Bronx Bank Foreclosures Growing Due to Overleveraging

by on cities

Bronx bank foreclosures in the area’s multifamily sector have been soaring because of the large number of overleveraged multifamily buildings in the area, based on a report from the Citizens Housing and Planning Council and affordable housing nonprofits Urban Homesteading Assistance Board and Association for Neighborhood and Housing Development.

According to the council, there are about 100,000 apartment units in multifamily buildings which were acquired at sky-high prices during the boom. Now, building owners cannot pay their commercial loans because of sharply declining rents and lack of tenants.

Based on data gathered by the nonprofits, many multifamily loans are maturing within a year, increasing concerns that the rate of foreclosure of apartment buildings in the Bronx will equal the pace of the housing collapse that occurred in New York in the 1970s.

Among these buildings are the Fordham Towers and the Robert Fulton Terrace which were acquired by investor Robert Karasick in 2007 at a sky-high price despite obvious damages and need for costly repairs.

Karasick bought the buildings for $36.5 million with a loan from CIBC, which insisted that the price was justified. It was found out later that monthly operating costs were cut by half to inflate projected earnings.

Despite reduction of service and maintenance costs, the buildings still entered lists of Bronx bank foreclosures when Karasick could no longer pay his huge loan.

Other Bronx buildings that recently went into foreclosure are the ten buildings acquired by California-based Milbank Properties during the housing boom in 2007 at inflated prices. Milbank said it acquired the properties because it believed in the gentrification of the borough and in the significant improvement of the tenant base.

According to a recent report from Deutsche Bank, at least 67 percent of all commercial mortgage-backed securities maturing by 2018 are being rejected for refinancing because of the drop in property values. These loans account for $410 billion of all commercial loans. It also added that more than 80 percent of commercial buildings bought in 2007 with loans are now valued far below the amount of their mortgage loans.

There are also building owners who took out loans that enabled them to pay only the interest for the first 3 to 5 years. Hudson Realty Capital is one of them. When these loans adjust to their fully amortizing schedule next year, there is much concern that these owners will not be able to afford the payments.