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When a Bank Makes a Loan to a Problem Landlord
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Investors Bank is based in New Jersey with a growing presence of loans and branches in NYC and is emerging as one of the larger multifamily lenders in the City, particularly in lower-income neighborhoods. Currently, Investors Bank is undergoing a CRA exam by the FDIC and ANHD has serious concerns about some of its multifamily lending practices.
Investors Bank is based in New Jersey with a growing presence of loans and branches in NYC and is emerging as one of the larger multifamily lenders in the City, particularly in lower-income neighborhoods. Currently, Investors Bank is undergoing a CRA exam by the FDIC and ANHD has serious concerns about some of its multifamily lending practices. The bank recently put millions of dollars into five buildings owned by Joel Israel, who, according to multiple media reports, has made a practice of demolishing occupied apartments as a means of forcing tenants to leave.
As described in an April 24, 2014 NY Times article: In a case that Gov. Andrew M. Cuomo is holding up as an example of “egregious harassment,” New York state and city officials are moving aggressively against a Brooklyn landlord accused of wrecking the kitchens and bathrooms of occupied apartments to drive out longtime tenants.
Officials with the New York City Department of Housing Preservation and Development announced on Wednesday that they had gone to the city’s Housing Court seeking to remove the landlord, Joel Israel, from managing a six-unit, rent-stabilized building in Bushwick, and to have the court appoint an independent administrator for the property.
Earlier this year, Brooklyn Magazine put him among the city’s worst landlords, saying: Apparently, creating ‘hell’ for his tenants is standard operating procedure for the building’s landlord, Joel Israel.
Under the Community Reinvestment Act (CRA), banks are typically evaluated every two to four years on their record of loans, investments, and services that benefit low- and moderate-income people and neighborhoods. Regulators must look at the quality of multifamily loans submitted for community development credit, and not just the quantity. Investors Bank is one such case that deserves particular scrutiny.
While multifamily lending for affordable housing is an essential aspect of a bank’s obligation to meet local credit needs in New York City, bad lending is as damaging as good lending is necessary. We believe that this tenet holds true for all multifamily loans, but is particularly important in low- and moderate-income neighborhoods and in buildings subject to rent-regulation.
Responsibly underwritten multifamily loans must be made to responsible landlords who are committed to maintaining the buildings in good condition and respecting the rights of the tenants. They must be based on actual rental income, and not speculative rents that would only be possible if lower-rent paying tenants were forced to move out and be replaced with higher rent paying tenants; and based on realistic and sustainable management and operating expense budgets.
Loans that do not meet these criteria open the door to a type of discrimination known as “predatory equity,” whereby the loans are based on highly speculative underwriting and have resulted in the widespread harassment and eviction of low-income tenants.
Yet, rather than follow these best practices, we believe that Investors Bank may be supporting predatory equity practices. According to public documents, it appears that the bank has put $8.4 million of debt onto five of Joel Israel’s buildings. Across the 28 units, this represents an average debt of $400,000 per unit. This seems to be well above what such a mortgage could reasonably support without raising rents considerably. By our most conservative estimates, rents would have to be about $2,500 in order to pay off that debt. From conversations with organizers working in similar buildings in the neighborhood, the rents in those buildings are likely closer to $900 to $1,000; tenants paying in this range are more likely to be harassed and displaced.
New York City has already lost thousands of affordable units due to predatory equity lending and cannot afford to lose one more. Given this trend, ANHD urges the regulators at the FDIC to look closely at all multifamily loans in the bank’s portfolio, and particularly any that are being submitted as Community Development loans to ensure that they are providing stable, affordable housing and not having a destructive impact on the tenants or the community.