Equity Firms Are Lending to Landlords, Signaling a Shift

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Yanir Ram of DRI Holdings in California got a $36 million loan from Cerberus’ FirstKey Lending. He said DRI could then expand without borrowing from hard-money lenders. Credit Dustin Michelson for The New York Times

In the aftermath of the financial crisis, large private equity firms spent tens of billions of dollars buying foreclosed homes across the United States to operate them as rental properties.

Now some of those same firms are providing loans to smaller investors seeking to do much the same.

Three big private equity firms — the Blackstone Group, Colony Capital and Cerberus Capital Management — are betting that so-called landlord loans to small and midsize investors will become the next big opportunity to profit from the rebound in the United States housing market. The private equity firms are providing financing indirectly to hundreds of real estate funds buying single-family homes, something that until recently was not widely available.

Over the last year, subsidiaries and affiliates of all three private equity firms have lent collectively about $1.5 billion to smaller residential real estate investors, enhancing the capability of these firms to gobble up distressed single-family homes, said people briefed on the matter. All three firms are gearing up to bundle those loans into bonds — with the first securitization of landlord loans expected to come to market in the next few weeks with Deutsche Bank taking the lead underwriting role, these same people said.

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Thibault Adrien raised a total of $82 million from investors to buy hundreds of foreclosed homes to renovate and rent out. Credit Jennifer S. Altman for The New York Times

The private equity firms see a rising demand for landlord loans — which can range from as little as $500,000 to $50 million — given that smaller- to midsize real estate investment firms historically have had to rely mainly on cash raised to make purchases. This new availability of credit comes as banks are still looking to unload 579,582 homes that the property research firm RealtyTrac estimates are still winding their way through the foreclosure process.

Blackstone, Cerberus and Colony are entering a market with little competition. Most of the banks that did make loans to investor-landlords left the market during the financial crisis. Currently, the only other significant lenders to single-family home landlords are Fannie Mae and Freddie Mac, the government-sponsored mortgage finance companies. But financing from Fannie and Freddie is difficult to come by because it is limited to true mom-and-pop investors — ones who typically own just a few homes.

Some small firms, called hard-money lenders, make loans to real estate investors, but these loans tend to be for short periods of time and carry higher than normal interest rates. For that reason, many real estate investors tend to avoid hard-money lenders if they can.

The market then would appear to be a potentially large one for the private equity firms, with individual investors and small investment funds owning 14.6 million single homes in the United States, according to analysts with the investment bank Keefe, Bruyette & Woods. But it is a fragmented market with 86 percent of all investors owning 10 homes or fewer. Leaving aside the giant institutional buyers like Blackstone’s Invitation Homes, Colony’s own Colony American Home affiliate and American Homes 4 Rent, analysts at KBW estimate that just 14 percent of investors own about 11 homes to 250 homes each.

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Housing advocates, however, are concerned that landlord loans from private equity firms could fuel the purchase of homes by investors ill-equipped to manage rental properties. The advocates are concerned about the due diligence the private equity investors will do to make sure investors are not just good credit risks, but qualified property managers as well.

“Property management capacity and performance of borrowers matters a great deal when we contemplate new financing streams for smaller and midsize investors,” said Sarah Edelman, a senior policy analyst with the Center for American Progress. “Providing financing to help put excess foreclosed homes back to productive uses could be a good thing, but it’s important to think of what an investor will do with their homes.”

Representatives for the lenders say they have strict due diligence standards with regard to making loans. Investors say that it is in their interest to improve the homes they buy and maximize the return on their investment.

“We think of our tenants as our clients,” said Thibault Adrien, who four years ago raised $42 million from investors to buy hundreds of foreclosed homes to renovate and rent them out. “If we provide them good service they will be happy and stay longer in our homes.”

With an $11 million loan from Cerberus’s FirstKey Lending, Mr. Adrien is now looking to double his purchasing power on a second fund that raised about $40 million in investor cash. With the financing, his Lafayette Real Estate, a firm based in New York, will be able to buy more homes in the half-dozen states it currently operates in than it otherwise could, he said.

