“They mistook Harlem for Fifth Avenue and 79th Street. The only surprise is that it took this long.”
-Harold Shultz, former city housing official
There is an utterly fascinating article in the NYT today on the financial crisis and its impact on Harlem, NY RRE (In Harlem Buildings, Reminders of Easy Money and the Financial Crisis). It seems that all that easy money and low cost financing led people to do some very stupid things with mortgages and refinancings and pulling cash out of buildings.
Not the residents, but rather the big commercial RE developers and managers:
“New owners were piling on debt that their rental income could not support. Yet in each case, they have not exactly suffered: despite plunging the buildings into financial despair, each has been able to take tens of millions of dollars in cash out of the properties.What the owners did was legal, and in the microcosm of a few square blocks of Manhattan, it tells a story of the nation’s real estate bubble and collapse. As millions of homeowners did, but on a much larger scale, the owners refinanced their properties, finding lenders willing to give them far more money than the buildings turned out to be worth.”
The numbers are pretty astounding:
“When they refinanced, the owners of Riverton took out as much as $60 million in cash, and the owners of Delano Village, which they renamed Savoy Park, initially took out as much as $105 million, according to loan documents, credit analysts and lenders . . .
Stellar and Rockpoint bought Riverton in 2005 for $132 million, with a $105 million mortgage. A year later, the partners refinanced Riverton, more than doubling the debt with $250 million in new loans.The new financing enabled the partners to repay the original loan, recoup their investment and establish $53 million in reserve money to cover renovations and any shortfalls in revenue, leaving them with an additional $60 million. But the rental income covered less than half of the debt service, and turnover was slow . . .
Delano Village, seven buildings with 1,800 apartments built in the late 1950s just to the north of Riverton, was bought by Vantage and AREA in 2006 for $175 million, including a $128.7 million mortgage. A year later, the new owners refinanced, nearly tripling the debt on the property to $367.5 million.
The new financing allowed the partners to recoup their investment, repay the original mortgage and establish $87 million in reserve funds. That left the partners with about $100 million.”
You must read the entire thing. It’s your must read MSM piece of the day.
In Harlem Buildings, Reminders of Easy Money and the Financial Crisis
CHARLES V. BAGLI
NYT, June 9, 2011