The landlord who last year bought some of the most run-down buildings in the city, promising to revitalize them, has done just that, but has raised concerns by recently refinancing the properties, taking on an additional $15.5 million in debt.
Steve Finkelstein of Finkelstein Timberger Real Estate said that the refinancing he has arranged with Cantor Fitzgerald helps him cover the approximately $10 million in repairs he's made on the nine Bronx buildings since buying them in April 2011 for about $28 million.
Tenant advocates worry that the new debt total of $45.5 million—$10 million more than the mortgage that forced previous owner, Los Angeles-based Milbank Real Estate, into foreclosure—is unsustainable. They are concerned that such a burden will force Scarsdale, N.Y.-based Mr. Finkelstein to skimp on maintenance and repairs.
Mr. Finkelstein insists that the problem with the 1920's-era buildings, including 2770-2780 Kingsbridge Terrace and 2785-2791 Sedgwick Ave., was never their debt level, but successive owners who failed to take good care of the properties.
"The problem was never the amount of the debt; it was the condition of the buildings and the way they were run," he said, noting that of the 540 apartments, 180 were vacant. "Nobody, I don't care what the mortgage is, can make a profit with 180 empty apartments."
Mr. Finkelstein said since he bought the buildings, he has switched most of them over to gas from oil, installed new hot water heaters, windows and roofs and "spent a fortune" fixing up courtyards and lobbies. Violations on the buildings, which totaled nearly 5,000 when he bought them, are now down to under 1,000. What's more, Mr. Finkelstein promised more will be erased once city inspectors have a chance to get into the buildings to review work that has been done. Six of the buildings that were in the city's Alternative Enforcement Program, reserved for New York's worst properties, have exited the program.
Mr. Finkelstein also reported that he's slashed the number of empty apartments to 12, from 180, which will allow him to make $600,000 on the buildings this year, even with the added debt. Rent rolls bring in about $6 million, he said, and mortgage payments and expenses add up to a little more than $5 million.
"Mr. Finkelstein has made a substantial investment in rehabilitating and vastly improving conditions for the tenants at the former Milbank properties," said a spokesman for the city's Department of Housing Preservation and Development. "Violations have been drastically reduced and all buildings have been discharged from AEP."
Mr. Finkelstein, who has amassed 31 other buildings in the Bronx over a 40-year career in real estate, gained control of the buildings last April, after months of complicated negotiations with tenants, the city and mortgage and deed holders,
He made an agreement with tenants to forgive back rent and cap rent increases and he reached a deal with the city to not only correct violations, but to fix the underlying conditions that were causing the infractions. The buildings were in such bad shape before the sale that former Housing Preservation and Development Commissioner Rafael Cestero said he had "never been more shocked, angered and frustrated" by conditions facing tenants.
In 2007, Milbank miscalculated that it could raise rents to help pay off its $35 million mortgage, and the properties quickly fell into foreclosure. LNR Property, a special loan servicer that took over the buildings via foreclosure on behalf of senior lenders, had been reluctant to take a loss on the loan that was necessary to give a buyer enough room financially to pay for needed repairs. Legal action by tenants and an aggressive campaign for repairs by advocates and elected officials scared off at least one prospective buyer.
Then Mr. Finkelstein came along. Some advocates worried he overpaid, but city officials were cautiously optimistic that his stewardship would bring about positive changes for tenants.
"We were concerned about the purchase price," said Jonathan Levy, an attorney for the tenants. "I don't know that the market has improved very much in the Bronx from when he took over the buildings."
Mr. Finkelstein contends that change has come: "We couldn't be happier with the way it's worked out," he said. "We have nice buildings we're going to keep forever. But the most amazing thing is the tenants are all happy."
With the additional debt burden, however, advocates are concerned that history could be repeating itself. Debt of $90,000 per unit is too much for buildings in the Bronx, they say.
"We've seen this movie before," said Kerri White, co-director of organizing and policy for the Urban Homesteading Assistance Board. "Buildings in these parts of the Bronx just can't handle that amount of debt. Considering the locations and the amount of rent people will pay, there's no way even in good condition how this amount of debt can be supportable."
A spokeswoman for City Council Speaker Christine Quinn, who has advocated for Milbank tenants, said that Ms. Quinn is reviewing the refinancing and its potential effects on tenants and is working with HPD to "ensure the quality of repairs is maintained and that the tenants are protected."
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