Mr. Adrien, who formerly worked for the private equity firm Fortress Investment Group, said the availability of financing was vital for midsize investors like him who are not interested in flipping distressed homes for a quick profit but operating rental properties for the long haul. He intends to borrow $40 million more from either FirstKey or another private equity lender.

The developing market for landlord loans shows how large private equity firms are working their way deeper into the fabric of the United States housing market. They are doing so at a time when there is increased demand for rental housing and many people still have dented credit histories coming out of the financial crisis and do not qualify for a mortgage.

Blackstone, for instance, which emerged as the biggest Wall Street-backed buyer of foreclosed homes, now manages about 45,000 single-family homes in nine states through its Invitation Homes subsidiary. The firm’s Bayview Asset Management affiliate is buying nonperforming mortgages from the federal government. Bayview is packing the worst of those mortgages into short-term bonds that pay out based on the liquidation value of the foreclosed homes.

Now with its B2R Finance subsidiary, which began in summer 2013, Blackstone is lending money to landlords small to midsize. The firm has begun running online ads that say: “KaChing. Cash for landlords. Leverage equity to buy more rentals.”

Jason Hogg, chief executive of B2R Finance, who joined the company in November and most recently worked with American Express, said demand for loans from investors was steadily growing.

“The rental investor segment has been growing at an exponential rate,” said Mr. Hogg, who early in his career was an agent with the Federal Bureau of Investigation in New York. “We are seeing steady demand from professional rental property investors — a near doubling in the last month alone, equating to over a billion dollars in the pipeline.”

Many of those borrowing from the private equity shops have sprung into existence in just the last few years. Many investors smelling fat profits jumped into the distressed housing market in the middle of the crisis when the number of foreclosure filings peaked at 2.87 million homes in 2010, according to RealtyTrac.

Now that housing prices in many markets have recovered a good deal, the bargains are largely gone making it necessary for those investors that remain to borrow money to increase their buying power. Most of the loans the private equity firms are writing are two to five years in length and have interest rates of 5 to 6 percent. Financing is backed by mortgages on the properties and sometimes the rental payments on the homes.

In January, American Housing REIT said in a regulatory filing that it had secured a two-year $5 million loan from B2R Finance at an interest rate of a little more than 4.75 percent to purchase additional homes. American Housing, controlled by Heng Fai Enterprises, based in Hong Kong, said the loan from B2R Finance was backed by a mortgage on 72 homes it owned in the United States.

The push to securitize landlord loans is following a similar path that big institutional investors like Blackstone, Colony and American Homes 4 Rent took with their own large portfolios of single-family homes. Over the last 18 months, the biggest buyers of foreclosed homes have sold 16 single-family rental bonds with a combined value of $8.9 billion, according to Kroll Bond Rating Agency.

Yanir Ram, chief financial officer of DRI Holdings, a California real estate firm, was one of the first to get approved for a loan from FirstKey. He said the $36 million loan, secured by 300 homes his firm bought and manages in the Antelope Valley region of Southern California, would allow DRI to expand its business without borrowing from hard-money lenders.

“If these guys didn’t exist I’d be forced to pay higher rates to another lender and there would be less proceeds for my business,” Mr. Ram said.

Source: The New York Times

Expediters being charged in massive bribery scheme

In a case of serious déjà vu for New York City, a group of middlemen known as “expediters” are among those being charged in the massive bribery scheme centered around building inspectors.

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Expediters receive money from developers to acquire building permits, address violations and fill out key paperwork — all as fast as possible, and often, through illegal means, the New York Daily News reported. The corrupt culture of expediters was first revealed fifteen years ago during a similar investigation, and prosecutors demanded that they be banned. However, the number of expediters licensed by the city has actually doubled since then, up to 3,200 from 1,600.

