Real Estate is a funny thing, especially in the Big Apple. On the one hand, it's a customer service business. A happy tenant is a paying tenant, the more you take care of your building the happier the tenant, and (the theory goes) the more reliable the income. Charge too much, your "happy" tenants move elsewhere. Charge too little and you can't cover your nut. As in most business ventures, the sweet spot's in the middle. But what about when the gig is rigged from the git-go? What if a sweet spot doesn't exist? And what if the REASON it disappeared is that you payed way too much for the property, and promised outsized returns? Enter our current neighborhood dilemma.
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| Robert "ZT" Bremmer - younger than you |
So before we dig any deeper, we need to dismiss that image of the olde style landlord from the thought bubble. You know, the somewhat grumpy but generally amiable Mr. Hooper type. Looks over his glasses to make sure you're alright, then tells you "the apartment has quirks but you can't beat the price, oh, and don't make noise after 10pm...Mrs. Larson has insomnia, and she'll call 911 before she knocks on your door." My time in NYC is littered with stories like these, and Mr. Hooper & Co. are very much still on the scene, particularly with smaller houses and apartment buildings and units in their own homes. The guy who started PLGNA - Bob Thomason - is like that, and he has the glasses to prove it. I know folks that live in his apartments, and he rents below market and is generally considered a decent landlord. There are crooked ones too, but these smalltime lords aren't significant players in the massive neighborhood change that we're currently witnessing.
Mr. Brenner himself lives at Union Square, and his stated interest is in developing a deep portfolio of "underappreciated" buildings. Funny word that, given that both senses of the word are appropriate. What he means is he wants to own lots of properties, in neighborhoods that are quickly gentrifying, and that word portfolio means he may or may not ever visit them all on a regular basis. It's a portfolio, not a get-your-hands-dirty career calling. He's looking at the bigger picture, and so are his investors. There's risk involved, sure. Mostly risk for the investors, but his reputation is on the line as well, and that matters to people like Robert Bremmer. Not so much his reputation with tenants, mind you, since he almost never sees any of them in person. His reputation among his peers. As in, his reputation as it relates to returns. This is, after all, how capitalism works. You get to keep playing if you've won a few times. And we are so deeply insinuated into the heart of that economic animal that we hardly realize that we're all actively engaged in a vast, global experiment in capital. It's neither obvious, nor particularly necessary, to conduct human affairs in this way - these layers of ownership and investment. But, as the economists like to say, it's been proven over time to create "wealth," and since we've decided (again, not because of any inherent truth) that we're okay with the idea of wealth for some and not for others, or rather we're just glad that at least SOMEbody gets the wealth, we don't argue over that basic fact much anymore. In many ways, huge swaths of our society are beneficiaries of the largesse, and America has remained strong as a result of our Ayn Randian ideology. Plus, it's enticing to dream about luxury and the freedom from obligation that enormous F.U. wealth could bring, and hey, you never know. (It's a miracle it all holds together! Except of course, when it doesn't, and all is chaos and vengeance and terror. But that's for the evening news and the international pages...the U.S. of A. has been remarkably resilient against revolution and civil war in the past century and a half, even when the rest of the Earth upheaves.) My point with all that rambling is to suggest that it's entirely possible to be young, bright, even idealistic, and imagine that building a real estate portfolio is actually a noble pursuit. Here's how Bremmer's business partner describes it:
"At the end of the day, we measure our success by the majority of happy tenants we have, the lease renewals we experience month after month, the jobs in construction, maintenance and property management we have created and the continued solid market dynamics that enable our investment partners to want us to continue acquiring properties in Bedford-Stuyvesant and Crown Heights," said Tessler. "These are the communities and values we are thoroughly committed to for the long-term." NYREJSounds great, doesn't it? With that kinda mantra, not only could I sleep at night, I'd probably be bounding out of bed each morning knowing that I was making so many people happy. The reality of course is a bit more, um, nuanced, as we'll see. With the above lines spoken out of one side of the mouth, here's Bremmer giving advice to presumably even-younger-than-him potential magnates:
I would tell them to follow their "gut" and not shy away from taking risks. Five years ago, my first real estate deal was the purchase of a multifamily building in Bedford Stuyvesant, Brooklyn, when few people thought that was a good idea. That deal, like many others that followed, turned out to be extremely lucrative.
Quickly, we acquired 300 units in over 20 properties in Brooklyn, achieving great returns for our investors. You have to be patient and have a vision about how a specific neighborhood will evolve to find value in real estate.
