Predators in the NYC rental market, with Hannah Levintova from Mother Jones

Emily Myers: (00:02)
You're listening to the Brick Underground podcast. I'm Emily Myers. Here. We cover everything you need to know about New York city real estate, whether you are buying, selling, renting, or renovating. In this episode, we're going take a look at the biggest New York city landlords you've probably never heard of. They are private equity fact owners. That is, buildings that have been bought by an entity made up of private investors, looking to make money for shareholders over time. Well, these landlords aren't new to New York, but they are getting fresh attention because they're buying up more properties and tenants are seeing their buildings change. And in many cases, deteriorate. Leaks are ignored. Maintenance is delayed, noisy construction work is going on at all hours, and tenants are being pushed out as well. I'm joined by Hannah Levintova, an investigative reporter who has written about this in the latest issue of the national publication Mother Jones. Hannah. Hi.

Hannah Levintova: (01:00)
Hi Emily. Thank you for having me.

Emily Myers: (01:02)
It's great to have you, Hannah. We are covering this because it's happening right here in New York city. And in your article, you spoke to tenants in Park Slope, Brooklyn who found that their leases weren't being renewed in spite of paying rent on time and being good neighbors. Their building had been bought by a private equity firm, and there's a surprising connection to a fund that supports the Texas public school system. We can get into that as we chat, but how did this article come about?

Hannah Levintova: (01:33)
So the article actually started because, um, one of my colleagues happened to know one of the tenants in the building and heard about what was going on. And I was living in Brooklyn at the time and I got connected to those tenants. And once I started talking to them, I was just kind of floored by the scale of this. I didn't understand right away just how many buildings were being purchased by the same landlord as the ones that their building, um, was bought by. So in the case of these tenants, their building was purchased in early 2021. So in the heart of the pandemic, by a company called Greenbrook Capital, they're a real estate development firm. They had partnered with, like you were speaking about before, uh, a private equity fund to buy essentially pandemic distressed real estate multi-family buildings in New York at the height of COVID when real estate was cheaper, there were fewer renters, there were fewer buyers, it was a prime time to be a buyer.

Hannah Levintova: (02:46)
So they had started buying up buildings, uh, a little bit before the pandemic and then ramped up their purchasing as soon as March, 2020 hit. By the time these tenants who live at 70 Prospect Park West, got their letters from, uh, saying that, you know, you have a new owner and we're not renewing your leases. You have to leave in the middle of the pandemic. By the time they got those notes in the spring of 2021, they started doing some slewing and found out that as from what they could see from property records, Greenbrook had already purchased more than 50 apartment buildings in Brooklyn, more than 30 of those since the pandemic began now in 2022, those numbers have grown exponentially too, to at least 111 buildings, but it could be more, it could be more than 140. And the reason that I have to hedge that number is actually because of how private equity structures its real estate purchases. They buy buildings with these kind of, um, with LLCs that have really opaque ownership structures. So you can't always tell, um, who really is the owner of the building and where the funds are coming from.

Emily Myers: (04:04)
That's actually key, isn't it? I suppose one of the questions is that what exactly are private equity firms and why are they a problem? It seems strange to have a company that is buying up an investment and then treating the people who are paying, so badly.

Hannah Levintova: (04:22)
This is a great question. So at baseline private equity funds invest in, you know, private markets transactions that you and I can't participate in. You know, the way that you and I could go buy a stock on the public market, right? So these private equity firms pool money from huge investors think pension funds or university endowments, or in the case of this Brooklyn story, a sovereign wealth fund in Texas that funds the public education system in Texas. So these firms, they pull money from big investors and they use it to buy companies or assets like real estate. And what they're doing is they're charging huge fees in exchange for what they promise to be big gains for these big wealthy investors. So then the issue becomes how do they get those gains? If they're buying an asset like real estate, it means doing what we're seeing in Brooklyn, because they need to make money quickly.

