Rent-Regulated Buildings May End Up as Foreclosed Condos

Hundreds of apartment buildings in New York City that are rent-regulated are facing the danger of becoming repossessed condos. Many of these buildings were purchased at the peak of the real estate market.

According to industry analysts, optimistic underwriting had allowed investors who are backed with private equity, to purchase rental buildings at inflated prices under highly leveraged deals. Analysts said that in many cases, landlords have unrealistic expectations of increasing rents and about 70,000 rental units are facing the danger of foreclosures.

Industry analysts said that the current residential market situation is pressuring city government officials to look for ways to stem the tide of foreclosed apartment buildings that has been threatening neighborhoods in the city since the landlord abandonments in the 1970s.

Banking experts said that the problem facing many condominium landlords is a looming disaster, adding that it is not only the renters who are suffering but also the buildings which go into deterioration, as well as neighborhoods.

Market data showed that there are 3,200 units in several affordable housing complexes that are in some kind of foreclosure proceedings or have been foreclosed. An analysis by the Urban Homesteading Assistance Board showed that 11,100 properties are in danger of going into foreclosure.

The advocacy group pointed out several reasons why many rental buildings are in danger of foreclosure, including the high debt burden and depletion of reserves. Additionally, the group noted that about 55,000 units are overleveraged and in danger of foreclosures as their loans are nearing maturity.

Industry analysts said that the estimated debt burden on city properties reached $6 billion. However, it is not sure what portion of the total amount is backed by the income of rental buildings.

Among distressed properties in foreclosure are 10 buildings in Bronx consisting of 550 units purchased in 2007 by Milbank Real Estate.

Meanwhile, results of the Association for Neighborhood and Housing Development’s study showed that owners of 10 multifamily affordable houses in New York City are generating an average income of 55 centavos for each dollar of debt.

On the other hand, Deutsche Bank predicted that refinancing crisis in the commercial real estate market will peak to an unprecedented level by 2013 as mortgage loans taken out between 2005 and 2007 mature and will not qualify for refinancing.

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