Note that in the parlance of the industry, "extremely lucrative" is much more of an attention grabber than making renters and neighbors happy. I'm not implying that seeking profits is somehow sinister. And yet I wonder which "vision" is expressed in the following piece about a ZT building on the evening news? Please do click the link! I tried to embed it, but for naught. Remember, this is one of ZT's proudest moments, the "deal" referenced in this story:
News4 Piece on ZT Realty
I met Marcia, the woman in the News4 segment with the awful living conditions, on Thursday. She's no whiner, as the conditions in that TV story will attest. She's stressed, scared and angry. But she's not giving in to the pressure and leaving. She knows all too well that her chances for a reasonably priced new apartment are slim. But what I want to know is why on Thursday had her issues not been addressed? I mean, it's been nearly 2 months since that piece on the news. Even if you were a slumlord, wouldn't you have run right over and fix it before someone like me repeated the story? It's hard to fathom how this makes any sense business-wise; unless somehow you decide that fixing Marcia's problems sends the "wrong signal" to other tenants, who might want similar treatment. I'm flummoxed. Btw, 1045 Union, the overwhelming "success story" trumpeted by ZT, had no heat or hot water at the beginning of January for several days. Do you recall the temperature right about then? Ask the tenants; they remember.
There are buildings, and these tenants groups have begun to document it all and protest, that have gone without heat for the entire winter, but tenants can't leave without jeopardizing the one hope of staying where they've lived most their lives. If they leave, they'll never find a place for, say, under $1,000 a month again. ANYwhere in the metropolitan area, at this point. And so it goes. Why is it legal to conduct business this way? Strictly speaking, it isn't. But it's extremely difficult to do anything but fine building owners, and if you've got lots of dough, who cares? This is a numbers game, and sometimes "doing the right thing" is just too costly.
These are most definitely not isolated situations. As I've documented here previously, this is an industry-wide strategy, time-tested and highly predictable. Just like the drug trade, it's simply too easy to stay ahead of the law, even with the new Tenants Task Force that de Blasio trumpets in the News4 piece. Heck you can even sell buildings when the fuzz catches up with you - there's a rumor that ZT is doing just that with 1045. The list that CHTU maintains of building ownership can hardly keep up with the trades. And "trades" they are. Many of these sales are bouncing back and forth between the same dozen or so companies. A cabal? Well, if the backslapping at NY real estate forums and breakfasts is any indication, of COURSE. You don't need to be a conspiracy theorist to note that smart money is incredibly chummy. After all, once you buy a stock it's absolutely worth promoting it to everyone you know! Your own investment can only benefit from company.
(Pssst, know what I would do if I were a "player" in the biz? Toss a building back and forth a couple times with buddies, ratcheting up the price each time, until some less-savvy dupe comes in and pays way more than the building is worth. Maybe a foreigner! Ka-ching! Me and my squash partner have just made ten or twenty million without breaking a sweat (at deals, not squash; squash is sweaty by necessity), sharing the profits along the way. Think it doesn't happen? Heck these guys are super-smart, and technically very little of it rises to the level of felony. Fines and liens are the cost of doing business, not deterrents, tenants be damned. The former ghetto is a cash-cow, and you can bet on its direction at the same time you actively encourage the speed of change. What a deal! And you don't even have to stay in long, before heading to (quite literally) the next stop on the train.)
As long as written history, the landowner/landlord has made the money, and that is perhaps the most central facet of our economic lives to today. Until non-nobility and non-church citizenry began to own real property, the juggernaut of capitalism had little chance of taking off. Trade of goods made many kingdoms rich. But it was the land itself that held the greatest potential wealth. And not just for the commodities under the soil. We made the Louisiana Purchase from the French for $15 million in 1803 (which is roughly $700 million today) and now it is worth nearly $10 trillion today. That sort of wealth has an enormous generational effect as well, and that's worthy of another discussion along the lines of my most current fascination with wealth and race. Check out my post A Race To the Bottom. In a nutshell, most white Americans' biggest asset is their home, and that wealth often passes to the children; but not even half of black Americans own a home, exacerbating the continuing inequality between races. On the biz side too, when you see these real estate conferences and meetings just count the people of color you see. Folks missing a hand can count them just fine.
Real estate continues to be one of safest and most reliable assets in the global economy as well. While not always stratospheric in returns, it is tangible and finite. As Will Rogers said "they ain't making any more." The city of Dubai, and Battery Park City, might disagree, but in general the yarn holds true. Though making more land is surely got to be on the mind of somebody besides the Emir of Dubai, no? If we can create brand new islands...actually, it's worth a detour to consider that idea. This has to be the creepiest video I've seen in a long, long time.
