Tenants Are Fighting to Influence the Bank That Funds Their Landlords

Tenants in buildings with landlords that took out loans from the failed Signature Bank are demanding a say when the government sells off those loans this summer. For people in buildings with deteriorating conditions, many of whom have long accused Signature of being harmful with its lending, it’s a rare opportunity to push for repairs and stronger regulation of their landlords.   

Esther Acosta has lived in her current apartment at 638 160th Street in Washington Heights for over 10 years. When Hurricane Ida struck in 2021, a piece of the ceiling collapsed. There are still cracks, and water slowly leaks in when it rains, causing mold to grow, she said. 

The building was owned by Sugar Hill Capital Partners, an uptown real estate firm that spent hundreds of millions of dollars in the late 2010s buying up multifamily apartment buildings. But Sugar Hill, which had purchased the buildings prior to statewide rent reforms in 2019 that made it harder to deregulate apartments, was reportedly falling behind mortgage payments in some of its buildings in 2022. 

In an email, Sugar Hill Capital managing partner Margaret Grossman said that she was not aware of cracks or mold beyond wear and tear. The building had facade issues that predated Hurricane Ida that caused interior leaks that it addressed during its ownership, she said. Grossman said that the building was “operationally distressed” when Sugar Hill purchased it, but because of 2019 reforms that made it harder to deregulate or raise rents on rent regulated units, “we were unable to execute our planned business plan at the building” because they would not be able to recoup money for repairs. Grossman said Sugar Hill spent six figures and remediated more than 200 pre-existing building violations.

In January, Sugar Hill sold Acosta’s building to a new landlord, Tyhum LLC. Acosta and other tenants in her building have been on a rent strike for months. But rather than focusing all their energy on the new landlord, Acosta and a group of tenants who have organized under the banner of the Upper Manhattan Tenants Union are taking their concerns to the federal government. 

That’s because the bank that lent Sugar Hill the loan, Signature, failed and was taken over by the Federal Deposit Insurance Corporation (FDIC) in March amid a banking crisis that saw several U.S. banks fail and enter federal receivership. As the FDIC prepares to sell off Signature’s assets, including its commercial real estate loans, tenants are hoping for a seat at the table. 

They assert that Signature Bank was irresponsible when it lent loans to corporate landlords, which they say can only pay back their loans by deregulating apartments and converting them to market rate, a point that tenant activists have been making about Signature for years. (Grossman said it is “categorically not true” that Sugar Hill couldn’t pay the mortgage on Acosta’s building when it took out a loan from Signature.)

Tenants are asking the FDIC to view what they say are the poor condition of their apartments and want influence in the decision-making process when the FDIC makes its sale. They want the new loan servicer to be more accountable for the behavior of its borrowers and to assure that they invest in the maintenance of units rather than allowing them to deteriorate. 

The Upper Manhattan Tenants Union organizes across a portfolio of buildings that are either currently or formerly owned by Sugar Hill capital. Each building within the larger tenant union has its own tenant association and has been encouraged to send letters detailing the conditions of units in their buildings. The entire Tenant Union also plans to send a joint letter to the FDIC requesting a say in the sale of their loans and the terms of any agreement between the FDIC and a new loan purchaser or borrower.

The group has been in touch with the office of Congressman Adriano Espaillat, whose district includes Harlem and Washington Heights, who they said is helping to coordinate a meeting between tenants and the FDIC. Congressman Espaillat’s office did not return a request for comment from Motherboard.

Adam Blazej is the co-founder of Upper Manhattan Tenants Union His building is still owned by Sugar Hill Capital with a mortgage serviced by Signature Bank. He says the tenant union’s demands are, at minimum, “asking that the terms of the mortgages be written in such a way that they don't allow the current or new owner to continue their harmful practices” and to provide necessary repairs.

Blazej said tenants also want to have tenant-controlled housing, although this would likely require a nonprofit with enough cash to buy the building and turn leadership to tenants.

