Dawnay, Day, the British property-to-financials conglomerate, had high hopes when it sank $225 million into 47 rental buildings, made up of 1,100 apartments, in the up-and-coming East Harlem neighborhood of New York in 2007. Its plan was to replace low-income residents in rent-stabilised apartments with affluent ones who would be charged higher rents as the area was gentrified.
But, less than three years later, those hopes are in ruins, as the properties face a foreclosure motion from lenders in the US and administrators in the UK try to unravel the complex financial deals that made the purchase possible.
Guy Naggar and Peter Klimt, the men behind Dawnay, Day and its incursion into New York property, have been able to walk away from their investment. But most of the tenants of the 1,100 apartments are still counting the cost.
Many claim that they have been left in limbo as a new buyer is sought for the buildings. They complain that the homes are not being properly maintained, with rat and bedbug infestations, faulty appliances and continual breakdowns to the hot water and heating systems.
Ann Bragg, 66, a board member of Community Voice Heard, a community group representing tenants, grew up in East Harlem and has lived for 38 years in her three-bedroom apartment, where she brought up her five children.
Although she has great affection for the neighbourhood, Mrs Bragg, a retired postal worker, is frustrated at the state of her home. At night she can hear rats in the walls of the apartment. By day she struggles with a second-hand stove that keeps breaking down, kitchen cabinets that are “getting ready to tumble right off the wall” and the world’s most unreliable elevator. “You get on it every time with a hope and a prayer,” she says.
Last month she was among a group of tenants to stage a protest at the Bank of New York Mellon, demanding that the properties be sold to a “responsible” owner and that tenants be consulted during the sale process.
The bank, although chair of the trust that owns the loan on the apartment buildings, says it has “no connection” with the properties or the original mortgage, which was subsequently securitised.
Mrs Bragg, meanwhile, is scathing about Dawnay, Day. “They didn’t give a damn. They came here with expectations of making big bucks off these properties. I understand that everbody wants to make money, but why did they have to pick on us? Why pick low-income tenants?”
In the event, Dawnay, Day’s decision to pick on low-income tenants proved its undoing. When the recession hit, the company found it could not replace tenants and raise rents quickly enough to cover costs on its mortgage. Collapse and a foreclosure motion ensued.
Tim Dalton, of the Association for Neighborhood and Housing Development (ANHD), a New York non-profit organisation, which has studied the Dawnay, Day investment and others like it, said the company was a prime example of what happened when overleveraged “predatory equity” started to unravel.
“Between 2005 and the first quarter of 2008, there was a tremendous surge of speculative purchases of multiple tenant buildings,” he said.
A report on predatory equity published by the ANHD last month notes that both the private equity funders and the lending institutions should have been aware that “displacement of tenants was a necessary element of their financial model”.
Harvey Fishbein, a court-appointed receiver who is managing the properties until a buyer can be found, acknowledged that some of the apartments needed a considerable amount of work.
“We are doing as much work on as many properties as possible,” he said.
Maia Miranda, a tenant for 23 years, said that although Dawnay, Day was an “atrocious” landlord, it was no worse than the previous owner, Steven Kessner, who was named by The Village Voice as one of the ten worst landlords in New York City in 2006.
She is angry, though, at the way her home has been bought and sold by speculators.
“They weren’t paying the mortgage and look who ends up paying for it? The tenants,” she said.
Her concern now is that a new owner may attempt to carry on where Dawnay, Day left off in seeking to replace low income tenants on stabilised rents with tenants paying full rents. “I’m worried. This is my home. There are so many people in the building like me, who have nowhere else to go.”
Doubled-up bets on property that didn’t come off
The sprawling, heavily indebted property-to- financial services empire of Guy Naggar and Peter Klimt was one of the first British victims of the credit crunch. Dawnay, Day hit the buffers in July 2008 when the collapses of Royal Bank of Scotland and HBOS were still months away and nobody knew Woolworths was on the brink of bankruptcy.
But Mr Naggar and Mr Klimt’s business was doomed from the moment the sub-prime crisis hit America in 2007. The duo had bet heavily on the commercial property market, buying stakes in everything from retail parks to the Wolseley, London’s famous Michelin-starred eaterie. When the property market started to turn in early 2008, the duo doubled up on their exposure to it, borrowing money to prop up the conglomerate’s ailing property businesses such as Starlight Investments and Insureprofit. When the banks stopped lending, Dawnay, Day could no longer meet its margin calls and the writing was on the wall.
By July, Norwich Union, Dawnay, Day’s biggest creditor, had had enough. The insurer, which was owed £650 million, pulled the plug, appointing BDO Stoy Hayward as administrator to parts of the company. Dawnay, Day’s corporate web was so complex that at one time Mr Naggar and Mr Klimt were directors of an incredible 539 individual companies.
Property — particularly trophy assets such as boutique hotels — was a big part of the business, but by the time it collapsed Dawnay, Day was involved with everything from asset management to film production. Some part-owned subsidiaries of the labyrinthine business ditched the Dawnay, Day name and still survive today, but many went down with the parent.
It was a far cry from the glory years. At its height, Dawnay, Day was valued at a few billion pounds and the duo were personally valued at about £235 million each, according to The Sunday Times Rich List.
Mr Naggar was a serious art collector and, with his wife, was patron of the Tate.
Dawnay, Day’s office near Buckingham Palace was adorned with expensive art including Lucian Freud’s 1995 painting of a 20 stone naked woman on a sofa, Benefits Supervisor Sleeping. Mr Naggar sold the painting at the Rockefeller Centre in Manhattan just weeks before Dawnay, Day collapsed, in a desperate last-ditch attempt to fund the business.
Other artworks from the office, which had a high security system to defend against burglars, were sold by the administrato
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