As the Ocelot buildings became nearly uninhabitable, mortgages on 14 of the buildings went into default and the lender moved to foreclose. The outstanding debt on this piece of the portfolio was roughly $29 million, though advocates estimated that a supportable debt level considering the actual rental income should have been closer to $15 million. Factoring in the enormous repair needs, that estimate plummeted to just a few million.
The question of value became the biggest point of contention between the tenants, their advocates, and the mortgage lender, which, for this group of buildings turned out to be Fannie Mae. Like most financial institutions, the government-supported enterprises Fannie Mae and Freddie Mac were struggling to minimize losses and remain economically viable. Nonetheless, both Fannie Mae and Freddie Mac were created, in part, to carry out a social mission that includes expanding affordable housing opportunities for low- and moderate-income families. Faced with a $29 million investment outstanding and low-income tenants suffering unthinkably bad conditions as a result of that investment, Fannie Mae was struggling to reconcile its dual mission.
It could sell the portfolio through a competitive process to the highest bidder in an attempt to make back its money, but this would surely open the door to additional speculation and reduce the chances of a sustainable renovation. Advocates were pushing instead for a sale to a qualified affordable housing provider at a supportable price that would include a comprehensive rehabilitation plan; this would require Fannie Mae to acknowledge a significant loss on its balance sheets. The choice was made more difficult when, quite surprisingly, a large number of private equity companies lined up to bid on the Ocelot portfolio.
Tenants, desperate for relief, mounted a sustained public relations campaign in an effort to stop another round of speculators from betting on their homes. They organized guided tours for politicians and members of the press showcasing the most deplorable conditions. They placed bright yellow signs with bold black lettering reading “DON’T BUY HERE — YOU’LL REGRET IT!” in their windows and in common areas in hopes of scaring off potential buyers. Eventually they engaged Sen. Charles Schumer and Rep. Jose Serrano who publicly urged Fannie Mae to assist the tenants. The city housing agency offered to invest substantial city resources to offset the cost of renovations in exchange for a discount sale to a preservation buyer.
With speculators still waving piles of cash in front of the agency, Fannie Mae decided to sell the Ocelot portfolio to a responsible buyer at a realistic price. In the end, the decision was an internal one, made out of a sense of moral obligation and corporate responsibility.
Advocates and elected officials unanimously endorsed Fannie Mae’s decision. As Sen. Schumer sees it, “Lenders, be they Fannie Mae or private banks, who enabled these predatory equity investors by lending them money have an obligation to make sure the tenants are not penalized…. Fannie Mae set a precedent on how to address predatory equity in New York City.”
In June 2010, the 14 buildings were transferred to Omni NY, a reputable affordable housing group with plans for a multimillion-dollar gut renovation of the properties. Omni will sign a regulatory agreement with the city of New York that will govern future rent increases and require that apartments remain affordable for a period of 40 years. The loss Fannie Mae accepted as part of the sale was never made public, but insiders close to deal confirm that it was upward of $20 million.