When investors paid exorbitant prices to buy affordable-rent apartment complexes during the city’s real estate boom, tenants and housing advocates suspected the new owners would have to raise rents, kick out rent-stabilized tenants or sharply curtail services in order to make their mortgage payments.

But as the economic crisis wears on, concerns about whether tenants could resist those feared evictions and service cuts are giving way to deeper worries about what happens when tenants win or avoid those fights. If owners can’t cut costs or raise revenue, the combination of massive mortgages and modest rent rolls makes foreclosure a real and present threat.

Preliminary numbers from a forthcoming report by the Association for Neighborhood and Housing Development (ANHD)—which scrutinizes the underwriting data of 10 private equity firms that made these high-priced investments—paint a dark picture for the future of affordable housing, suggesting a possible landslide of foreclosures.

Using the term “predatory equity” to refer to firms that bought buildings with modest rent rolls for high prices, a draft of the report states: “As of June 2009, a remarkable 10 out of 10 predatory equity loans that we are closely tracking were either on a finance industry watch list as in danger of default, in workout with a finance industry loan servicer for being in danger of default, or actually in default.”

Hard math

ANHD’s draft report derived its findings from service reports written about loans that were packaged into commercial mortgage-backed securities. These loans cover about 30 percent of the 100,000 units of affordable housing in the city estimated to have been purchased by private equity-backed developers in the past four years.

As of December 2008, the report puts the average debt service coverage ratio of the private equity buildings it examined at 55 cents for each dollar of debt owed. No amount of revenue generated through tenant harassment on the part of owners or lack of building maintenance could make up the difference, says Benjamin Dulchin, the executive director of ANHD.

“The underwriting was so spurious and so frothy that even with the harassment the buildings are grossly overleveraged,” he says. “This is all really stressed financing. And when a building goes into foreclosure there is very often a prolonged period of lack of physical attention to the building. These things are so concentrated in these neighborhoods that it could have quite a significant impact.”

The owners named by ANHD often deny that they are trying to drive out low-income tenants or make service cuts. They also usually insist that they are financially sound.

The specter of mass foreclosures of multifamily buildings became palpable, however, on October 22 when New York State’s highest court ruled that Tishman Speyer Properties had illegally taken apartments out of New York City’s rent stabilization programs at Peter Cooper Village and Stuyvesant Town, two giant complexes in Manhattan comprising 11,227 apartments. In 2006, Tishman Speyer spent $5.4 billion for the two complexes in a deal that boggled housing advocates throughout the city.

With the ruling, Tishman Speyer lost its only tool for the massive rent hike it needed to cover the cost of the biggest real estate deal in American history. On November 8, Tishman Speyer released a statement reading: “We [have] requested that the joint venture’s loan be moved to special servicer in order to facilitate negotiations on a restructuring of the debt load.”

But the problem of multiunit buildings in financial trouble is not isolated to Stuy Town or Peter Cooper. A number of other private equity properties have already gone into foreclosure or are fruitlessly trying to stave it off. The Urban Homesteading Assistance Board (UHAB), a housing advocacy group, estimates that 4,200 units of affordable housing are currently in foreclosure citywide as a direct result of over-leveraging. The non-profit says that 11,000 units wobble on the brink.

In the Bronx, the Ocelot Portfolio became a poster child for the dangers of over-leveraging when the buildings’ loans, having been sold to Fannie Mae, were found not to meet the federally chartered mortgage purchaser’s underwriting standards. In March, the loans went into default. Since then, Fannie Mae has been administering the properties.

In Harlem, the Riverton Houses complex may be facing the same fate. The loan for the 1,230-unit complex, owned by Larry Gluck and Stellar Management, is already in default and has only 29 cents to pay for every dollar of debt owed, according to ANHD. ANHD also says that Pinnacle Group’s 1,083-unit Manhattan Apartment Portfolio has only 35 cents to pay for each dollar of debt. Gluck and Pinnacle did not reply to requests for comment.

Less is known about other private equity firms, whose financial arrangements require less disclosure. But housing advocates have red-flagged some properties solely because of their high purchase prices.

In 2005, for example, four former Mitchell-Lama apartment complexes in Harlem and one on Roosevelt Island, then owned by Jerome Belson Associates, sold for almost $300 million to Cammeby’s International Ltd. In May of 2007, the portfolio was bought for $938 million by Putnam Holding Company L.L.C., owned by the real estate management firm Urban American.

ANHD makes only passing mention of Urban American in its report. And there is no mention of the Putnam Portfolio. But Joyce Mincheff, the tenant association president at the Roosevelt Landings building on Roosevelt Island, still struggles to make sense of her building’s ballooning price?or how it will remain solvent.

“Urban American keeps saying it’s got oodles and oodles of money,” Mincheff says. But she doesn’t buy it. “If my building goes into default we’re talking disrepair and deplorable living conditions for 700 subsidized families.”