“Anytime you can’t interact with your own government without hiring someone to grease the skids, that means the system is broken,” said Daniel Castleman, a former Manhattan prosecutor who led investigations into expediters 15 years ago. “You’re going to see these cases every five or 10 or 25 years because the system is built in such a way that you gotta have an edge.”

Over the past several years, expediters have been cited for violations ranging from bribing officials with thousands of dollars to submitting doctored photographs. In most cases, the expediters are placed on probation and begin working again shortly after. In one case, a Brooklyn man named David Weiszer posed as an expediter paid a buildings department official $300,000 in exchange for clemency on code violations. He is now a fugitive.

Charges against 50 people including building inspectors, expediters and contractors were announced earlier this month.

[NYDN] — Tess Hofmann – See more at: http://therealdeal.com/blog/2015/02/23/expediters-being-charged-in-massive-bribery-scheme/#sthash.wPV9rnea.dpuf

Is Times exposé a NYC story?

Bad guys from around the world are buying up the most expensive apartments in New York to launder or protect their ill-gotten fortunes and hiding that fact through mysterious shell companies. They can do this because real estate interests blocked efforts to require property transactions to have the same strict scrutiny that comes with bank accounts and other financial dealings. This is hypocritical because the U.S. is insisting that other countries change their laws so the feds can pursue people who have hidden money and avoided taxes in places like Switzerland.

That summary seems to be the bottom line of the five-part New York Times series that anyone interested in New York real estate has been dutifully devouring in the past week. Yet the implications of all this remain somewhat mysterious—especially for New York.

The series points out that the luxury apartments these bad guys own pay very little in property taxes and that the individuals probably escape the income tax, too. That’s not exactly news.

The Times itself has published many stories about how the city’s controversial 421a tax abatement program reduces taxes on the most expensive luxury condos to absurd levels. So has Crain’s. I’ve written a lot about it, too, and about how the entire system for levying property taxes is unfair and benefits owners of pricey condos. The Independent Budget Office’s work on the issue is exemplary.

The bad guys in the Times series pay no income tax because they don’t spend half the year in New York City or New York state. They probably escape federal income tax, too, because they don’t spend half the year in the country. The Times’ own James Stewart has written a series of insightful stories on this and explained how other global cities are moving to impose taxes on the global, mobile rich by broadening their definition of residency.

Of course, Americans who buy luxury condos at places like the Time Warner Center, the focus of the series, usually benefit from both tax breaks. Ownership through a shell corporation makes no difference, either. Whatever the real estate taxes are, they have to be paid by someone. The bad guys would have to pay income tax if they lived in the city long enough and generated some income here.

Except perhaps for the developers building the super-luxury towers, virtually no one believes condos like this should get 421a abatements that phase in real estate taxes over as long as 25 years. Many people support an overhaul of the property tax system, though it appears to be an impossible task politically. Broadening residency rules make sense. But none of this has anything to do with bad guys and shell companies.

In the end, the Times series may be set in New York, but tells us little about the city.

NYC building inspectors, contractors surrender to authorities over bribery scheme

Nearly 50 city building inspectors and construction contractors — some with alleged mob ties —turned themselves in Tuesday as part of scheme in which builders paid off city employees to fast-track projects. Inspectors also routinely took cash to overlook building code violations, authorities said.

BY ERIK BADIA , GREG B. SMITH NEW YORK DAILY NEWS Published: Tuesday, February 10, 2015, 8:20 AM Updated: Tuesday, February 10, 2015, 10:47 AM

A big takedown of corrupt city inspectors Tuesday uncovered a disturbing pattern: Inspectors routinely took cash to look the other way on serious building code violations, authorities said.

By late Tuesday morning, 49 of 50 defendants were in custody, paraded out of the 1st Precinct stationhouse in Tribeca in handcuffs to await arraignment on a variety of corruption charges in multiple schemes dating back to 2012.

