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April 7, 2006

Since When Are Banks Anti-Gentrification?

We certainly can understand the moral reasons behind pressuring landlords to repair their buildings (as well as the p.r. benefits), but we were a little surprised to see the banks take such an explicit stance on a related social issue:

A coalition of housing advocacy groups and two large banks that hold mortgages on hundreds of apartment buildings in New York City announced an unusual agreement yesterday under which they will use the banks' leverage as lenders to pressure landlords into repairing dilapidated buildings.

The agreement between the coalition, Housing Here and Now, and the banks, Citigroup and New York Community Bank, represents a new weapon against landlords reluctant to make repairs. Housing advocates hope to use this tool not simply to fix leaks and crumbling plaster, but also to shore up low-income neighborhoods and make them less vulnerable to gentrification.

Banks Press Landlords on Repairs [NY Times]

Comments

The housing advocates hope to use as tool to make less vunerable to gentrification......doesn't claim that banks have that as their objective.
But glad to hear that (we'll see if they follow thru) banks will take some action in making sure bldgs are maintained.

Posted by: Anonymous at April 7, 2006 9:18 AM

Gentrification has taken on such a negative connotation nowadays - instead of being a way to improve a neighborhood, people think high prices, yuppies, no more homes for people who've lived there for years and complete 'disneyfication' by way of Starbucks. Sadly, this has been somewhat true recently.

I think what these banks are doing was stated badly, but they seem to have good intentions, at least on the surface (although I have never heard of banks really thinking about the social good instead of their deep pockets).

Posted by: Anonymous at April 7, 2006 9:20 AM

Hence our comment about the positive p.r.

Posted by: Brownstoner at April 7, 2006 9:22 AM

Seems contrary to profit making.
gentrification brings more $ for banks and their holdings. This a PR stunt.

Posted by: Anonymous at April 7, 2006 9:26 AM

Non-story, banks have required removal of violations for decades (although some they let pass since the city will write a violation on virtually anything) - in fact if you look at older mortgages on acris you will often see notations of violations and repairs that must be addressed (this is generally no longer notated on recorded mortgage)
-also Banks always inspect a property b/4 writing a mortgage (even on a refinancing), so the idea that the Bank has to review city records to determine the building condition is laughable.

BUT if the Banks really started demanding major improvements as conditions of lending, then you might actually see more 'gentrification'. Because many capital improvements entitle LL to an MCI increase that can be passed onto rent stabilized tenants and while the maximum pass-on is 6% a year, a LL is allowed to increase 6% every year until the full amount is covered - and those increases are forever.

Posted by: David at April 7, 2006 9:36 AM

same way that it is more profitable to encourage artists into neighborhoods than to kick them out .... in the long term, higher quality of environment means new development in the neighborhood, whereas slumlord-run ghettoville means less chances of cashing in on a ratner ville later.

Posted by: Anonymous at April 7, 2006 9:56 AM

To me, the gist of the article is that poorly maintained building leads to most tenants leaving in disgust,leads to landlord able to totally empty building and either sell it, or then renovate it for more upscale tenants equals gentrification by neglect.

This has been going on for years. However, David's point about passing along the capital improvements does make me wonder if it is anything more than a pr move for the banks.

Realistically, slumlords will run to court and whine that it isn't fair that they should NOW have to make all the repairs they should have made, some going back twenty years or so, and that it's going to cost them so much more now, etc, etc, etc. Some of them will get let off the hook, some won't.

If this actually maintains affordable apts for average folk, it's a good thing. If not - well, we'll have to keep watching.

Posted by: CrownHeightsProud at April 7, 2006 10:05 AM

With prices the way they are in BH, Park Slope and other desirable parts of Brooklyn, not to mention Manhattan, I feel like I am the one that is being gentrified out of the neighborhood by the rich white folk, even though I am just a 30 year old white boy making about $250,000 a year at a large law firm......

So am I supposed to be for or against gentrification?

Posted by: Anon at April 7, 2006 10:28 AM

10:28, if you are for real, I have the smallest violin in the world playing for you.

If you can't find a place to live making a quarter of a million dollars, then think about what it must be like for the huge amount of people in this city looking for decent places to live who make $25K a year - with families.

I hope your post was some kind of an attempt at irony or humor, although I found it to be neither.

Posted by: CrownHeightsProud at April 7, 2006 10:38 AM

Anon at 10:28am,

30 years old and only $250K. Tsk, tsk. Where did you go wrong in life? Perhaps you'd qualify for low income housing.

