Predatory Equity and Affordable Housing in NYC

By Desiree Fields

From 2010-2012, I was conducting fieldwork in New York City, focusing on an aggressive wave of private equity investment in the city’s rent-stabilized housing market during the mid-2000s housing boom. Readers may be familiar with this trend through the story of Stuyvesant Town, a complex consisting of nearly 10,000 apartments in Manhattan: in 2006 Tishman Speyer and BlackRock purchased Stuyvesant Town for more than $5 billion, then rumored to be the largest real estate transaction in U.S. history. Soon, stories of harassment and illegal rent increases affecting long-term tenants occupying rent-stabilized units began to emerge. By 2010, in the aftermath of the global financial crisis, Stuyvesant Town’s new owners defaulted on the mortgage. The default highlighted how their aggressive investment strategy, which partially depended on converting rent-stabilized units at this middle-class stronghold to market rate rents, unraveled in a dramatically changed global investment context.

Stuyvesant Town in New York City. (Photo Credit: David Shankbone CC BY 3.0

What readers may not be aware of is that the story of Stuyvesant Town is not unique: close to 10% of the city’s million or so rent-stabilized apartments were affected by similar investments in the mid-2000s. Private equity firms assembled large portfolios of aging multi-unit buildings in poor, predominantly Hispanic and African-American neighborhoods, primarily in upper Manhattan, the west Bronx, and southeast Brooklyn. Investors paid inflated prices far beyond what the net rental income could support, expecting to increase returns by ‘releasing’ apartments from rent stabilization and onto the open market, or simply flipping the properties to another buyer. The investments were soon dubbed “predatory equity” as new owners harassed and defrauded tenants to realize their strategy.  However in the global financial crisis that soon followed, many of these deals went into foreclosure as the debt service proved unsustainable, the credit crunch prevented refinancing, and falling prices made it difficult to deleverage by selling off assets.

The case of predatory equity highlights how the urban fabric has become a key object of financial capital accumulation, and how financial actors, processes, and imperatives now penetrate everyday life in this process. But cities are also sites of resistance, and in this article I was interested in how community-based organizations sought to contest the financialization of urban space and re-assert the social value of rent-stabilized housing for the city’s low-income residents. This is an important question because of the direct implications that predatory equity had for tenants. It is also an important question because the broader arc of urban scholarship on community-based organizations and community development corporations often emphasizes how the practice of such groups has grown depoliticized and co-opted by the state and the private sector after decades of neoliberal ideology and governance. With this research, I wanted to explore the political possibilities for community practice in an urban context characterized by predatory capital flows. The challenges associated with this context are markedly different than those posed by the urban disinvestment that so many community groups developed to address.

The findings reported in this article highlight the role of alternative knowledge production and reworking financial sites, spaces, and structures as key strategies for contesting financialization. The former encompasses both rhetorical tactics that sought to de-naturalize market logic and chart alternatives, as well as data-driven tactics designed to produce quantitative and geographic knowledge about predatory equity and its consequences for tenants and neighborhoods. The latter entailed innovative use of financial artifacts and the dynamics of liquidity and fixity as a means of extending community practice beyond urban space to the realm of finance. A significant amount of research since the 2008 crisis has addressed the impacts of financialization. Such work is vital. But as financial capital continues to colonize homes and neighborhoods in the wake of the crisis, it is just as crucial to remember that this process is not given: financialization is fragmented, incomplete, and contradictory, and therefore contestable, as I have shown in this research.

The full article, Contesting the Financialization of Urban Space: Community Organizations and the Struggle to Preserve Affordable Rental Housing in New York City, is accessible without a JUA subscription for a limited time as part of the May 2016 Virtual Issue on Global Urban Change.

Desiree Fields is Lecturer in Urban Geography at the University of Sheffield. She tweets about cities, finance, housing, data and technology, and more at @fieldsdesiree.