Hannah Levintova: (05:25)
They're kicking out tenants, they're flipping the units to luxury condos or luxury rentals as quickly as possible so that they can charge double or triple the rent. In fact, in the building that I focused on, there was literally an apartment where the rent doubled, even more than doubled. So they're doing this because they need to deliver big returns fast. They're not invested in the longevity of the asset or the longevity of the building. They need this accelerated timeline to return big gains to their investors, to these people that gave them the funds to buy the buildings. And also to themselves. Don't forget that private equity executives, private equity firms are taking usually a 20% cut of whatever they're doing for their investors plus big fees. Plus, you know, they get tax benefits on their earnings where they essentially, they're making hundreds and thousands of dollars and they're paying a lower tax rate than you and I pay on, you know, our salary, right?

Hannah Levintova: (06:34)
The need to make a lot of money fast is what leads to this, you know, jumping on buying a lot of buildings and trying to get out the tenants that aren't paying as much as they could perhaps be charging for this real estate. And in the case of 70 Prospect Park West, right, this building was totally fine. It wasn't a luxury building, but it wasn't falling apart, but the location is incredible. And so there was clearly, um, what they saw as a financial opportunity there that led to them to not renewing leases of most of the building, kicking those tenants out and, um, re renting their units as luxury rentals.

Emily Myers: (07:17)
Okay. So the reason the quality of life in many of these cases is going down is because, uh, the lower paying tenants are being basically forced out and new tenants will come in, who will be charged higher rents? And of course now, we are seeing that, um, rents have gone sky high in New York city.

Hannah Levintova: (07:37)
Right. And part of it too, is that there's a limited universe of investors that have the money to buy, you know, 20, 30, 40 unit apartment buildings in, in Brooklyn or Manhattan, right? Like that's, you need a lot of money to do that. And as a result, so who has the money to do this at the right moment? The moment when the real estate is distressed, when the pandemic made New York city a less desirable place to live, who has the millions and millions just lying around to do it? Well, private equity funds are, are one of the few classes of buyers that just had that money sitting ready to go. And so you see these private equity backed developers buying up dozens and dozens and dozens of buildings, right? Just this one, one firm I wrote about bought more than a hundred in Brooklyn. And so it, it also hurts quality of life because it's just eroding an already limited, the limited universe of affordable housing, um, of units that might be a little bit below market.

Emily Myers: (08:52)
Yeah. It's pushing people out of their neighborhoods. It's shocking to, to hear really, but, and, and of course your article mentions how these types of investments got a foothold, um, during the mortgage crisis and the recession of 2008. And, and again, during the pandemic. I think as I believe this came to the attention of Brad Lander, now, uh, New York City's comptroller, uh, but then he was a city council member and, and a long time tenant rights advocate. What did you hear from him?

Hannah Levintova: (09:26)
So, yes, that's exactly right. Um, the, the tenants at 70 Prospect Park West, um, were not the first building to be bought by Greenbrook and it's, um, private equity partner firm, which is called NW1. Um, but they definitely were sort of, uh, became the, the locus of the organizing to try to fight back and keep their homes. Um, and they, started canvasing around Park Slope where a lot of the Greenbrook purchases were concentrated, but also Bushwick, which was another locus of Greenbrook purchases. And in the course of their organizing, they got in touch with Brad Lander, who, like you said, longtime tenant rights advocate, Lander in partnership with two other lawmakers actually wrote a long memo where he explained that this was very much a pandemic distressed real estate strategy. This was literally big financial firms capitalizing on the pandemic.

