As the economy shrinks and the real estate markets even in mighty New York City begin to contract, worries now are turning to the stability of private property management companies that have been buying up large sections of the city’s rent−regulated housing stock in Queens and elsewhere to make a profit for investors.
One of those companies has acquired dozens of apartment buildings in Queens, where its 2006 investments appear to be solid.
Vantage Properties, a Manhattan−based company with units in Harlem, Washington Heights and many Queens neighborhoods, is struggling to keep up with the rates of return it promised investors from its Hamilton Heights complex, according to nonprofit, low−cost housing advocate the Association for Neighborhood and Housing Development.
The outlook for its 2008 purchase of approximately 2,000 dwelling units from notorious Queens landlord Nicholas Haros in February 2008 is not known.
The Esquire Portfolio, which describes Vantage’s Hamilton Heights complex in upper Manhattan, has been placed on a default watch list by its loan servicer, the association reported.
Vantage was formed in 2006 by a group of private investors to purchase and renovate apartment buildings. Like other private equity−backed firms, its rate of return must compete with other private equity funds on Wall Street.
Many of Vantage’s Queens buildings are not in financial jeopardy, however. The $250 million in loans the company sought to acquire 31 buildings in 11 of the borough’s neighborhoods in 2006 were evidently negotiated under less stringent terms.
“His earliest deal ... is doing quite well because he paid a reasonable amount for it,” said Benjamin Dulchin, deputy director of the housing advocacy group, referring to Vantage President Neil Rubler.
Dulchin had no information on the apartment buildings Vantage bought from Haros because the loans in that deal were not securitized, which means no Securities and Exchange Commission documents are publicly available on the deal.
Rubler played down suggestions that Vantage faces tough financial times ahead and said his company is not structured around achieving a set rate of return in early years of an investment.
“We own and manage buildings over a long time horizon and partner with firms who share our patient approach,” he said in an e−mail. “As such, we are much more immune to the ups and downs of the overall economy than other firms, and our Queens portfolio is no exception.”
A Securities and Exchange Commission filing for Vantage’s Broadway Portfolio in Manhattan said the company planned to renovate apartments and raise rents to market levels as old tenants leave, noting “the borrower anticipates to recapture approximately 20 percent to 30 percent of the units by year end 2008.”
When Vantage bought its so−called Queens Multi−Family Portfolio in 2006, the average rent in the buildings was $923. The company’s available rentals in Queens currently range between $1,275 for a one−bedroom apartment in Hollis to $2,400 a month for a two−bedroom unit in Rego Park, according to its Web site.
The ratio of debt service to rent revenue per month for Vantage’s Queens Multi−Family Portfolio was 67.8 percent, compared with 96.4 percent for the Esquire Portfolio, according to the report. In loan documents, Vantage projected an increase of 14.8 percent in net operating revenues for its Queens Multi−Family Portfolio compared with an increase of 256 percent for the Esquire Portfolio, the report said.
A report issued by Dulchin’s group warned that as many as 54,000 apartments may be in danger of default throughout the city due to predatory equity loans, likening the situation to the subprime crisis that has stricken private homeowners throughout the country.
An examination of 10 of the portfolios of private equity firms showed interest−only loans that ballooned after as little as five to seven years.
The companies pledge to pay back the loans by drastically increasing rent revenues, Dulchin said. Housing advocates have warned this means forcing rent−controlled and rent−stabilized tenants out of their longtime apartments.
“Just look at what they paid for these buildings and do the math,” said Rob McCreanor, director of the Catholic Migration Project of the Brooklyn Diocese, which includes Queens. “You can’t pay back those mortgages unless you raise those rents dramatically, and the only way you do that in rent−regulated buildings is by kicking tenants out.”
Reach reporter Jeremy Walsh by e−mail at jwalsh@tim
©2008 Community News Group
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