Posted by: Anonymous at April 7, 2006 10:39 AM

The banks are just protecting their assets to the extent there is ever a default and foreclosure on the mortgage (more likely in the rising rate scenario we are living in).

The community groups' reasoning that this will stem "gentrification" of neighborhoods is wrong. Gentrification of an economically depressed neighborhood is not increased by having poorly maintained buildings. It is driven by factors such as the quality of the housing stock the location (including proximity of places where people work and public transportation). Being forced to fix broken windows and crumbling foundations will only serve to make an otherwise "marginal" or "undiscovered" (loaded terms I know) more attractive in my opinion.

Posted by: Anonymous at April 7, 2006 11:07 AM

Setting policies to avoid unecessary evictions has been on banks radar screens for years. There is even federal legislation to encourage it.

Remember that banks benefit from the government and taxpayers -- FDIC is something we all subsidize. The savings and loan scandal is something we all paid for...

Brownstoner, I like the blog, but your understanding (and that of many posters) of the role of private actors in relation to state is concerning... You worry for a neighborhood's architectural integrity and see a role for the state there-- but the state is supsect when protecting the people living in those very neighborhoods.

Each time there is a mention of gov. regulation to protect people (or even private entitity's interest, such as banks) you encourage a discussion. That is fine, but please let's remove the veneer of objectivity. You have a bias- you want the state to protect the upper middle class and pretty buildings, but not worry about using its coercive power for the poor. That is the theme that comes up again and again.

That is all fine-- but I thought NYC was liberal and concerned with social welfare? I've learned on this blog that far too many of my beloved Bklyn neighbors have taken the free market line hook and sinker. That makes me sad.

Posted by: Anonymous at April 7, 2006 11:34 AM

Having lived in a rent-stabilized apartment for years, I saw rents go up when the landlord put in new windows. I couldn't afford what would have been what would have been an increase of 125-150$ a month so we didn't do my apartment. But when one of the old windows broke and had to be replaced, I got a new window without and increase. I have to say that my former landlady was great to me over the years and she did many capital improvements in the building without raising the rents. She was a rarity.

Posted by: Bx2Bklyn at April 7, 2006 11:40 AM

Bx2Bklyn - Buildingwide MCI's require the entire building to receive the improvement, i.e. if you are putting in new windows, all apartments must receive them (although LL has option of whether to pass on increase). Apartment MCIs are passed on at different rate (1/40th) and would require an existing tenants approval.

Your right if your LL didnt pass on buildingwide MCIs to you ---she was rare and if she bought the building w/ today's valuations she'd be crazy too (or very rich and philanthropic) b/c you barely can make any $ based on the current prices and if you have any major capital costs you'll be seriously in the red.

Posted by: David at April 7, 2006 11:54 AM

Anon 11.34, I think your interpretation that the banks are using their power to protect low income residents is what is incorrect. If you believe that is the motivation behind this renewed push by the banks, you are wrong. Lending institutions are simply encouraging upkeep of the assets that secured their loans. It is great that it helps the residents in run down buildings, but that is not the driver behind the bank policy. To the extent it is a regulatory requirement imposed upon the banks, then it is simply a compliance inititiave by the banks. Beyond that, it is a way to protect bank assets in the event of default/foreclosure on a loan, simple as that. If anyone has taken the "free market line hook and sinker" it is the lending institutions. Don't kid yourself.

Posted by: Anonymous at April 7, 2006 12:03 PM

"NYC was liberal".
Guess again.
There's a changing demographic at work here. It will be a very long time, maybe the next generation (rebels), before nyc regains it's liberal status. But that's another discussion.

Posted by: Anonymous at April 7, 2006 12:21 PM

Bx2Bklyn, she was a rarity because she could afford it. 4-5 years ago, real estate investment was the big thing because a lot of people wanted to 'retire young' or 'live rent free'.
Most new landlords in brooklyn probably can't afford it and will most likely have to raise rents in order to break even. The typical landlord is probably paying more in mortgage and maintenance than they would if they rented.

Posted by: Anonymous at April 7, 2006 12:27 PM

Money makes the world go around, That’s why there will never be a peaceful coexistence between the two colors.

Posted by: Trekz at April 7, 2006 2:47 PM

Housing Here and Now specifically took the bank approach because complaining to the city about negligent landlords rarely does any good...violations at DOB and HPD linger for years, with little repercussions for the offending landlord.

Yes, it is good PR for the banks, but it also helps them comply with their obligations under the Community Reinvestment Act.

