The August 15, 2008
Wall Street Journal reported that Stellar Management and Rockpoint, co-owners of the Riverton Apartments in Harlem, will likely default on the September payment for their mortgage. They were unable to oust tenants in 53% of the rent-regulated apartments to convert them to market rate. (For a more detailed financial article, quoting our tenants' association, see
Debtwire. )
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See a report of the Saturday, August 23 rally in the
New York Times.
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The problem is likely to spread. See the Aug. 27, 2008
New York Times. This is what the P.I.E. Campaign and other groups anticipated would happen when real estate investors pay more for a development than its rent roll can support. These investors are promised a much bigger return on their money than rent stabilized apartments can provide. Instead of the normal 6% (under Mitchell-Lama) to 8% -15% (rent stabilization), investors are promised a return of 20%, for example. But that can only happen if the landlord takes the majority of the apartments out of rent stabilization. The result: tenants can get harassed, landlords offer money for some to leave (but it's never enough to actually pay for a comparable place to live), and evict others. And then the development can end up in foreclosure with the bank holding the mortgage and the tenants holding the bag.
This process is called "predatory equity." Read more about it on
www.save-ml.org and it affects more an more apartments in New York City.
Whether or how this will affect us is not clear. Default is not the same as bankruptcy. It is likely Stellar Management is cutting its losses on a deal that is not as profitable as it would like. The "only" problems are the resulting decrease in services, hundreds of tenants ousted at Riverton, and concern about that development's future.
