Welcome capital? Predators? Or just inept investors?

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Joe Tahl acknowledges that there’s such a thing as predatory equity. He just asserts he’s not an example of it.

Tahl insists that he evaluates real estate investments based on comparing the price he must pay for a building with the price he would pay today to replace what’s there. So, he says, paying an average of $100 per square foot for his Harlem portfolio is a good deal, because the replacement cost would most likely be five times higher.

He says that the people he considers predators often pay twice as much per square foot as he has. Those owners, he notes, have to finagle more money from the tenants if they are to bring in profits and pay off their debt.

“There’s a general concern that they have to work the rent rolls,” he says. “That’s a valid point. Some people who have overpaid or overborrowed are screwed.”

Now, local officials have started to scrutinize the practice. Last Wednesday, a group of city politicos, including U.S. Sen. Charles Schumer and state Sen. Jose M. Serrano, gathered in front of 1520 Sedgwick Ave. in the Bronx (the so-called “birthplace of hip-hop,” where DJ Kool Herc used to live), to protest a proposal by the current owner to remove the building from the Mitchell-Lama program and sell it to developer Mark Karasick for $9 million. But the remedies they proposed seemed weak. Schumer—who termed predatory equity “the New York City version of the subprime crisis”—called for possible changes in the Community Reinvestment Act to rein in the banks that provide mortgages for such deals. In the end, however, he told WCBS-TV: “Our only resort is to go to the lenders and say, ‘Please, don’t do this.'”

While Tahl-Propp has not paid as much for its buildings as some who have been accused of engaging in predatory equity (Putnam Holding Company, LLC recently spent $237,000 per unit for four Manhattan properties and one on Roosevelt Island—see Public Money Helps Fund Expensive Housing Flip, City Limits Weekly #606, Sept. 24, 2007), it has also spent more than several others. For instance, Tahl-Propp paid $170,000 per apartment for 1845-1851 Adam Clayton Powell Blvd. and $180,000 per unit for the subsidized Deschler Apartments just up the block at 1871 Seventh Avenue. By contrast, Vantage Properties, which has been accused of predatory equity in its purchase of the 1,802-unit Delano Village/Savoy Park complex (see “When Wall Street Comes to 139th St., Tenants Worry,” City Limits, Sept. 10, 2007), spent just over $97,000 per unit. (To be fair, Tahl has a point that price per unit may not be a fair measurement of comparative value: apartments vary in size, configuration and conditions, and the cost may also be impacted by other considerations such as street location and proximity to mass transit.)

Groups like the Association for Neighborhood Housing and Development have documented many of the hardball tactics taken by some of these new owners as they seek to raise rents and remove lower-income tenants from their buildings.

Tahl insists that his organization doesn’t operate that way. It has renewed HUD contracts for all the subsidized buildings it owns—though they are seeking to go through what’s called a “mark up to market” process, in which HUD will recalibrate its subsidies to pay him more in rent. He adds that he has never passed along the cost of making capital improvements to the tenants, and asserts that he has never taken a tenant to court except for “non-payment of rent or some other egregious violation.”

“We’re pretty comfortable with what we do, which is primarily affordable housing,” he says, adding that other owners “manage their buildings much more aggressively.” In fact, the per-unit cost of UPACA 7 comes out to $59,700 per unit – which looks cheap compared to the prices above. Even the 101-unit building at 1520 Sedgwick yields a cost per unit of $89,100.

But local organizers argue that Tahl-Propp is predatory because it has paid far more than the rents can support and is seeking to increase income from most of its buildings. “They face extreme, extreme pressures to make a profit,” says Dina Levy, director of organizing and policy at the Urban Homesteading Assistance Board (which is City Limits’ landlord), who is working with a number of Tahl-Propp’s buildings. At one meeting with state regulators, she says, Tahl stated that he’s not content with a 6 percent return on his buildings, and would find ways to raise his profits. Says Levy: “Everything is fungible: real estate is real estate is real estate, and all buildings should make huge profits. This is the exact definition of predatory equity. Every piece of tangible evidence suggests that they’re not good guys and they don’t care about affordable housing.”

– Robert Neuwirth

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