The tainted crew included eight building inspectors, two Buildings Department borough chiefs, five Housing Preservation and Development inspectors, and a Small Business Services employee, according to a source familiar with the case.

Also arrested were multiple contractors and property owners or managers. A handful of defendants are associated with the mob, the source said.

One building inspector arrested a month ago by the city Department of Investigation and the NYPD was caught with cocaine and guns, a source said. The worker was in city uniform and getting into a city car, where cops discovered bags of cocaine packaged for apparent sale. A search of this worker’s home then turned up illegal firearms, the source said.

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The investigation began two years ago and over time investigators uncovered multiple unrelated schemes — an indication of just how pervasive the bribe-taking was.

Perhaps most disturbingly investigators with DOI and the Manhattan District Attorney’s Rackets Bureau caught property owners who’d been cited for serious code violations during renovations paying off inspectors to claim the problems were corrected — even when they weren’t.

All told more than 100 buildings are implicated, mostly in Brooklyn and Manhattan, the source said.

The perfidious parade of suspects began early Tuesday as dawn broke and a slight snow fell. They were led out of the police station in handcuffs and loaded into four vans.

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The suspects said nothing as they passed reporters. Most lowered their heads and tried to cover their faces with their coats as they were taken to court, where bribery charges are expected to be filed against them Tuesday afternoon.

The arrests were first reported Monday afternoon on nydailynews.com.

Investigators uncovered a disturbing pattern of give-to-get, where building inspectors would expedite projects and sign off on certificates of occupancy — for a fee.

The Buildings Department is tasked with approving all new construction and major renovation work in the city, ensuring it is safe and up to code.

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If an inspector withholds approval, a project can be delayed indefinitely, running up costs. Sources said contractors made regular payments to multiple inspectors to make sure their jobs received fast approval.

The bribery scheme hatched by the contractors and Buildings employees has been playing out across the city for years, sources told The News.

Construction in the city has increased dramatically in the past few years, with a 14% jump in job filings in fiscal 2014 and a 35% increase in new building permits, records show.

At the same time, there’s been a spike in complaints to the Buildings Department, up nearly 20% in fiscal 2014, to more than 70,000 from 58,900. Because of the increase in complaints, the department made an extra 10,000 inspections and issued more than 47,700 building code violations — a 10% spike.

The department currently has 185 inspectors, 169 associate inspectors and 49 administrative inspectors, records show.

Nets will be all-Brooklyn by 2015-16: Team unveils $50M Industry City training center

Published on http://www.nydailynews.com Thursday, June 26, 2014 by Stefan Bondy

A 70,000-square foot Sunset Park warehouse will undergo a major renovation, beginning this summer, to create a ‘spa-like environment’ for the players and, they hope, act as a selling point to potential free agents.

On the Sunset Park waterfront with a beautiful view of the city skyline, standing adjacent to its nearest place of business — a strip club called Peyton’s Playpen — is an empty warehouse that represents the Nets’ transformation to full-fledged Brooklynnites.

In about a year, they’re cutting their last significant tie to New Jersey.

Representatives of the team’s ownership, minus the overseas-stationed Mikhail Prokhorov, unveiled the plans Thursday for a new practice facility set to open for the 2015-16 season. The cost is roughly $50 million, according to sources, and the facility — including the basketball courts and amenities — will be built on the roof of the warehouse, occupying 70,000 square feet.

Construction is set to begin this summer, and the Nets are touting the finished product as a “harmonious, spa-like environment.” The Nets have come a long way since practicing at a truck stop in North Bergen, with Derrick Coleman and Kenny Anderson having to shower and share a locker room with the truckers.

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The theme of Thursday’s press conference was the location in Industrial City, and GM Billy King worked in a dig at the Knicks by noting that the Nets will be the only team to have its practice facility within the city limits (the Knicks practice in Greenburgh). Coach Jason Kidd cracked that he won’t spill any sodas when it opens, before turning serious about the advantage in attracting free agents.

