Apartment Foreclosures: Will Yours Be Next?

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This week The New York Times chronicled the hubris of Dawnay Day, a high-flying UK real estate investment firm that swooped into the U.S. with big plans to turn shabby apartment buildings into upscale pads with rents to match. (The piece is a swan song for Times real estate reporter Christine Haughney, who was just laid off.)

Dawnay Day is now in tatters, its principals' yachts and art collections in the process of liquidation. The firm spent $225 million on 47 buildings containing fewer than 1,200 apartments, mostly in New York City's East Harlem. Not that the company put up much money of its own, though -- Morgan Stanley raised most of it from mortgage-backed securities investors, represented by Bank of New York Mellon (whose headquarters are pictured). This fall, the investment trust filed for foreclosure, less than three years after Dawnay Day bought the buildings. Tenants in the building complain their worst of both worlds – crummy conditions, but fees piled on to their rent bills for repairs.

If you rent in an apartment building, this fate, alas, may be yours too. More than 100,000 apartments in New York City alone were bought in recent years by landlords looking to significantly jack up rents, according to a recent report.

And many of them are in the same boat as the Dawnay Day buildings in East Harlem: landlords finding that their take from rents is falling far short of their mortgage bills, and heading toward foreclosure. Stuyvesant Town and Peter Cooper Village are just the most well known, with the biggest (more than $5 billion) unpaid debt.

This crisis reaches far beyond New York City. In San Francisco, a family went on a billion-dollar apartment-buying spree. Most of its buildings have been repossessed by banks. Sources tell me that as many as 1 million apartments nationally are heading for default on their mortgages. In some cases their landlords aren't bringing in enough rent to cover their exorbitant mortgage bills. In others their mortgages are expiring and they can't get refinancing because the properties are now worth less than the debt on them. Federal banking regulators are now letting lenders "extend and pretend" when landlords can't qualify for mortgage refinancings, but more and more are ending up like Dawnay Day and Tishman Speyer, the owner of Stuy Town. When the money's not coming in, "pretend" is not an option.

Should you wake up to discover that your new landlord is a bank receiver, don't despair. It could be your chance to win better conditions and rents. Just take a cue from New York tenants who've been through it already – band together and organize.
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