The Q at Parkside

(for those for whom the Parkside Q is their hometrain)

News and Nonsense from the Brooklyn neighborhood of Lefferts and environs, or more specifically a neighborhood once known as Melrose Park. Sometimes called Lefferts Gardens. Or Prospect-Lefferts Gardens. Or PLG. Or North Flatbush. Or Caledonia (west of Ocean). Or West Pigtown. Across From Park Slope. Under Crown Heights. Near Drummer's Grove. The Side of the Park With the McDonalds. Jackie Robinson Town. Home of Lefferts Manor. West Wingate. Near Kings County Hospital. Or if you're coming from the airport in taxi, maybe just Flatbush is best.

Sunday, July 13, 2014

Beginning to Understand

The Q's been reading everything he can about the way high finance works when it comes to rapidly changing Brooklyn neighborhoods. Because for the life of me, I can't quite come to grips with the RATE of change. Not that neighborhoods don't change, and all over NYC we've witnessed the re-urbanization of the middle and upper classes for decades. A lot of us felt, many years ago, that the trajectory of prices in Lefferts would trend higher as folks decided it was a pleasant and less expensive alternative to others. (I'm primarily interested in rents in this post, though, because the value of townhouses seems the result of limited supply and pent up demand as much as regular ol' NYC price games. The tripling of prices in a decade is truly irrational without considering a psychological element, and massive propaganda. And clearly, a lot of people grew up on Sesame Street, and they want to live above Ernie and Bert. Probably a little more that, thank living under Spike Lee in Do the Right Thing.) Something is happening beneath our feet, not a conspiracy per se, but more a financial convergence, and it was killing me that I couldn't quite grasp it.

On a fact-finding mission, Thursday I met with Celia Weaver of the Urban Homesteading Assistance Bureau. UHAB may be a mouthful of a name, but a trusted resource since 1973 when it comes to keeping folks in their homes. They came of age in the era of "The Bronx is Burning," when thousands of City properties had been abandoned by landlords unable to unload them at any price. To stop the bleeding, an ingenious formula was devised to legally transfer buildings to the (often poor) tenants in the form of "limited equity coops." There are still lots of them around from those days, and proud homeowners they are, though some units have since transitioned into market rate buildings after certain terms were up and owners could reap the benefits of selling a home. The idea was an oldy but goody; give people a stake in their home and they'll do everything they can to improve the building, its block, its neighborhood. One could argue that it was the fearless generation that STAYED in NYC through its near-bankruptcy and subsequent drug wars that deserve the real kudos in the current renaissance, as many of the best blocks and buildings owe their allure to the conscientious prior gentry. Detroit is going through a similar defining moment right now - by investing in the various sorts of potential homeowners willing to give Detroit the old college try, the whole boat can gradually rise together. It happened here, it can happen there, though being a world capital of culture didn't hurt NYC. Oh, and Wall Street, though there was a time folks wondered whether Wall Street would just up and move to the 'burbs as well.

All well and good, I get it, you get it. But still, something more...

The idea that I learned and honed through my talk with Ms. Weaver is that the underlying speed with which things are moving is very much related to the rapid buying and selling of debt related to the big residential buildings all around us. Sure developers are building new stuff, like 626 Flatbush, and that garners a lot of the attention. But the biggest story here in Brooklyn, I would argue, is that Wall Street, and the biggest banks and real estate players, have made enormous bets on the upward trend. By doing so, they've warped the game considerably. I'll use one building, one realty holding company, and one set of personal stories to illustrate. However, in a spreadsheet sent to me by Celia, I was able to see dozens of big apartment buildings in southern Crown Heights and Lefferts Gardens that are going through the EXACT same scenario pretty much simultaneously. (I know some of you finance experts are saying "duh," but trust me when I say the vast majority of folks have no idea how any of this works. I'm writing to them, and you can feel free to gently correct me on the details.)

85 Clarkson Avenue is in many ways a run of the mill gorgeous multi-family, pre-war apartment building. It was purchased about a decade ago by Pinnacle Realty. Forget, just for the moment, that Pinnacle has a horrible reputation in this town for putting out longtime tenants by using unethical practices.  Pinnacle made a bet on this neighborhood about then, sensing that the neighborhood had a big upside to ride. They bought the building at roughly what it was worth, a calculation based on current rent rolls and projected maintenance costs and typical rent increases. During the frenzy that came before the great crash of 2007-8, they were slowly but surely easing out old-timers at 85 and renting to fresh faces. Some claim they were specifically renting to young whites, though no one managed to prove it in court. In fact, just after they bought the building they fired the longtime super, Jose Diaz, a typical practice for Pinnacle. They wanted new blood and a new attitude. The super and the tenants were shocked. But frankly, 85 didn't really "take off" as they'd hoped, and they found themselves in a bit of a holding pattern. Had that mid-00s boom not burst, I suspect Pinnacle would have been where it is now in, oh, 2010. But it took a little while for them to sense that the time was right for the big transition. They got the greenlight a year or two ago, from the industry itself essentially, to go for it. Crown Heights North was cooking with gas, and CHS and PLG were on deck. And guess what they did, according to a friend that lives there? They fired the longtime super, again someone who was popular with tenants.