“You look at the tools that can help (in free agency),” Kidd said. “You look at the practice facility, you look at Barclays Center and what the franchise stands for — which is first class.”

The hope is that the location of the facility, which is just three miles from Barclays Center, will be more convenient for players and staff who are commuting over a tunnel and bridge to get from the current facility in East Rutherford to the home arena.

Brooklyn Nets Training Center

In the franchise’s first two seasons in Brooklyn, not one player lived in the outer borough. Most rented in New Jersey. The others resided in Manhattan.

“Absolutely, I think they will (start living in Brooklyn),” Pavlova said. “As I rule, I think players tend to live where they practice because it’s convenient.”

Second-year center Mason Plumlee is on board.

“I’m looking to move into Brooklyn once the facility is done,” he said. “I don’t see any reason to live in Manhattan.”

The Nets will remain practicing this season at the PNY Center in East Rutherford, which opened in 1998 and was briefly closed in 2012 because of flooding caused by Hurricane Sandy.

Naked Girls Reading NYC Presents Naked Girls Reading SCI-FI V

Published on http://www.broadwayworld.com Sunday, June 16, 2014 by BWW News Desk

New York’s “Best Story Hour” (The Village Voice Best of NY) returns to outer space for more in-the-buff readings of science-fiction classics, as Naked Girls Reading NYC presents NAKED GIRLS READING SCI-FI V: Naked Girls Reading Into Darkness. After four successful missions bringing stripped-down sci-fi to packed houses, the hit nude literary salon launches an all-new evening of time travel, bug-eyed monsters, metal men from beyond the stars, and much much more.

Host Nasty Canasta is joined by Dangrrr Doll, Iris Explosion and brand-spanking-new Naked Girl Charles Stunning, as they explore strange new worlds of literature and boldly go where no Naked Girl has gone before – at NAKED GIRLS READING SCI-FI V: Naked Girls Reading Into Darkness. In space, no one can hear you read.

NYC Presents NAKED GIRLS READING SCI-FI V

Naked Girls Reading NYC is the perfect intimate live event: a monthly nude literary salon featuring in-the-buff readings by local burlesque luminaries, professional librarians, authors and other Naked Girls. Past themes have included Banned Books, Science Fiction and Tween Lit, as well as their annual holiday presentation of Charles Dickens’ A Christmas Carol. Guests to the salon are invited to sip a drink and listen with their eyes wide open as full-frontal literature meets fine art in the intimate theatrical setting of Under St. Marks.

“What did you get up to last Friday night? If you answered anything other than ‘went to Naked Girls Reading,’ you lose.” NBC New York
“Great literature stripped bare” Entertainment Weekly
“It did what a great reading should.” Elle.com

“After the first thrill of the initial disrobing, the pleasure of seeing beautiful women undressed fades besides the sense of intimacy achieved from someone bearing both their body and their soul at the same time. It was a remarkable experience.” Tor.com

Readers’ Choice Nominee, “Best NSFW Night 2012″ Time Out New York
Naked Girls Reading NYC is on the third Wednesday of every month at UNDER St. Marks (94 St. Marks Place between 1st Ave and Ave A) at 9pm.

Tickets ($25; 2 for $40) may be purchased online at www.NakedGirlsReadingNYC.com or by calling Smarttix at 212-868-4444. Seating is limited to 45; advance tickets are strongly recommended.

NAKED GIRLS READING began in Chicago in March 2009 as the creation of international showgirl Michelle L’Amour and Franky Vivid. The idea had rolled around in their heads for a few years in different formats, but with the opening of Studio L’Amour in 2008 it materialized as the perfect intimate live event. Naked Girls Reading now has branches across the country and around the world; the New York chapter, produced by Nasty Canasta, was opened in October 2009 to great acclaim (“Great literature stripped bare” -Entertainment Weekly; “It was a remarkable experience.” Tor.com) and was named “New York’s Best Story Hour” by the Village Voice in 2010.

