Sugar Hill Capital Partners was one of the first firms to bear the brunt of the 2019 rent law.
The multifamily owner had built out its rent-stabilized holdings months before the legislation dammed revenue streams and decimated the asset class. By 2023, foreclosure filings pockmarked Sugar HIll’s Upper Manhattan portfolio.
Some of those assets are finally going to auction. Unsurprisingly, no one wants to pay what Sugar Hill owes on them, so investors don’t bother bidding against the lenders.
On Wednesday, for example, 2107 Frederick Douglass Boulevard, a century-old Harlem walk-up sold for $1,000, court records show — an indication that the lender took back the property in a credit bid, said auctioneer Matthew Mannion.
“That means no one wanted it at the upset price that was announced,” Mannion said. The upset price is the amount that would make the lender whole, inclusive of principal, default interest and fees.
The lender — CMBS bondholders in this case — was looking for $4.4 million. Sugar Hill declined to comment.
For a prospective bidder, the investment has little upside. Sugar Hill bought the building for $3.8 million in late 2018 from Irving Langer’s E&M Associates as part of a 55-building deal valued at $250 million.
Rents have since remained effectively flat, or even moved in reverse, given that increases by the Rent Guidelines Board have lagged the rise in expenses. By the board’s count, operating costs are up 23 percent since 2019. Landlords estimate a much sharper rise.
Values of majority rent-stabilized buildings have dropped substantially. Peer properties to 2107 Frederick Douglass Boulevard sold at discounts of 20 to 60 percent in the second quarter, according to Ariel Property Advisors.
A source familiar with the Fredrick Douglass foreclosure said the building and others in the Sugar Hill portfolio are worth significantly less than their debt.
“Buildings like these are no longer viewed as investments. They’re viewed as liabilities,” said Jay Martin, head of landlord group the Community Housing Improvement Program.
The property is one of several Sugar Hill assets to transfer to the same group of bondholders after failing to sell to a third party at auction. For the struggling landlord, the foreclosure may be a relief. The firm did not contest the foreclosure, court documents show.
Now, the burden of maintaining the building and collecting rent lies with the bondholders and its special servicer, who likely realize the asset class has no real hope of recovering its past value. A rollback of the rent law is a longshot, at best.
After foreclosure, some rent-stabilized properties can be priced low enough to sell. But brokers say others are so undesirable they can’t move them at all — a worst-case scenario for lenders.
“I think it’s purgatory,” one observer said.
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