And this is where I would like to make a particularly devastating revelation very, very clear. I'm even putting it in bold, and I wish I had it on tape. Just before this most recent super was fired, he told my friend that the landlord has had enough, and that they were going to "stop renting to black people." Or perhaps more accurately, one would presume, certain KINDS of black people, when such a distinction can be made. One might imagine that Pinnacle would make exceptions for the right sorts of credit histories, demeanor or resume. Why not throw the book at them, you may ask? Well, if you don't do the undercover work, you're not going to be able to prove anything. Here's an example of building in the neighborhood where the AG DID an investigation, and they nailed landlord Yeshaya Wasserman for the crap I just described.

Then, a few days later, a good friend and block association colleague, and longtime resident of the block, told me that HER landlord was gonna stop renting to black people, and that in fact he'd been trying to do that for some time and found it hard to keep them for longer than a few months. Which, as I've come to learn, is not such a bad deal for a landlord looking towards a day when his building stops being regulated.

Then there are the numbers. What's amazing to note from the data I received was the remarkable amount of new debt that Pinnacle has taken on this year alone, throughout their portfolio of buildings. In many cases, they've added 25% or more to their mortgages. Why would a landlord do that? Well, for one, (like the joke about why a dog licks his balls) because he can. Plus, having more money to play with means you can go out and scrounge for more properties to buy and deals to make. An analogy might be the way a single family homeowner can go refinance and take out some cash and go to Vegas with a sure-fire plan to beat the house. On the upside, some of it is probably going to renovating apartments as they became vacant to attract a new clientele. Maybe a new roof, or a lobby paint job. Some of it can be used to "buy out" current tenants to make way for the more affluent ones behind them. In a nutshell, though, they're banking on a swift upward trend in rents, and they'll need to be aggressive to make that happen. A sharp downturn in the market and they could find themselves drenched in red ink, having to unload their properties quickly, to yet another investor interested in "distressed" properties, which is how many of these current big landlords described the properties when they bought them.

The other wild thing to note is that it's not just banks that are lending and buying and moving cash around. Big hedge fund types like Blackstone and Colony are gobbling up properties too, sometimes even single family homes that they can rent while they accrue value. All these lenders are also involved in...and here's the head-scratcher...the exact same forms of mortgage-backed securities that got us in the last mess a mere six years ago. Bundling. Tranches. The whole nine. With commercial buildings it's a little different than single family homes, but not much. Leverage. Making fast bucks and passing off questionable loans into packages to be sold to investors. (We can only hope Uncle Sam has learned a lesson and won't buy up a lot of these questionable loans and leave you and me on the hook.) Depending on your perspective it's "adding liquidity to the market" or "Ponzi with an MBA."

Stepping back from the mumbo jumbo for a minute, what I'm really saying is that when Big Money discovers you, the jig is up, or perhaps more accurately the jig is rigged. The sad part is that this is what Rent Stabilization was meant to protect tenants from - the vagaries and the greed inherent in the markets. Were we talking about other goods or services, maybe a case could be made that such profit motives worked to everyone's advantage - say, the tech industry. But we're talking about people's homes here. Remember the three basics? Food, clothing, shelter. I'd add clean water and health care to the list. And maybe coffee. But honestly, have we really sunk so low that Commercial Mortgage Backed Securities (CMBS) are more important than a family's two bedroom home sweet home? We're not talking about gilded mansions here, or "summer" homes. The vast majority of residents are either seniors, children or working people, not spongers, as those on the right might want you to believe. (We know better; we live here. Real people are all around us, not caricatures.) The irony of course is that so many of the working people living in these rent stabilized apartments are in the business of servicing wealthier people's "needs" for upscale food, clothing, shelter and, particularly around here, health care. And some are in the business of servicing the whole city's needs for sanitation and teaching and nannying and plumbing and housecleaning and yes, of course, everything else under the sun. But my main point is that what we're really talking about here is honest, decent folk. You could stereotype a building's people by the nastiest of its tenants, but that would buy into a narrative that simply isn't true. Suggesting that wholesale change in a building is GOOD for the neighborhood is like throwing out the babies with the bathwater, and I don't know about you but I LIKE babies.