Hannah Levintova: (10:32)
He outlined that in his memo, um, he talked to tenants in about a dozen buildings that had been bought by Greenbrook to get a sense of their experience and heard a number of horror stories from these tenants that included, you know, um, Greenbrook coming in and doing construction at all hours, drumming up construction dust, um, one tenant in one of the Greenbrook buildings that was trying to, you know, hold on and stay in the building and not have to leave actually, had an asthma attack and was hospitalized because of all of this construction dust. Tenants, you know, were having to wear masks around the hallways of their building, not for COVID reasons, but for construction dust reasons like construction, debris being thrown out of windows. This is, you know, he really broke all of this down in pieces. He put together this memo to call on the Texas Permanent School Fund to divest their investment from this strategy. So to back up this Texas fund had invested a hundred million with NW1. This private equity firm, NW1 then took a chunk of that money, partnered with Greenbrook for this Brooklyn multi-family portfolio to buy up Brooklyn buildings. Um, and that gets at, I think, a sort of difficult dynamic here because just in this case, you know, the interests of like public school students and public university students in Texas are being pit against the housing needs of new Yorkers.

Emily Myers: (12:20)
Yeah. I mean, it's a business strategy that seems to take from one vulnerable group and give it to another,

Hannah Levintova: (12:27)
Right. And the people that arguably see much of the upside and little of the downside of that don't have a stake in either piece of this, right? They're the private equity executives that are organizing this deal and taking a nice slice, a nice cut of it. Um, while both New York apartment tenants and public school students in Texas lose out.

Emily Myers: (12:58)
Yeah. Those involved in the public school in Texas, I think were, were quite shocked about how the money was being used.

Hannah Levintova: (13:06)
Yeah. The Texas education board, they hold public meetings every few months. And this was raised, um, the, the tenants at 70 Prospect Park West organized other tenants around Brooklyn in Greenbrook buildings to write to representatives in Texas on the education board to say, "Hey, this is what your investment is doing. Your investment is leading us to have to leave our homes," homes, where people, you know—I met people who had been in their homes for like 30, 40, more than, you know, 50 years. And a few of the members were quite shocked and were trying to push the board to develop an ethics policy for their real estate investments to say, "Hey, you know, there's a lot of ways we can be making money. Maybe we shouldn't be making money on the backs of tenants in Brooklyn, let's invest in something else." Um, and one of those members, Aicha Davis actually was so disturbed by this, she flew to New York. She had never been to New York before in her life. And she went to Brooklyn to see these buildings for herself to essentially fact-check, you know, what she was being told by the investment advisors with her own eyes. And I talked to her about that trip because, uh, it was all new to her. Brooklyn was new to her. Everything was new to her. And she was, she had sort of been led to believe that this was a small problem, that this was just a few tenants that were just kind of a, you know, they had a lot of money. They live in Park Slope and they just didn't wanna pay a little more rent and they were making a ruckus. Um, and then she went and she met a bunch of tenants and she told me that she realized these are not, you know, super wealthy people. These are pretty average, middle class people, they're teachers, they're social workers. They're young professionals who are living with housemates to make things work. People like that

Emily Myers: (15:07)
Changing that kind of policy takes time. Meanwhile, the tenants are, are fighting to stay put and trying not to be intimidated, but that's a tall ask while they're juggling work and family and resisting the pressures to move. You're talking about, uh, the renovation dust, you know, that those are sort of classic sort of harassment, uh, techniques, no?

Hannah Levintova: (15:32)
Yes. And actually, uh, one of the things that the tenants discovered when they started researching their new landlords was that, um, the housing department in New York city had actually sued Greenbrook for doing construction as harassment. And for trying to kick out rent-stabilized tenants and other forms of sort of landlord negligence that, um, you know, not fixing things and things like that. So yes, the tenants are fighting back while juggling their lives. And at 70 Prospect Park West, the tool that they have used to fight back was actually they requested their rent histories from the New York Division of Housing and Community Renewal, which anyone can do it's totally free. And through that figured out that it looked like, um, their apartments had been destabilized illegally in previous years by, by different landlords. Um, but because Greenbrook was now the landlord and now the new owner, they could sue Greenbrook to essentially, um, reinstate their stabilization status.

