The Castle Braid apartments at 114 Troutman Street went rental after the subprime mortgage crisis. — Photo by Jeremy Sapienza
The state has insured the mortgage on the Castle Braid apartments, a large residential development on Troutman Street between Evergreen and Central Avenues. The backing will enable the lenders to sell the debt to a New York City employee pension fund without the risk of possible default. This is allegedly so that the units, originally slated to be sold as condominiums for upwards of $300,000, can be offered as rentals.
The move has been billed by some as a sort of emergency measure to keep Bushwick, in the words of a WYNC reporter, from becoming “blighted.” But long before the state stepped in, the decision was made by developer Mayer Schwartz to offer the building’s 144 units as rentals in the wake of the subprime mortgage crisis. They are now nearly two-thirds leased. In exchange for the 421(a) property-tax abatement, since discontinued in most of Bushwick, the rents are subject to stabilization.
Even if the building stood vacant, warehoused for a future recovery, it would be hard to blame it for any “blight” Bushwick may suffer, given the neighborhood’s history. The area around Castle Braid was heavy-hit in the fires of the 1970s and ’80s.
The State of New York Mortgage Agency is in part charged with providing below-market financing for “affordable” development.
“Turning these multifamily projects into rental housing stabilizes communities and provides much-needed housing for middle-class families,” said Judd S. Levy, the mortgage agency’s chairman, in a recent press release.
But Castle Braid’s sleek units packed with Italian-designed fixtures, at around $2400 for a third-floor two-bedroom apartment, are some of the highest-priced rentals in all of Bushwick. And the building’s graffiti wall, yoga classes, and recording studio are unlikely to appeal to families so much as assemblages of college-age roommates.
The mortgage agency argues that while this particular development is not considered “affordable,” it will allow other conforming housing to be constructed. Broker Shari Linnick, owner of Outerspace Realty in Bushwick, explains.
“The general concept is that the mortgage cannot default now,” she said. “So it’s marketable and can be sold to another firm to free up capital for the original lender.” This might then be lent out again for below-market housing. Linnick previously performed surveillance on commercial mortgage-backed securities for Fitch Ratings and MetLife.
Linnick also points out that the 421(a) tax break and the resultant rent-stabilization may tie the developer’s hands in the future. “I would imagine this would make it very difficult to sell the apartments, even if it were allowed,” she said. “Stabilized tenants have lease-renewal rights.”
With this decision, Schwartz might be saddled with a property he had once planned to sell out. And under stabilization, the future bumper profits he may have expected could prove elusive.
Hmm February 4th, 2010 at 11:25 am
This is interesting. I just moved in recently, and am curious what will be required now that this decision has been made. Will we need to sign new leases that indicate stabilization? Are current leases still valid since they are market rate and don’t discuss any 421(a) abatement, timeframe, or increase process? Are rents at the current rate legitimate or will they be restructured by the housing dept?
Does anyone know more information about this?
Jeremy Sapienza February 4th, 2010 at 12:08 pm
Stabilized doesn’t mean lower, just that your rent can only raised based on a formula determined each year by the Rent Stabilization Board, so yes your rent rate is legal. Your lease wouldn’t mention the abatement, that’s between the owner and the city. When you renew — and they have to offer a renewal — your new lease will likely mention the stabilization.
vertigo February 5th, 2010 at 6:30 am
Strange, Mayer used to be my landlord in Williamsburg. He’s a pretty savvy guy.
What I don’t understand is that once apartments break $2000, then don’t they move out of stabilization whenever that tenant moves out? So is it only stabilized for as long as the next tenant moves in? If so, get’em while they’re hot.
What else is weird is, essentially Mayer took a gamble on a building, turns out it might not make money, and the state buys up the risk. I hate to see the kind of political horse-trading that took place to make this happen. I mean, if I bought/built a building and it was a bad bet, then who do I gotta fuck or kill to get the state to guarantee my debt? I mean, a whole building at > $2000 rents? That’d be awesome if that many working people suddenly moved into the neighborhood. I know they won’t be mugging me.
Hmm February 5th, 2010 at 9:47 am
If a building gets 421(a) tax abatement, stabilization applies even though the rents are above $2000. I’m not sure if it applies to all tenants in that unit for the duration of the abatement, which is probably 12-15 years, or just the original tenants.
So what it looks like now is that Mayer is allowed to rent out all the units at market rate and then they all become stabilized at that level. But I’m not sure. And the Dept of Buildings doesn’t have the info on the 421 for the building yet, so I’m going to have to check back later.
Don’t forget that stabilization on a rent of 2200+ isn’t really that amazing; the rent can still go up ~ $100/mo every year, so it’s not much different (and could even be worse in this market) than not being stabilized.
Jeremy Sapienza February 5th, 2010 at 10:38 am
Yes, when 421(a) is involved, rents at any level are stabilized for the duration of the tax break. And while this allows for quite large increases even just based on legal hikes, I’m not sure what you mean about it being “worse.” Just because the stabilized rate goes up doesn’t mean the market will bear it. I have several friends who pay less than their legal rent all around Bushwick.
vertigo February 5th, 2010 at 2:48 pm
True, but if I’m a landlord and I’m stabilized, I would feel obligated to raise the max raise every time, and then just under the table accept less than max rent.