Organizations like Flatbush Tenants Coalition and the recently mobilized Crown Heights Tenants Union, with assistance from UHAB and PACC (Pratt Area Community Council) and others, are becoming much more assertive in arguing for a more just and humane response to Brooklyn's surge in popularity among affluent renters. In the case of the CH Tenants Union, you're seeing a crucial alliance developing between longtime residents and younger newer tenants fighting to keep their apartments during management companies' efforts to bring rents up to support underlying debt. For many landlords, the young middle class renter who can afford a $1500 or $2000 apartment, often as a share, can help accelerate the desirability of the neighborhood. Better yet, many of these renters don't stay long, giving landlords another opportunity to legally add significant dollars to the baseline rent stabilized rate. Remember, once the apartment is out of stabilization it's out for good. So the race is on...get out of RS before Albany acts to up the $2,500 limit or de Blasio gets creative preserving affordable housing through...oh I don't know, I'm not the housing expert. Something creative.

So how does the Crown Heights Tenants Union go about creating these alliances? The old fashioned way...going out to the buildings that are identified as over-leveraged and putting up flyers and meeting in lobbies and educating tenants of their rights and the need for solidarity. Come join them on the 17th for their next meeting. Each building must create a solid tenants association to work with the landlord. The Tenants Union is getting tons of press, and its numbers are growing daily. Housing advocates are watching closely to see if this new alliance has legs. If you're interested in helping see that your building owner plays by the rules, and you're interested in being part of a movement for housing justice, by all means contact the Union or the Coalition via their websites. Or contact the Prospect Lefferts Gardens Neighborhood Association, which is becoming more active on the issue. Or me, and I'll rout you to the best contact at any or all of the above.

Lastly, you may be wondering which buildings Pinnacle now controls. List below. But remember, it's just one of a few powerful companies that owns a big portfolio around here. Most of these are located within spitting distance of Lefferts, but a few are right here and with all this new money flowing in, I suspect we'll see more purchases in the next year or two. I'll be seeking out more lists like this to see what buildings are ready to pop.



1171 President Street3991
382 Eastern Parkway 46 88 $1,004,916
225 Parkside Avenue 126 64 $4,568,762
991 Carroll Street 69 54 $2,001,751
681 Ocean Avenue 60 37 1,897,549
1554 Ocean Avenue 71 35 $2,059,413
459 Schenectad 90 31 $3,218,176
176 Clarkson Avenue 91 31 $2,462,088
3301 Farragut Road 42 30
489 Eastern Parkway 16 27 $1,689,595
481 Eastern Parkway 17 17 *
497 Eastern Parkway 16 9 *
40 Argyle Road 49 22 $2,392,567
28 Argyle Road 31 0 *
307 12th Street 25 22
1535 Ocean Avenue 45 20
1362 Ocean Avenue 48 20 $1,257,626
619 Rugby Road 16 19 $1,108,140
615 Rugby Road 16 12 *
607 Rugby Road 16 17 *
292 St Johns Place 16 16 $417,896
926 Carroll Street 58 16 $1,639,744
916 Carroll Street 58 15 $2,138,344
85 Clarkson Avenue 71 10 $2,047,472
529 East 22nd Street 48 8 $1,744,916
601 Crown Street 27 3 $552,047
426 East 22nd Street 64 67 $1,866,203
222 Lenox Road 158 44 $3,535,660
176 Clarkson Ave 91 4 $2,462,088


Noel Hefele said...

So what happens when these enormous bets don't pan out? Speculative economics already created enough trouble—the likely endpoint of this trend is disturbing.

Unknown said...

I was expecting the 'change' to happen about three years ago, but then 2008 happened and it slowed things down a bit. I'm no Nostradamus, I just saw the same thing happen in the East Village, and Williamsburg, and then the Lower East Side. It happened in Ft. Greene and DUMBO too, I just didn't observe those transformations. It's not rocket science, just look at subway travel times to midtown and downtown and identify the next stop out that hasn't had the tsunami hit yet.

The population of the city is growing, but we're not building subways nor light rail nor nearly enough housing so the income requirements to live 20, 30, 40 minutes from work will continue to increase. And the march happens neighborhood by neighborhood because this allows the real estate market to work efficiently.

Our neighborhood will change more than most people thought five years ago, but less than most people fear. But I don't think we will turn into Park Slope or the East Village. Part of that is hope of course, but we also have a huge historic district and very low turnover throughout the neighborhood.