While his building is still owned by Sugar Hill, Blazej doesn’t feel that conditions would necessarily improve if it were sold to someone else, as he’s seen what tenants have experienced under new ownership. “Everyone I talked to said they didn't think it could get worse. It's gotten worse,” he said.  “I don't want them to sell my building to some other vulture or slumlord,” he said.

Upper Manhattan Tenants Union is not the only tenant group organizing to have a say in the Signature sale. The nonprofit Association of Neighborhood & Housing Development (ANHD) is  also helping tenant groups across the city impacted by the Signature loan sale to draft letters to the FDIC. It is also working on its own letter to the FDIC on behalf of its member groups.

“When the collapse happened, I reached out to the FDIC. I want to ensure whatever the process is, the voices of the tenants don't get left out,” said Will Depoo, senior campaign organizer at ANHD.

ANHD has been organizing to get Signature to reform its lending practices for years, and in 2018 tenants working with ANHD were able to get the bank to agree to set of best practices, including better vetting of its borrowers. which they say the bank did not follow through on. Depoo said that the FDIC has confirmed that they have read letters from tenants about the Signature Bank loan sale.

“The last time I heard from them, they did mention they are taking notice of the letters,” Depoo said. “I don't know what exactly they're going to do with it.”

When Motherboard reached out to the FDIC about whether they’re able to change the terms of Signature’s mortgages or mandate repairs, a spokesperson deferred to a press release that did not address these questions and said they had no additional information.

In its press release regarding the Signature sale, the federal agency said, “The FDIC has a statutory obligation, among other factors, to maximize the preservation of the availability and affordability of residential real property for low– and moderate–income individuals.” The agency said it is reviewing commercial real estate loans for rent stabilized multifamily housing. “For this portion of the portfolio, the FDIC plans to reach out to state and local government agencies, as well as community–based organizations, to inform them of the FDIC’s efforts and to seek their input as the FDIC develops its marketing and disposition strategy,” the release says.

Colin Kent-Daggett, community organizer with St. Nicks Alliance, a nonprofit community development organization, said he has been organizing letter-writing campaigns to the FDIC with a group of apartment buildings that have Signature Bank mortgages.

Some of the buildings are in Bushwick and are owned by Ink Property Group, a company that was sued by the state Attorney General last August for violating the law as it deregulated units. The attorney general also accused the company of lying on its loan application by claiming the buildings it purchased had more tenants and higher rents to reassure the bank of its profitability. (As the result of the settlement, Ink Property was ordered to pay $1.75 million to a state affordable housing fund and $400,000 directly to tenants; those who lived in hazardous conditions created by construction received $2,500 each.)

Kent-Daggett said that there’s hope among tenants that the Signature sale could lead to reforms of some of the industry’s lending practices. “I think the tenants I've been working with have been really excited about the chance to have a say in that process,” he said.

In a letter to the FDIC shared with Motherboard, the Bushwick-based 308 Covert Street Tenant Association, which is organizing with St. Nicks Alliance, requested to be “included in discussions about the future of the loan on our building” including the terms of any agreement between the FDIC and the borrower, Ink Property Group.

The tenants wrote that, after Ink Property purchased the building for $1.1 million in 2015 and took out a loan from Signature, the landlords did not use the funds for maintenance, instead engaging in the tenant harassment and buyouts detailed in the attorney general’s lawsuit. “Only two long-term tenants remained, and it took years for Ink to renovate and re-rent the other apartments. In the meantime the units sat empty and filled with garbage, and we eventually discovered that the debris once filling the apartments had simply been stuffed between the floors of the building during construction when a bathroom ceiling collapsed into an occupied,” the tenants wrote. 

When Motherboard reached Ink Property Group’s offices for comment by phone, an employee immediately hung up.

The tenants wrote that the lack of repairs in their building have persisted even after the attorney general’s settlement, and invited FDIC officials to their buildings to view the ongoing problems first-hand.

