New strategies to preserve existing affordable housing are crucial as the clear majority of Northwest Bronx affordable housing is comprised of privately owned multifamily buildings. This private multifamily housing stock is threatened by an unprecedented rise in sales prices without a corresponding rise in net operating income, cuts to building services and an overburdened renter population.

Much of our work over the past two years has been focused on identifying physically and financially distressed buildings, and developing partnerships with lenders, owners, foundations and the City of New York to improve building conditions. University Neighborhood Housing Program has been working to create the UNHP Multifamily Assistance Center for owners and financial institutions to use as an alternative to foreclosures and as a way to preserve and rehabilitate affordable housing for low-income New Yorkers.

UNHP has forged partnerships around the idea of a Multifamily Assistance Center with the NYC Department of Housing Preservation and Development (HPD), Fannie Mae, Enterprise, FBHC, and numerous financial institutions. Roundtable discussions in September 2004 and November 2005 with leading Bronx lenders have been instrumental in creating a collaborative approach to gauging market conditions, assessing lending practices and developing a common strategy to preserve and improve distressed multifamily housing.

A new research and organizing initiative was developed by UNHP in response to possible foreclosures and deteriorating multifamily building conditions; the UNHP Building Indicator Project (BIP). The BIP tracks the multifamily lending of leading Bronx mortgage lenders and its database consists of more than 2500 buildings. The BIP database is a research and organizing tool that uses violation and lien data to identify properties that warrant further review by the owner and lender. UNHP has been meeting with Bronx lenders to share our research on their portfolios and discuss at-risk properties.

In November and December 2005 Deputy Director Greg Jost provided training to 50 participants from financial institutions and community groups to develop their own research for their neighborhoods at a hands-on training to identify problem buildings in New York City. He has also been working closely with a number of organizing groups to identify problem properties throughout the City.

University Neighborhod Housing Program Multifamily Assistance Center Proposal

Background
Two reports released by University Neighborhood Housing Program (UNHP), A Real Estate Bubble in the Bronx? in 2003 and Rising Values in a Highly Subsidized Market in 2005, raise concerns about the impact of sharply increased prices of apartment buildings in Bronx neighborhoods. Conventional banks and financial institutions have provided much of the financing. Despite loan to value ratios of between 70-75%, UNHP predicts that the sharp increase in operating costs will make it difficult for some properties to stay current on tax and mortgage payments while maintaining the building in good repair and maintaining appropriate services. The impact may be more clearly felt in buildings recently financed with 5 year balloon or adjustable rate mortgages if interest rates rise significantly in the next few years.

Many Bronx building suffered when Freddie Mac foreclosed on a large number of properties in the late ‘80s and early ‘90s. A recently published piece in the Bronx County Historical Journal by Margaret Gorarke recalls the major financial losses Freddie Mac took in the early ‘90s due to over financing, causing them to close down their multi-family lending program in 1990. The process of foreclosure was financially costly to Freddie Mac, but it was very costly in less easily quantifiable ways to the tenants of the buildings and to the neighborhoods in which the buildings were located.

Justification for a Multifamily Assistance Center
While not anticipating the volume of foreclosures seen over a decade ago, UNHP expects that there will be a number of multi-family buildings in financial and physical distress in the coming months and years. The typical path for a building confronting financial difficulties starts with a deterioration in services and delays in repairs. If the problems in a specific building are bad enough, they can spread to other buildings on the block. If a foreclosure is initiated, the installation of a receiver precedes a lengthy adjustment period in the building where rent collections are complicated and services deteriorate further. If the owner is well represented legally, the foreclosure process can extend for well more than a year. Developing an alternative to the foreclosure process would be beneficial for all parties involved and the neighborhood in general.

Proposal
UNHP is proposing that a Multi-Family Assistance Center be created to serve the Bronx as a pilot project that could be expanded to the rest of the City in the future. The Center could be utilized by banks/lenders with properties that are in physical and/or financial difficulty, owners who are experiencing difficulty, and community organizations that have identified problem properties and the City of New York’s Department of Housing Preservation and Development. Utilization of the Center is intended to move troubled properties quickly to new ownership or ensure that critical rehabilitation money finds its way to the troubled property, thus avoiding further deterioration of services and/or building conditions while also avoiding lengthy and expensive legal procedures that could include foreclosure.

The Multi-Family Assistance Center would initially be housed within UNHP.

Referral sources would develop criteria that would trigger timely referral of buildings to the Center for assistance. Criteria would include the following:

a) Physical inspection by the bank that reveals serious service and repair problems;
b) Code enforcement violations or emergency repair work placed by the City of New York; and/or
c) Delays in payment of mortgage, escrows, insurance, tax or water and sewer bills.

Tools needed to make the center viable

a) Affordable acquisition funds-- ability to access PLP funds with an increase in the per unit caps on acquisition under the program;
b) Rehabilitation financing including various city rehabilitation programs;
c) List of pre-qualified for profit and non-profit purchasers with geographic targeting; and
d) Operations funding for staff to manage the Clearinghouse.

Protocol for Mortgage Holders of Problem Buildings

The following protocol applies to multifamily buildings (six or more units) that are either at-risk of foreclosure due to financial troubles or are in serious disrepair and suffering from a lack of services, and shall be referred to from here on as problem buildings.

Problem buildings may come to the attention of the mortgage holder in a number of ways. These means may include the mortgage holder being contacted by a tenant association in the building, through the lender’s own annual inspection, or through a process of analyzing indicators such as in University Neighborhood Housing Program’s (UNHP) Building Indicator Project (BIP) database, all of which would be followed by an inspection of the property to confirm whether or not there are serious issues with the building. In the case of the BIP database, HPD violation data and City lien information are factored together weighing recent and more serious violations more heavily. A high BIP score (over 800) indicates that there may be physical, maintenance or financial troubles with a building and that a closer analysis and inspection is necessary. A lender could also undertake the task of monitoring the number of violations on properties in their portfolio on their own and develop their own criteria to trigger a detailed inspection of a property.

If the initial inspection of the building’s exterior and common areas reveals serious problems with a building’s condition, then a second, more detailed inspection, would be in order. The more detailed inspection would look at a number of units in the building. One possible method for this would be to ask the owner/manager if there are any units they do not want the bank inspector to look at, and then door knock a sample of other units. If the owner/manager excludes a high percentage of the units in the building, it would be an indication that there may be major issues with many units in the building.

After completing both inspections, the bank would then contact the owner to begin making necessary repairs in the building (based on the good repair clause in the mortgage). If, for some reason, the mortgage holder and the tenants/community group disagree on the condition, HPD’s Division of Anti-Abandonment (DAA) has agreed to inspect properties brought to their attention by UNHP and offer their analysis.

If the owner of the property agrees to make the repairs and increase services as necessary, the progress on the building would be followed up by both the mortgage holder and the tenant/community group.

If the owner of the property does not agree to make necessary repairs or fails to follow through on his/her promises to improve building conditions, then the mortgage holder has the ability to apply additional pressure on the owner when the time comes for him/her to refinance the property. One option would be to escrow for repairs or to include an escalator in the new mortgage where the interest rate would increase if the building was not in suitable condition.

As a last resort, the mortgage holder could foreclose on the property based on the good repair clause.