When it comes to rent-stabilized housing, altruism is no match for economics and physics. Case in point: A&E’s Riverton Houses in Harlem.
By economics, I mean what happens when expenses exceed revenue. The cost of owning and operating this 1,229-unit complex eclipsed what Douglas Eisenberg’s A&E is receiving in rent.
By physics, I mean what time, weather and tenants do to 78-year-old buildings.
And by altruism, I mean the notion that regardless of a property’s financial situation, owners should keep it affordable and well-maintained and be lenient with nonpaying tenants, because it’s the moral thing to do.
Morality doesn’t pay the mortgage, the taxes, the insurance premium or the repair bills.
When A&E bought Riverton for $201 million in 2015, then-Mayor Bill de Blasio gave it $100 million in tax breaks and other aid, as Crain’s Aaron Elstein wrote this week. The landlord put millions into repairs and promised long-term affordability. The mayor called it “preservation on a grand scale.”
No doubt de Blasio added 1,229 to his total for “affordable housing units created or preserved.” But when a politician announces something, it’s a good idea to check back to see how things worked out.
The de Blasio deal was good for A&E because four years later, the Housing Stability and Tenant Protection Act would have locked in low rents anyway.
But the HSTPA robbed the landlord of the flexibility to deal with economic shocks. Debt service on A&E’s floating-rate mortgage soared when interest rates rose in 2022, insurance premiums shot up nationally and Covid-induced inflation pushed other costs up as well.
The Rent Guidelines Board didn’t allow rent increases to keep pace, and soon Riverton — like many rent-stabilized properties — was underwater.
In January, Wells Fargo initiated foreclosure proceedings after a $506 million mortgage that included Riverton went into default. Were the complex to go on the market, it would sell for less than what A&E paid 10 years ago.
For the past year, A&E has been trying to renegotiate its mortgage. Its leverage is that foreclosure would also be brutal for the mortgage holders (in this case, investors in the CMBS debt secured by Riverton and other rent-stabilized properties). A previous Riverton owner, the late Larry Gluck, had lost the seven-building complex to foreclosure in 2010.
One can argue that A&E should not have sunk the better part of $1 billion into the 31 buildings securing the CMBS loan, or should have bought rate caps or switched to a fixed-rate mortgage before interest rates spiked. But its decisions were standard at the time. No one foresaw the portfolio’s value sinking to half the amount of the debt.
What the Riverton saga does show is how politics — small Rent Guidelines Board increases and the severe 2019 rent reform — adds an element of risk to rent-stabilized housing beyond the unpredictability of interest rates and inflation. A&E couldn’t raise rents to meet costs, despite record-low citywide vacancy and record-high rents.
Eisenberg, who has continued to make debt payments despite failing to pay back the loan when it matured in June 2024, got some help last month when the Adams administration allowed re-rentals of affordable units to be made through StreetEasy and Craigslist rather than the housing lottery.
But the only way he can salvage the portfolio is with a renegotiated mortgage.
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