Douglas Eisenberg, Urban American’s chief operating officer, says he is fed up with the persistent speculation about his company’s financial condition.

“As to the unfounded and political statements alleging problems with finances, enough is enough,” Eisenberg wrote in a statement. “Urban American is in solid shape and actually stands out because of its fiscal responsibility. Between the Putnam and Roosevelt residences, we have invested $25 million to make vast improvements to the buildings in the very short time we have owned them.”

No easy choices

Indeed, not every private equity apartment purchase is destined for crisis. But in those situations where landlords are overleveraged and try to salvage their deals through evictions, rent hikes or service cuts, housing advocates say tenants face a catch-22. Not fighting back will only lead to more neglect of the buildings and of the tenants. Yet tenant resistance may only exacerbate the financial difficulties of the housing companies, pushing them further towards foreclosure.

“In some ways it’s a result of tenants speaking for themselves,” said Ericka Stallings of the New York Immigration Coalition, a non-profit that acts as a hub for other groups working on housing issues. “These buildings would only be financially viable if [owners] could kick out the number of people that they wanted to kick out. And when those people resisted, and were able to stay in their homes, those companies didn’t have enough money to both pay their debt service and maintain the buildings.”

In one recent tussle between tenants and landlord, the Queens Vantage Tenants Council (QVTC) claims to have wrested a series of concessions from Vantage Properties, a firm that owns upwards of 80 buildings in Queens.

According to the ANHD report, as of December 2008, Vantage’s Queens properties had only 69 cents to pay for every dollar of debt service owed. The report also states that in November of 2008 the buildings had been placed on a default watch list by its loan servicer, and that only 26 percent of the portfolio’s debt service reserve funds remain.

On October 13, Neil Rubler, Vantage’s president, met with the QVTC. The council issued a list of 19 demands, which broadly sought better communication between Vantage and its tenants. Specific examples included issuing tracking numbers on repair and billing matters, that Vantage get rid of a 1-888 complaint number tenants considered a black hole and that the firm authorize superintendents in its buildings to take complaints and requests for repairs

On November 2, Vantage issued a letter with a list of policy changes shortly before a press conference the QVTC held. Though Vantage claims the changes were not made in response to the tenants’ demands, the company announced that it would offer extended office hours, including Saturdays. It also promised to create a customer service website, start itemizing rent bills, add personnel to its hotline call center, freeze late fees, improve efforts to notify tenants about major capital improvements and explore “the possibility of having building staff accept maintenance requests.”

Earlier, on September 3, the Department of Housing Preservation & Development (HPD) rescinded its previous decision that Vantage not be required to have superintendents in 14 of its Queens buildings. At press time, Vantage tenants were still awaiting the arrival of the supers in those buildings.

“In a perfect world we would have gotten all our demands,” said John Klukas, a QVTC board member. “What we’re asking for is just that they make it so that people can live, and pay their rent, and get repairs and have supers. Pretty basic stuff.”

As to ANHD’s financial estimation of Vantage’s Queens properties, Klukas said: “We’re not trying to push them out of business.” But, he added, “The fact of the matter is that the business practices and the plan that they used to acquire these buildings were egregious.”

Davidson Goldin, Vantage’s spokesman, said of the company’s relationship with tenants: “Vantage appreciates and benefits from ongoing opportunities to communicate with tenants, and based on those conversations to adjust customer service to best serve residents.” As to Vantage’s financial condition, Goldin said: “Vantage partnerships are well-capitalized, committed for the long-term and positioned to continue providing residents with high-quality customer service.”

Tenants of the buildings in Urban American’s Putnam Portfolio are also pressing their landlord for changes. In September, a coalition of the Putnam buildings’ tenants, various housing rights advocates and local elected officials won a fight to put on hold plans to sub-meter heating in the Putnam and Roosevelt buildings?a practice that, when sample bills were generated to test the procedure, sometimes resulted in monthly heating bills as high as $1,000. The New York State Public Service Commission ordered that Urban American suspend plans to sub-meter the buildings and install thermostats in all major living or sleeping spaces.

Though a major victory for the tenants, the cost-prohibitive ruling only added to the doubts some of them harbor about the portfolio’s solvency. Though he did not address the sub-metering decision directly, Douglas Eisenberg wrote: “We take residents’ concerns seriously and will meet with any to address problems they may have in their apartments.”

The foreclosure fix?

Urban American contends that its Putnam portfolio is financially viable. But with 100,000 units of affordable housing tied up in private equity deals, many housing groups and tenants fear a new era of abandonment for the city.

Joe Shuldiner, executive director of the Yonkers Housing Authority and the former general manager of the New York City Housing Authority, says the current concerns mirror those of earlier boom-and-bust cycles, although he doubts that New York will return to the level of abandonment that characterized the 1970s and early 1980s. He also cautions against gross generalizations. “You have to distinguish among na