Hannah Levintova: (16:45)
And that lawsuit is ongoing while it's going on. They're able to stay in their homes. Um, if they win, then that could put some of a, a bit of a dent in Greenbrook's investment, uh, at 70 Prospect Park West, because it would mean that they'll have to pay back overcharged rent across many, many, many years, thousands of dollars. And it would mean that they have to charge the newly stabilized price, which is a lot less than the kind of, you know, luxury rent that they were likely hoping to charge. So that right now is the tool, the legal tool that they have in hand to stay in their homes, at least for now.

Emily Myers: (17:28)
So taking a legal route is perhaps an option for tenants?

Hannah Levintova: (17:31)
It's funny when I started reporting this story, I mentioned it to a couple of friends who had also gotten notices of a new owner of their apartment building in Brooklyn. And it, it was, it turned out that it was essentially the exact same story, different firm, not Greenbrook, but same deal, right? A private equity backed firm, buying their building, saying, we're kicking you all out. We're not renewing your leases. Um, those tenants requested their rent histories. It was an illegally stabilized building. It was the same thing over and over again. So I think for renters, um, if you're seeing ownership changes in your own building, there's a lot of tools you can use to try to research who your new landlord is, um, requesting your rent history is critical. You can, there's a number of websites that you can use. You can look at ACRIS, which is the property record repository in New York city. It's free to use, it's online, it's public. Also HPD violations—so the Housing Preservation and Development, the housing department in New York, looking at HPD violations data, um, there's mapping tools out there that sort of, that were created to connect all of that data. The particular tool I'm thinking of is called "who owns what in NYC" and it was built by a coalition of, um, advocates from various housing rights organizations in New York to, um, make seeing essentially to, to see the connections between if your landlord might actually be tied to 20 different buildings in one borough. That might be a sign that, okay, this is some sort of corporate landlord, perhaps they're backed by private equity money, or other investor money. So doing that research and having that information in hand, I think can be helpful for tenants as they think through what their next steps are, whether that's reaching out to lawmakers, the way that 70 Prospect Park West did by getting Brad Lander involved, or, you know, finding a lawyer to help take a lawsuit forward, like several Greenbrook buildings have done.

Emily Myers: (19:51)
Yes. Uh, and actually, I mean, one of the takeaways as well is to kind of be involved in the sort of status of tenants activists and tenant rights, because, uh, one thing that didn't happen that I know a lot of tenants were keen would pass in the last legislative session was the Good Cause Eviction laws. They stalled— activists, are actually promising to introduce it again, but there was a lot of opposition from landlords. What the bill would mean is that you can't be evicted unless there's "good cause," and that's something that effectively extends the rights of rent-stabilized tenants to every renter and obviously tenants in rent-stabilized apartments get that automatic lease renewal. There's also a cap on rent increases and the Good Cause eviction bill also restricts these massive rent hikes, tying increases to a consumer index. But, I guess if passed in the future it would mean that tenants, like the ones you've mentioned, couldn't just be evicted because there's been a change in ownership and the new owner wants higher-paying tenants.

Hannah Levintova: (21:06)
Exactly. That's I think that's the key piece of what would make the Good Cause Eviction bill so important for tenants and so important to just the housing infrastructure and housing availability in New York, right? Because if Good Cause eviction exists, then private equity investors who are doing a ton of analysis before they go and spend millions of dollars on a building, they would know, "okay, we can't kick out a bunch of tenants to then triple the rent the way that they have done in, in Brooklyn," which would totally change the calculus for investors of, is it worth it to buy these buildings? Is it worth it to flip these units into luxury condos? Right? It, it makes it all, it puts a huge wrench in that kind of, um, real estate investing by super wealthy investors in a way that, you know, would, hopefully, um, preserve some more affordable housing yeah. In New York at a time when, you know, like you said earlier, what's the median rent now in Manhattan, like $4,000. It's crazy.