HORSE TRADE THEATER GROUP is a self-sustaining theater development group; with a focus on new work, it has produced a massive quantity of stimulating downtown theater. Horse Trade’s Resident Artist Program offers a home to a select group of Independent Theater artists, pooling together a great deal of talent and energy. It is also the home of FRIGID New York – the first and only festival of its kind in New York City.

Daily News Scribe Tells Tale Of Uptown Apartment Scam

Published on http://www.nydailynews.com Monday, June 9, 2014 by Jan Ransom,

This week I stumbled upon the uptown pad of my dreams: a $1,100 one-bedroom on Fifth Ave. near 104th St., across from the glittering green of Central Park. But, the ad seemed to0 good to be true, and it was.

It seemed my apartment hunting days were over.

This week I stumbled upon the uptown pad of my dreams: a posh, $1,100 one-bedroom on Fifth Ave. near 104th St., across from the glittering green of Central Park.

The rent included electricity, wireless Internet, digital TV and a washing machine, the owner, who called herself Eloise Harper and said she was from London, wrote in an email. Photos showcased a cozy, sunny flat equipped with gleaming appliances and hardwood floors.

Everything about the ad smelled fishy.

Harper, who was listing the place on apartable.com, asked me to pay one month’s rent and said the rent would be paid directly to her bank account.

“I’ve hired a major real estate company specialized in international rentals, to represent me,” she wrote, naming a site called realtor.com and outlining a procedure for me to visit the apartment after she received my deposit.

Of course, there was the affordable rent. The average one-bedroom flat near Central Park rents for $3,200, according to trulia.com, and Harper was asking almost 66% less.

Then, there was the address, 1225 Fifth Ave., which did not appear in city records. That’s because it doesn’t exist — I found that out by visiting the block.

Daily News reporter Jan Ransom at the corner of 104th Street and Fifth Avenue

A customer service representative at realtor.com , a reputable website that lists homes and apartments across the country, told me they do not transfer money or act as an intermediary, and said the ad was a scam. Police caution apartment hunters to beware of bogus brokers.

Two unsuspecting victims were scammed out of thousands of dollars this year in East Harlem, said Capt. Thomas Harnisch, commanding officer of the 25th Precinct.

A 47-year-old woman was cheated out of $2,000 in March after she agreed to rent an apartment on 130th St. near Lenox Ave. that she found on Craigslist, Harnisch said. The phony agent told the woman she could move in May 1, but by then someone was renting the pad, he said.

Similarly, a 24-year-old woman told cops last month she was duped out of $2,410 in February. She was shown a third floor apartment on 116th St. near Lexington Ave. by a man posing as an agent, Harnisch said. The woman agreed to move in on March 12, but someone was already living there.

It’s shouldn’t come as a surprise that such scams are becoming more common, given the scarcity of affordable apartments.

In Brooklyn, Ronald Johnson, 36, was convicted on May 27 after police said he posed as a broker and stole thousands of dollars from naïve apartment hunters. Johnson faces up to 15 years in jail for a litany of felony charges.

As for me, the hunt goes on. I’ll keep pushing until I find my perfect pad. I’m willing to go for broke… but I won’t go for broker.

Here’s what brokers and cops say you need to do to avoid falling prey to a real estate scam:

*Be sure the broker is legit

Ask to see the agent’s license. You can verify the license online with the state Division of Licensing Services and check site like Yelp to see what others are saying about the broker.

*Speak to the building owner or manager to verify that a unit is for rent.

*Protect your pockets.

If an agent or landlord asks for money too soon, it could be a scam.

*Shop Craigslist with extreme caution.

Brokers recommend nakedapartments.com and renthop.com.

*Beware of geographic distance.

If an owner claims to be out of the country or somewhere far away from the property, proceed with extreme caution.

*If something seems too good to be true, it probably is.

*Report suspicious come-ons to police, the Federal Trade Commission and the Internet Crime Complaint Center, www.ic3.gov.