The foreclosures of Stuyvesant Town and Peter Cooper Village earlier this month were just the beginning. Banks are likely to seize many more apartment buildings in New York City this year, according Benjamin Dulchin, executive director of the Association for Neighborhood and Housing Development, an organization of local nonprofit groups fighting to preserve New York's little remaining affordable housing.

"About 100,000 units of affordable housing in this city were grossly over-leveraged from 2005 to 2008 and are likely to have severe financial problems," says Dulchin.
In a wide ranging interview with HousingWatch, Dulchin discussed his concern that these buildings might go through the foreclosure process only to be purchased at auction by new speculators. These "over-leveraged" buildings now carry more debt that the price they could earn in a sale. For many of these properties, the income from rents can't cover the landlord's mortgage payments - much less justify a high sale price.

Dulchin's group is now tracking 10 large portfolios of over-leveraged apartment buildings in New York City. On average, the rental income from these buildings only covers just 57 cents on the dollar of the mortgage payments. For now, the rest of the money to pay the mortgages is coming from building reserve funds, but that can't last for long.

These owners paid too much for their buildings during the real estate boom, says Dulchin. As with Stuy Town, the landlords planned to raise the rent, even though the 100,000 apartments tracked by Dulchin's organization are covered by New York's rent stabilization laws.

"The owners' strategy of pushing out rent stabilized tenants has resulted in the harrassment of working class tenant throughout the city," says Dulchin, left. He says that many tenants were falsely accused of breaking the terms of their leases by landlords eager to evict them. "The techniques of harassment are built into the predatory equity business model," he says.

A case in point: On Thursday, New York state Attorney General Andrew Cuomo said reached a $1 million settlement with Vantage Properties, a major New York City landlord, which was charged with harassing tenants in rent-regulated apartments in an attempt to force them out and hike up rents.

So far, only a few of these over-leveraged properties have been seized by banks in foreclosure actions, including Riverton, a complex in northern Manhattan, Stuy Town and Peter Cooper Village. However, other properties are likely to follow, including a portfolio of 20,000 apartments in Upper Manhattan owned by Joel Wiener's Pinnacle Group, says Dulchin. Pinnacle's large portfolio of apartments on 109th St. near Columbia University is already in serious trouble, he said.

As foreclosure approached for the 100,000 debt-ridden apartments, Dulchin worries about what kind of buyers might emerge to bid on the building in foreclosure auctions.

"The concern is that these buildings will be bought again by speculators," says Dulchin. Any price higher than what the current rents can support implies that the new buyer plans to raise the rents, he says, leading to a new cycle of harassment for the tenants and potentially another foreclosure for the property sometime in the future.

And New York needs that like a hole in the head.