Posted by: Anonymous at April 7, 2006 3:07 PM

1. Re: MCI increases. Tenants do not have any say if a landlord decides to put in new windows. And MCI pass-alongs can apply to a single apartment, in the case of a new stove, for instance.

2. If this program is intended to cure building violations, then the money loaned would not be for Major Capital Improvements. Repairing walls, ceilings, leaky roofs, etc., are not Major Capital Improvements. They're routine maintenance.

Posted by: lofty at April 7, 2006 3:49 PM

some of the landlords want to sell their crappy ass buildings and they should sell them. cause why would you want a crappy ass landlord to be in business by asking them to fix up their buidlings and such. have them sell it and have new owners fix it. instead of forcing the old slum lords to fix it. they dont care and they should be put out of business

Posted by: armchair warrior at April 7, 2006 3:57 PM

Lofty - For buildingwide MCI like new windows you are correct that tenant has no say (is allowed to comment and dispute work etc....), but you must replace windows buildingwide However for single apartment improvements LL need the approval of existing tenant in order to collect- from DHCR:

"An owner who pays for a substantial increase of dwelling space or an increase in services, or new furniture or furnishings, or the installation of new equipment or improvements provided in or to an occupied rent stabilized or rent controlled apartment, and has obtained the written consent of the tenant to the rent adjustment, may adjust the rent by 1/40th of the cost of the new item(s) including installation costs, but not finance charges."

Posted by: David at April 7, 2006 4:41 PM

And Lofty while many violations may simply require painting or plastering, there are many violations that would require MCI-type improvements, for example leaks as a result of a bad roof, or brick work; non working intercom system; non-functioning elevator, etc, etc

Posted by: David at April 7, 2006 4:44 PM

Anon 11:345 here-- To respond to anon 12:03, I would just say that I know that banks are motivated by profit.

In this case, the banks interest in protecting assets, their interest in PR, and their ongoing obligations to comply with the Community Reinvestment Act (which is related to pr also, because they want to be SEEN as complying) all add up to make this in their interest.

What I find sad is that in a happy situation as this, where housing advocates and banks have aligned interests and can get something (small) done to prevent eviction, the reaction of Brownstoner (and many others on this board) is 'why should the banks care?'

It is almost like the belief that government should stop trying to fix social problems has morphed into a belief that ALL institutions should do so-- even when it is in their interests to become engaged. It is like people are allergic to making positive, economically viable steps to improve the situation.

Posted by: Anonymous at April 7, 2006 5:21 PM

I think you are taking Brownstoner's "surprise" and stretching it beyond what he said. I'll let him defend that. However, I can say that in this instance, it is a matter of regulatory compliance and protection of assets on the banks' parts, not simple benevolence. I do agree that those interests do align with the interests of the residents of run down buildings, which is a good thing. I don't think that Brownstoner is implying that financial institutions should not help if they can, but I'll let him clarify his thoughts on that.

Posted by: Anonymous at April 7, 2006 6:02 PM

fixing a roof or repairing a non-working intercom is not a major capital improvement. It's deferred maintenance.

Posted by: lofty at April 7, 2006 8:10 PM

Lofty true- but replacing a leaky roof or replacing a non-functioning intercom, or a faulty boiler are all major capital improvements.

Posted by: David at April 7, 2006 11:10 PM

Rent regulation is one of the biggest scams this side of the Mississippi.

Forcing one private citizen (landlord) to subsidize another (tenant) is flat out wrong.

One of these days these byzantine rent laws will be overturned (probably by the Supreme Court) and an "earthquake" of evictions will take place in NYC.

Posted by: Uncle Is at April 7, 2006 11:31 PM

Wow Uncle- don't you sound like a humanitarian. And just what effect do you think that will have? This is a dicussion we've had many times on this forum. Rent regulation was set in place for a reason. Whether or not aspects have to change is certainly not in question. But a scam? No. If you're a landlord and you aren't making money I suggest you sell.

Thanks for that information David- the building was rent stabilized, 16 units, and had a pretty fair turnover so her apartments were pretty much at market rate. To her credit she upgraded the empty ones very nicely, and really cared about the property. My present landlady is also great so I've been really lucky.

Posted by: Bx2Bklyn at April 8, 2006 8:03 PM

when rent control is gone. everything would even out. right now some citizens are paying more than others. ie shouldering the other tenants rent. if everyone pay market rates the ones who are paying highest would go lower and the lowest would go higher :p.

Posted by: armchair warrior at April 8, 2006 9:45 PM

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April 7, 2006

Since When Are Banks Anti-Gentrification?

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