Fighting Predatory Equity

ANHD was the first to analyze and sound the alarm about predatory equity: the multifamily version of subprime mortgage abuses in our neighborhoods. During the peak of the recent real estate boom, speculative owners backed by private equity investors purchased some 100,000 affordable apartment units. The overleveraged owners/investors’ strategy was to dramatically increase operating income by illegally displacing current residents and creating luxury units upon vacancy.

ANHD’s campaign to combat predatory equity had a major impact in 2010. In February, Attorney General Andrew Cuomo announced a high profile legal settlement with Vantage Properties, one of the benchmark predatory equity developers that ANHD targeted for its harassment and displacement of rent regulated tenants. The $1 million settlement, resulting from a three-year campaign by ANHD and our member groups, exposed a business plan based on illegal displacement to turn affordable units into market-rate rentals. This investment strategy of overleveraging debt with the expectation of displacing tenants is common to all “predatory equity” investors.

In many cases, the speculative investor strategy has failed and the buildings have fallen into financial and physical distress. ANHD’s goal is to remove such properties from the speculative cycle by affecting their transfer to owners, preferably to not-for-profits, who share a commitment to preserving affordability.

In 2010, our efforts received an important boost by Mayor Michael Bloomberg and former HPD Commissioner Rafael Cestero, who announced an extraordinary commitment of public financing to achieve such “preservation transfers” of distressed predatory equity buildings. The city’s $750 million – augmented later that year by a $100 million commitment by Citibank – increased the opportunities for responsible owners to take over defaulting, distressed buildings. Some overleveraged building portfolios have been stabilized, but many that most threaten the stability of our neighborhoods are unresolved, with lenders still unwilling to negotiate the debt down to responsible levels while a new wave of speculative investors are ready and willing to overpay. Now policy tools and preservation funding are in place, and community organizing groups are expanding their campaigns to save this scarce stock of affordable housing.