Landlords, advocates debate opening books

<i>Proposal to subpoena building data from lenders, special servicers stirs controversy </i>

Housing advocates are calling on the city to use its investigative powers to obtain financial records from lenders and then influence sales at overleveraged multifamily buildings.

The advocacy groups believe the city’s Department of Housing Preservation and Development can use proprietary information from banks and servicers of troubled loans to direct sales of distressed properties to buyers who will maintain them as rent-regulated properties.

Not surprisingly, landlords say the proposal could do far more harm than good.

One housing advocate, who asked to remain anonymous because negotiations are ongoing with the city, said HPD could challenge lenders who want to sell properties or notes for prices that cannot be supported by rent rolls. “HPD presumably says, ‘If you sell at that price, there is never going to be enough money available to maintain the building,'” the source said.

Without utilizing the investigative power, advocates fear, many buildings will simply change hands again and end up with a new owner who cannot maintain the property, thus perpetuating housing code violations. Ultimately that cycle will cost taxpayers.

The idea was first suggested in an August 2009 report by Harold Shultz, a senior fellow at the Citizens Housing & Planning Council and a former HPD special counsel. Shultz declined to comment for this article.

The Bloomberg administration has discussed this suggestion with advocates during meetings over the past several months, three sources said. A spokesperson for HPD would not confirm whether the agency was considering the proposal. “It is our aim to use the tools that are most appropriate to each particular set of circumstances,” the agency said in a statement.

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HPD can subpoena financial and other records from private companies, as well as hold public hearings, as part of its powers to enforce the city’s Housing Maintenance Code, a power used rarely.

The Citizens Housing & Planning Council estimates there are about 100,000 apartment rental units in the five boroughs where the building owner has a deeply troubled loan.

Housing advocates have pointed to loans on properties such as 770 Garden Street, part of a portfolio of 10 Bronx buildings bought by California-based Milbank Real Estate during the boom, which are now in foreclosure and controlled by special servicer LNR Property. The city is reportedly in discussions with LNR to transfer the loan to a nonprofit housing company that would maintain the buildings in good condition.

Although the proposal to subpoena private financial records was first floated months ago, it has not been widely publicized, and a handful of landlords and their representatives contacted by The Real Deal were not aware of it.

Insiders say private lenders such as banks and special servicers who work out troubled securitized loans are under no obligation to reveal loan data publicly.

Dina Levy, director of organizing and policy with the Urban Homesteading Assistance Board, said using the inside data will force the banks into a more responsible disposition plan for underwater properties. “They have to properly value these assets, which at the moment they are refusing to do,” she said.

Representatives for landlords and developers scoffed at the notion that the city would force lenders to sell at lower prices than the free market would bear.

Stephen Meister, partner of Meister, Seelig & Fein, said the city could end up limiting the amount of capital available for multifamily properties. “HPD figures it will try to force lenders to write down their notes so that the debt burdens are lower and the housing stock can be maintained. This, of course, will only bring about a reduction in lender capital (if HPD is successful), reduce lending activity and stunt business expansion and job growth further,” he said in an e-mail.