Nonprofit Auctions 20 Rent-Stabilized Buildings Amid Financial Strain
Food First, a Brooklyn-based nonprofit, is in the process of auctioning off 20 rent-stabilized buildings amid financial strain caused by high maintenance costs and rent collection issues. The nonprofit’s decision is the result of a larger issue facing owners of rent-stabilized apartments—financial sustainability of rent-stabilized housing under current regulations.
The backdrop: Many of the buildings within the nonprofit’s portfolio are Housing Development Fund Corporation (HDFC) developments. Consisting mostly of rent-stabilized units, the buildings were supposed to provide supportive housing for people who are low income, elderly, or disabled. The HDFC is a revolving loan fund established in 1966 under Article XI of the Private Housing Finance Law and administered by the DHCR. The purpose of the HDFC program is to provide loans to nonprofit organizations to develop low-income housing projects.
The context: A member of Food First’s board of directors stated that the costs of maintaining the buildings were too high. And the nonprofit also struggled to evict tenants who failed to pay rent. In addition, the nonprofit's director, Alfred Thompson, was ranked as the city’s fifth "worst" landlord by Public Advocate Jumaane Williams last year, with properties collecting over 1,341 violations.
The rent backlog along with the costs of maintaining the buildings highlight the challenge of maintaining aging buildings within regulations. The 2019 rent law changes capped rent increases and made evictions more challenging. Before the rent law, owners could permanently hike rents by up to 6 percent to offset the cost of major capital improvements. Now, rents are capped at 2 percent and the increases are distributed over 12 or 12.5 years, depending on building size, and then rolled back.
What’s next: Despite the challenges, there remains investor interest in rent-stabilized properties, though at significantly reduced prices. Recently, Sentinel Real Estate sold its 1,300-unit rent-stabilized portfolio at a 40 percent discount to what it paid for the properties. The unfolding scenario with Food First and similar entities may represent a tipping point for a reevaluation of rent stabilization policies. The nonprofit will continue to focus on its other services such as food pantries and vocational training.