Yikes. Okay, back home. About five years ago in Crown Heights and more recently Lefferts Gardens, the word was out. If you hadn't already started putting your large bets in these neighborhoods, you were going to miss out big time. Study just a bit of NYC history and you'll recognize the same thing happening over and over to the delight of hundreds of moguls - NYC Real Estate only goes up, with little blips, and the smart money goes where it's up-and-coming. Buy low, sell high. From the Upper East Side, to Greenwich Village, to the Upper West Side, to the Lower East Side, from Hell's Kitchen to Lower Manhattan and Chelsea and Tribeca...over the bridges first to Brooklyn Heights then Park Slope and all the brownstoney neighborhoods. Throw in Williamsburg/Bushwick, Harlem, the reimagined Dumbo, even Clinton Hill and Bed-Stuy...it's really not that hard to predict where it goes next. What, it was going to skip over us on the way to Brownsville and East New York? One subway stop at a time please! Real Estate speculation and building follows the train lines. In a city this dense, just makes sense.
And as the NY Times devotes big time to the drought havoc in California this week, why WOULD we encourage the creation of more pollution and drivers and sprawl? NYC is one of the best poised areas for reasonable growth given its steady natural supply of water and decent public transportation. The metropolitan area has 20 million people and is growing, as is the country, as is the world. Sometimes I forget - maybe you do to - that population growth is STILL the single biggest issue facing humanity, as it exacerbates all the others like global warming and famine. The growth slowed a bit from when it became part of alarmist zeitgeist thinking in the '60s and '70s. But honestly if you're going to "lead" you have to imagine the future and plan for it. And in NYC, the plan involves growth along transit, even north, east, south and west of the City. It also involves NEW transit. Say, a new tunnel for trains. Maybe a bridge JUST for trains. Leadership. Vision. Investment. That's the stuff that adults do, and like I always say, we're the adults now.
Nothing odd here. Could've seen it coming. Except for one hitch. Did you ever buy into the idea, like I did, that gentrification all happens relatively naturally? If for one minute, instead of accepting the one seller one buyer transaction, you stepped back and saw the true avalanche that occurs every time a neighborhood gets discovered...then you might begin to wonder about the mechanics of it all, and how is it that so many can make so much money while the rest of us just breathe the exhaust and hold on for dear lives, even as the very few lucky ones watch their homes rise in value two, three, even four times, without even renovating your kitchen. The whole system rests on a certain magic trick...while you're focused on your life, that new baby, a promotion, the need for stability...the whole churn is spinning all around you like a twister, but hey, you've got a busted boiler and a leaky roof and do you have any idea how hard I worked for this and how much humble pie must be ingested to borrow a down payment from the parents?
I'm pointing no finger. If I were, four would be pointing back at me. On Thursday I headed over to the Court Street offices of ZT Realty to see what a good ol' fashioned protest looks like in the rent wars of 2015. I like to note the work of the Crown Heights Tenants Union and Flatbush Tenants Coalition because they're working their asses off to keep people in their homes after years and years of rent-paying in buildings that have supposedly benefited by the influx of capital and refurbishment. It's no secret that folks are scared and being harassed in ways large and small in order to bring rents up to those necessary to justify the prices paid for the building itself. If you're not allowed by law to charge the market rate, due to rent stabilization laws, you gotta get 'em out somehow. The pressure starts at the top and trickles down. More like a downpour.
At ZT's offices last Thursday, a few intrepid protesters from the Crown Heights Tenants Union delivered their demands for fair treatment and fair rents right to the corporate offices of ZT. When I got there around 10:15, I figured I'd missed the action, so I took a chance on going into the building and up to ZT's offices, maybe even get a statement from them. Without hesitation I was allowed in and headed up to the 15th floor. And there, much to my surprise, were a half dozen protesters shouting slogans in the hallway next to the door to ZT's offices. A not terribly menacing security guard was trying to get them to leave...I got caught up in the sloganizing, realizing that I wasn't a reporter after all, just a guy with a blog. Seemed silly to just take pictures, and besides a couple of them sounded hoarse from all the protesting.
Pace yourselves y'all. Looks like it's going to be a long fight.
Hilarious note: that self-proclaimed communist buddy of Boyd's (Anne Pruden) who always calls out and points at me "KKK" - she was there, confused maybe by my presence, as we both chanted "housing is a right." I guess old racists like me and modern Maoists like her really can see eye to eye on a thing or two. Though I have no intention of executing any intellectuals or sending the urban population to starve out on the Iowa plains. I've lived there; it's no great place to live, let along die of hunger. Actually, I know a lot of Iowans. No worries there. It's a well-fed crowd.
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