There can also be positives. Rogers Ave was a thriving commercial strip 50 years ago. It can be again if some of those businesses priced off Flatbush Ave move there. Especially with SBS restoring some of the mobility that used to exist on Rogers Ave before we tore out the trolley tracks and turned that street into a highway.

babs said...

You don't know the half of it - Pinnacle is linked in with so many other companies, and they trade properties like diamond dealers trade stones.

Let's talk about 35-41 Clarkson Ave. Do you know who owned those buildings in 2008? A Pinnacle-controlled LLC which sold it to a related company (also an LLC) for $3.5 million and then the warehousing began.

What do we have now? Ta da! Condos!

Follow the money and it's all not going too far from the source.

Sean said...

Is there any hope that this bubble is going to burst? My wife and I moved here because we were looking for an affordable place in a decent neighborhood, and we found it. But I guess we got here just at the right time because if we were looking for it now, we wouldn't find it here. We love the neighborhood and we'd like to stay here and maybe buy a place eventually. But the prices are going up faster than our income, and faster than we can save.

Alex said...

So dirty and sad. The amount of debt associated with 225 parkside is shocking. That building looks like a pit of despair from the outside and seems like it needs "cleaning up" in certain ways, but I am sure that productive, honest folks will get caught in the crossfire.

Overall, price increases around here are really freaky and I hope that they stabilize soon. Seriously doubt that they would go down much even if the bubble bursts - they didn't in 2009 - or if they did, it was for a few months only, 10 years ago prices were so low, but I think that's because people outside the neighborhood literally did not even know it was here. Friends of mine who lived at the 7th ave stop in 2004/05/06 barely thought twice about whether subway stops after theirs existed. Lefferts was late to be "discovered," and now that it has been I think somewhat affordable prices are gone for good.

Clarkson FlatBed said...

Thanks for the perspective Daniel.

I should qualify every post like this one. I recognize as much as anyone the need and inevitability of change. I do want people to recognize however that change is not just a natural progression. In many ways, it's manufactured and engineered to maximize profits. Same as it ever was. It's not like the people living here now don't appreciate the Park and the commutes. Many are being written out of the neighborhood's diversity systematically and often illegally. Read the NY Times and you'd think it's all for the best. No offense to anyone intended. But I think it's worth noting how one-sided the information flow happens.

diak said...

Just so we know who's who while we try to figure out what's what, I did a little googling I found that in NYC there is a Pinnacle Realty who are brokers, and a Pinnacle Management Co. From their websites, it doesn't appear that they share anything but a name. Anyone know differently? Babs?

It would seem that Pinnacle Management is the culprit here. The mission statement on their website —especially the "commitment to tenants" paragraph — is particularly ironic in light of Mr CF's piece.

babs said...

We're talking about the Pinnacle Group here ( - I've never heard of Pinnacle Realty, and from the looks of the people who work there they are definitely not related. Note that there's also a plain old Pinnacle Management company that provides business services and also has nothing to do with the types.

no_slappz said...

Clarkson, it looks as though you're learning about finance and leverage.

Why do property owners leverage up the way they do? Because the supply of real estate is limited. Moreover, even if de Blasio becomes the king of new construction, rubber-stamping every project that needs his signature, supply will lag demand.

Rent stabilization ensures a permanent shortage of available apartments. There are One Million rent stabilized apartments in the city. Thus, a lot of people will stay put till they die, and given the lax succession rights of rent stabilized tenants, their children may suddenly move home to take over the leases.

It's been stated that about 90% of the apartments in PLG are rent stabilized. Thus, to accommodate its share of the city's growth, either new buildings go up, or stabilized tenants are urged to move.

Why do property owners refinance their properties? When interest rates are dropping, as they did for the last several years, the value of properties rises. The Fed has driven rates to historic lows, which has been a boon to anyone holding a rate-sensitive asset. Real estate.

What are they doing with the money? Most likely buying more property, or, as you suggested, making some improvements in existing buildings.

On the other hand, our new Fed chief, Ms Yellen, who's from Brooklyn, has stated the Fed will stop (maybe only cut back) its bond-buying program by October. That suggests we're in for higher interest rates.

How much higher? Impossible to say. Ideally she'll guide the Fed in a way that will allow rates to rise enough to help savers a little and not hurt borrowers too much.

But a shift in policy that implies higher rates does suggest we're close to a near-term peak in real estate valuations. However, the limited supply of NY City real estate suggests that somewhat higher rates won't stop the rise of prices, or rents.

A little slowing, perhaps, but not a full stop.