Emily Myers: (22:22)
Yeah. And in fact, the, the private equity firms really do a disservice to the small property owners as well because I've spoken to small landlords who have fought hard against the good cause eviction, bill saying that they are being squeezed by rising utility costs, insurance, premiums, and taxes. And they say that the bill is riddled with problems and would've overwhelmed the courts as tenants challenged their rent increases. But in a sense by lumping small landlords in with these massive private equity firms, you know, nobody wins.

Hannah Levintova: (23:01)
That's a really good point. Yes. Right. It's very different. A mom and pop owner that may, might own one or two buildings, you know, perhaps they put their life savings into it. Perhaps this is their source of income compared to a kind of faceless investment firm that is throwing around millions and millions and millions of dollars that belong to someone else. Um, and you know, taking a cut off the top for themselves as well. It's totally different.

Emily Myers: (23:30)
Do you have any advice then for someone who perhaps knows that their building is going to be bought by a private equity firm?

Hannah Levintova: (23:39)
So I think that it would actually be really hard to know in advance because sometimes it's hard to know even after it happens because a lot of these private equity backed firms are using opaque LLCs to buy the buildings. Um, but I think in general, requesting your rent history, regardless of who the owner is, is helpful because, um, a lot of buildings have been destabilized in the last 20, 30 years in New York. And it's worth it for you to figure that out regardless of who your landlord is.

Emily Myers: (24:20)
Yeah. And in fact, uh, we've written about this quite a lot at Brick Underground, um, because the Housing Stability and Tenant Protection Act that was passed in 2019 did actually improve tenant's ability to collect rent overcharges from landlords who illegally deregulated their apartments because it increased the timeframe or the look-back period, for your apartment. So, It's really worth exploring that isn't it?

Hannah Levintova: (24:48)
A hundred percent. Yeah, of course. It's free to get that. Absolutely. In New York city.

Emily Myers: (24:54)
I suppose, like you mentioned one way of addressing it is through tenant protections, but the other way of addressing it would be to regulate this kind of activity?

Hannah Levintova: (25:01)
That's right. One of the other kind of broader regulations that we haven't talked about yet, but is important to regulating private equity and real estate, but also private equity investment generally is this—so private equity firms and their executives enjoy essentially a special tax status that makes these already lucrative investments, even more lucrative. And it's a loophole that allows executives to pay a lower tax rate on their earnings. They essentially pay the capital gains tax rate instead of the income tax rate on the gains that they get from their investments, from these, um, you know, newly flipped apartment buildings in Brooklyn from, you know, whatever it is that they're buying. Um, and that, that makes this industry so incredibly lucrative, like we're talking hundreds and hundreds of thousands of dollars a year for mid-level, you know, private equity executives, um, and, and managers. Um, and that's, that's something that on the national level, several presidential, uh, candidates and presidents on both sides of the aisle have promised to do when they've run for president Barack Obama promised to do it and he didn't do it. Trump promised to do it. He didn't do it. Biden promised to do it. We'll see what happens, but closing that loophole and forcing these earnings to be taxed at a higher rate would change the calculus again on the profitability of these sorts of real estate investments for private equity firms. I'm not saying it would make them go away, but it would certainly change the calculus and perhaps rein in the spread of this kind of investment. An additional kind of hard piece of this is that because private equity firms have so much capital. So just to give you to quantify that two years into the pandemic private equity firms around the globe had acquired about $377 billion in cash reserves intended for real estate investing. So, because they have literally billions of dollars when a small mom and pop landlord, you know, needs to sell, they, these are the people they sell to because they're, they can offer more than anybody else. Um, and I think that that's important to, to keep in mind as well, the sort of transfer from mom and pops who are, you know, they're just trying to, maybe they're getting up in age and they can't manage as many bills or whatever it is. These are sort of the obvious buyers that they end up going to cause they offer the most money.

Emily Myers: (27:54)
Yeah. So the result is that the, you know, New York city loses more lower cost housing as a result.

