods because of high foreclosure rates; they see it as a bad investment. But I think the opposite is true — we need stable, supported home ownership more than anyone.”

Thus, MacLean is continuing to move forward in any way she can.

“The status of our [Housing Preservation and Development] money has been in doubt,” says MacLean. “But we’re plugging ahead and assembling other sources and then we’re going to make the case that we’ve done everything else; we just need HPD to kick in this amount.”

“It’s tricky,” says MacLean. “Banks we’ve been talking to about this project for a year don’t even want to look at updated budgets; they don’t even want to talk to us.”

HPD did not return calls for comment.

Dawanna Williams, founder and principal of Dabar Development Properties, feels this acutely. She was set to develop 22 townhouses with New York’s New Foundations program, but her subsidies have been halted as well.

“They’re on hold because of the amount of supply on the market right now,” says Williams, who explains that it is her understanding that once some of the supply in the area is absorbed, funds will open back up. She estimates her project will cost $9 million, of which she expected HPD to kick in 15 percent.

“Under normal circumstances we could go to another source, but because of the credit crisis … ” she trails off. Williams hopes to be able to proceed this summer.

But it isn’t all doom and gloom in East New York. In 2005, the Nehemiah Development Corporation began work on the Nehemiah Spring Creek Houses at Gateway Estates, a five-phase development due in 2014.

“We’re comfortable with our subsidy. The city has not indicated that they would not come through; they have cooperated from the beginning,” says Ron Waters, general manager and director at the Nehemiah Development Corporation.

At Spring Creek Houses, the 117 homes that make up phase one — the project will ultimately encompass 1,500 affordable homes — have been completed and fully sold out. The first 19 families moved in just before Christmas. The second phase of the project is nearly 30 percent constructed and Nehemiah Development is “starting to put together the numbers” on phase three right now.

MeadowWood at Gateway is another highly successful development. Since January 2008, 160 units have sold; 283, since sales started in September 2007. The project, a conversion of a former Mitchell-Lama rental complex, has 11 towers, 48 townhouses and 1,183 units, 700 of which the sponsor has left to sell.

“We’ve raised the price three times since January 2008 … even with the bad market, we’re selling,” says Ho, who is selling the project. “With the economy the way it is today, it’s just like Wal-Mart stock and Spam. People are looking for deals and affordability and bargains.”

In order to not add to the mortgage mess, MeadowWood has worked hard to educate its buyers on home ownership. They offer seminars — on grants, first-time buyer programs, closing cost assistance and more — twice a month to the public.

“Financing is the challenge,” says Reinhardt, who has two offices in the vicinity. “But with SONYMA [State of New York Mortgage Agency] and HPD, we get many more qualified buyers … we have had zero foreclosures on homes we have sold.”

Which is a plus, since the need cannot be denied.

“We had thousands of applications for nine houses,” says Jared Della Valle, an architect with Della Valle Bernheimer, who completed Glenmore Gardens, a New Foundations project in East New York, in late 2006. “We stopped at 1,600 or 1,700. So unless the number of people who qualify has deteriorated significantly, I don’t think there’s any mystery. There is unending demand.”

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