Another group of buildings with Signature loans that St. Nicks is working with are owned by Watermark Capital. Tenants in these buildings have organized under the name Full Time Tenant Union, named after the property manager that Watermark uses for its buildings, which are all owned by subsidiary LLCs. According to Matt, a member of the tenant union who did not want his last name published out of fear of retaliation, Watermark purchased his converted commercial building on Stockholm Street in Bushwick. There have been ongoing gas and water leaks, sewage and plumbing backups, Matt said. His building has 24 open violations with the Department of Housing Preservation and Development (HPD) including a leak in the roof and faulty self-closing doors. 

A representative from Watermark did not comment when reached about violations in the building. 

“Tenants across the board… have very similar patterns of complaints in my buildings,” Matt said. “I've heard it compared to a part-time job trying to get the simplest to the most dangerous maintenance issues addressed by management.”

Matt said that buildings in the Full Time Tenant Union are encouraged to form building-wide tenant associations, and each tenant association plans to send an individual letter to the FDIC about the Signature loans, along with one letter from the entire union. He said that the union’s  ideal goal is tenant ownership of the properties, but in the short term, “if there was some oversight as to how they were managing their properties or utilizing them, [that] would be fantastic.”

In some cases, landlords refinanced their loans with Signature but still neglected maintenance on buildings. 

Landlords of rent-stabilized buildings argue that they can’t fix buildings without deregulating units and raising rents. It’s true that most of the rent-stabilized buildings in Signature’s portfolio lost value after the 2019 rent laws. According to reporting by The Real Deal, rent stabilized properties with Signature loans were down 25-55 percent since 2019. 

But half of all rent regulated buildings in the city are owned by landlords with 61 or more buildings, according to JustFix, suggesting some large landlords are better-resourced than they let on.

One research paper that looked at real estate loan defaults found that in its sample group,  “the majority of defaulted loans are to borrowers that have cash flow to meet their payments on the defaulted loan and that continue to meet their payments in other loans.” According to the paper, these landlords intentionally defaulted on the loan in an effort to renegotiate its terms or get the property off its hands, which may have been cheaper than providing needed repairs. 

One of the report’s authors, Erkan Yonder, a professor of real estate and finance at Concordia University, told Motherboard that if properties need renovation and the borrower doesn't want to pay them, they might skip renovations and default on the mortgage to either refinance or get the property off their hands. Because the default costs the lender, as well, it gives them leverage. “They do a soft exit from the property with less costs,” Yonder told Motherboard.

Sugar Hill defaulted on one of its loans last year while continuing to pay the mortgage on other properties. Over email, Grossman said that the company is now in good standing on all loans that it had with Signature Bank, which are now owned by the FDIC. The company has since sold 4300 Broadway in Washington Heights, one of several buildings where it missed loan payments. 

While Signature Bank has been criticized for its irresponsible lending, government lenders also have a poor track record when it comes to vetting landlords. 

Stephanie Edwards, 46, is a tenant organizing with the Upper Manhattan Tenants Union to help her fellow tenants have a say in the Signature asset sale. The mortgage on Edwards’ building is serviced by the Federal Home Loan Mortgage Corporation (Freddie Mac).  

Edwards’ building has 67 open violations with HPD, including one unresolved violation from 1991 for peeling lead paint in one unit. (This violation predates the current owner, who purchased the building for $11 million in 2018, but an inspector confirmed in 2022 that the problem was not resolved.)

“I guess we don't deserve the same quality of life that people who pay $5,000 for their apartments do. That's what it seems like,” Edwards said.

“Why do they continue to loan money to them?” Edwards asked. “The only people that are suffering are the people that live in the building, not the hedge fund people that are getting the loans.”

She’s hoping the Signature Bank sale will give tenants the opportunity to have their voices heard. “It’s time to hit the banks,” Edwards said. “It's time to make noise in the streets so that it affects their bottom line.”