Hannah Levintova: (28:00)
Exactly. Yes. So kind of returning to Brooklyn and you know, how are the tenants that you spoke to for this article? How are they now?

Hannah Levintova: (28:10)
To be honest with you, most of the tenants in the Greenbrook buildings, you know, the more than a hundred buildings have left. At 70 Prospect Park West, the building I zoomed in on the, I believe it's six tenants who are on the lawsuit. They are the only six, uh, that got the original notices that remain in the building because it's totally exhausting, um, to, to fight, to have this kind of a fight and it's destabilizing, right. You know, you're worried, "am I gonna have to find a new place to live in," you know, the snapping my fingers in 30 days, if this doesn't work out, I talk to people in the building who have kids. Um, one of the tenants has raised, you know, her and her husband raised both of her kids in the building. Um, they, they are on the lawsuit, they're fighting back, but it's, it's really stressful. I talked to tenants at another Greenbrook buildings who opted to move out because they had, you know, a newborn and it was just too much, you know, they were like, we can't, we have a newborn, we have jobs. We can't live in this uncertainty. So, um, there's a small group of tenants that are still living in the uncertainty. They've really garnered a ton of attention. So the, um, the tenants, 70 Prospect Park West, um, one of them testified at a Senate hearing. Uh, another Greenbrook tenant testified at a Senate hearing as well. You know, Chuck Schumer lives on Prospect Park West just a few blocks away from them. So they had Chuck Schumer come and speak at one of their rallies outside their building. So they've garnered a ton of attention, um, to their cause and to their fight as they continue to try to hold onto their homes. And my sense from them is that the, this core group that's still there, they're quite determined to do everything they possibly can to stay.

Emily Myers: (30:16)
So bottom line, it is very hard to fight against private equity landlords, but you may be better off with numbers. If you can encourage your neighbors to fight with you, create, a community of fighters, uh, and get, uh, lawmakers, get the attention of lawmakers.

Hannah Levintova: (30:40)
That's definitely what this group has done. And it, it's interesting, you know, a couple of them said things along the lines of, "yeah, it's really exhausting to fight this, but also where are we gonna go?" Right. Like, it's not so easy to just move out because this is stressful and destabilizing rent in New York is so expensive right now. So, you know, for how hard this is, we have to keep fighting because we don't know where we could go to possibly afford that's remotely in the neighborhood or near the neighborhood where, you know, we've built our lives. Um, on two, who is one of the main people in the story and has lived in her apartment in Prospect Park West with housemates since the last financial crisis, you know, she was like, where am I gonna go? I've been here for 12 years. I've built my life in this neighborhood. Um, yeah. So I think that this, the sort of dystopian, that's an extreme word, but the dystopian nature of the rental market is a kind of, um, you know, a motivation for lack of a better word to keep, to keep trying to fight and hold on.

Emily Myers: (31:56)
Wow. Well, Hannah, thank you so much for your reporting. Um, we'll put the resources that you've mentioned in this episode, in the show notes. I should say that Brick Underground.com has lots of articles on every aspect of buying, selling, and renting in New York city, including plenty of information about tenant's rights and how to negotiate your rent either when you're signing a lease or when you're renewing. We also have, uh, articles with in depth neighborhood Intel and our market reports take a look at some of the data on deals and leases, and they can be useful as you navigate your housing goals, whatever they are. You can sign up to our newsletter. We also have helpful tools like a rent calculator, if you're confused by gross and net effective rent, and we love answering your questions. So please do get in touch. Hannah again. Thank you so much. It's been, uh, very enlightening chatting to you. So I appreciate your time.

Hannah Levintova: (32:51)
Thanks so much for focusing in on this and for having me on .

Emily Myers: (32:55)
I'm Emily Myers. Thanks for listening to the brick underground podcast. For more information, head to brick, underground.com. The podcast is produced by myself and Jenny Falcon.