As for the securities involved, well, news flash, it was NOT mortgage-backed securities that led to the big trouble of several years ago.

The problem was the borrowers themselves. Credit standards were loosened and it was possible for someone with a lousy credit score, crummy job prospects and NO money for a down-payment to buy a house. Congress, by allowing speculators (that's what you are when you buy something without putting your own cash into it) to rampage through the housing market, was responsible for the debacle.

If all borrowers had been required to cough up at least 10% of the purchase price, there would have been no credit crisis.

Wall Street merely works with the hand it's dealt, and in this case, Congress distributed a deck of wild-cards. One of the most egregious was the way it lowered credit standards for mortgages purchased by Fannie Mae and Freddie Mac.

We got hammered by Predatory Borrowers. The lenders played by the crazy rules.

So once again, I say let there be development of Floyd Bennett Field. It's big enough to accommodate many thousands of apartments in uncramped style.

Clarkson FlatBed said...

Sob...sniffle...poor Wall Street. Once again hoodwinked by those crafty predatory borrowers.

Yes, Slappz, it's the job of the borrower to know what's good for him. After being sold a lot of horse puckey about the limitless potential of real estate, it really was the fault of the small investor or eager home-buyer for not understanding that overextended borrowing (outsized leverage) should be left to the experts (Banks and Wall Street), who would NEVER in a million years make a bet that wasn't safe.

The "predatory" borrowers were working in thousands. Wall Street in billions. The folks selling sham equities knew better. Blaming the victim is so easy, isn't it? "She was ASKING for it..."

babs said...


The idea of "Predatory Borrowers" is as ridiculous as all those "Welfare Queens" out there living in the lap of luxury on their Food Stamps and Section 8 housing vouchers.

diak said...

It might be hard to argue with no_slappz that deregulation by Congress led us down the toilet. But "Wall Street merely works with the hand it's dealt"? They just sat back and when any and all manner of financial sleight-of-hand was forced on them they sucked it up and tried their best to get creative to keep their companies afloat? That's simply not reality as most in banking will readily admit.
The financial industry's massive lobbying effort coupled with enormous contributions to legislative campaigns and PACs lit the fire under Congress's butt. Wall Street got the rules rewritten the way they wanted—usually in the most opaque ways possible—and then went to work cashing in.

Anonymous said...

I lived in a Pinnacle-managed building in Park Slope many years ago. The memories still make me shudder.

no_slappz said...

Clarkson, babs, diak, yes indeed, Congress mandated it. Mortgages for everyone. No questions asked.

In theory, the house was the collateral, and it was expected to maintain enough value to insulate the lenders against ruinous losses.

Well, that didn't work. It didn't take long for people to realize that a no-money-down mortgage, or a low-low-low-downpayment, meant that buyers weren't risking anything.

For someone who put no money into his house, he faced no loss if the value declined and he sent the keys back to the bank, understanding that it was the bank's problem, not his.

Meanwhile, Sub-Prime Mortgage Loans have been around for many decades. However, the finance companies that were successful lenders in that category demanded huge down-payments from borrowers. Often 40 percent.

Greenpoint Bank -- here in NY City and elsewhere -- was a big player in that market for decades. There was also Beneficial Finance and Home Finance, two firms that offered home equity loans.

But the lending market fell apart when Congress took steps to make it possible -- easy -- for people highly likely to default to obtain mortgages.

Yeah, the individual has to watch out for himself. But foolish lending rules are obvious. But Congress couldn't stop itself from enacting foolish legislation.

Who cares how much was spent lobbying Congress? If Congress were looking out for consumers, Congress would have said NO to the insanely lax lending standards that came out of the Community Reinvestment Act of 1978 and a series of legislative changes in subsequent years.

No, Wall Street wasn't hookwinked. The taxpayers were. That's what happens when Congress enacts laws that obligate the taxpayers to cover bad debts created by destructive legislation.

Once again, if all homebuyers were required to hand over a down-payment of at least 10 percent, there have been no financial crisis.

What does it take to rent or buy a place today? For renting? An annual income of 40 times the monthly nut. For buying? A big down-payment.

In other words, somebody woke up to the risk of handing bushels of cash to people unlikely to spend it wisely and who aren't required to indemnify the lenders -- because the government is backstopping everything.

Congress set the rules. You can argue that Wall Street pushed for the rules, but the votes approving the legislation were cast by the members of Congress.

It was the government that touted the benefits of home-ownership. The real estate industry always blows its own horn. Banks are in the lending business.

But the government gave its stamp of approval. That was the problem.

Clarkson FlatBed said...

wall street, government. government, wall street. same thing. for once, slappz, i agree with you.