Tenants Demand Immediate Compliance with Court Order Directing $2.5 Million for Emergency Repairs

November 18, 2010, Bronx, NY — Tenants at the ten dilapidated Bronx
buildings known as the “Milbank Portfolio” today returned to Supreme
Court seeking enforcement of a recent order that directed the mortgage
holder to advance $2.5 million to a court-appointed receiver for the
repair of catastrophic conditions at the properties.  Since the Court
order in September, the $3 billion commercial mortgage-backed security
trust that holds the buildings’ mortgage has refused to comply with the
court directive, and instead sought to delay compliance until after it
completes a lengthy appeal process.  Meanwhile, thousands of housing
code violations, including hundreds of immediately hazardous violations
such as water leaks, hazardous molds, cracked and peeling lead paint,
collapsing ceilings, broken locks on entrance doors, useless intercoms,
rat and roach infestations, busted boilers, and faulty wiring are going
unrepaired.

UPDATE: Read Coverage at Crain'sNewYork.com

On October 25, 2010, HPD Commissioner Rafael Cestero visited the Milbank buildings and stated that he had “never been more shocked, angered and frustrated” by conditions facing tenants than he was during a tour of three Bronx properties.  HPD inspectors found an additional 173 violations on top of the 3750 outstanding on that date.   “The Milbank tenants have endured years of uninhabitable living conditions, and should not have to wait one day more for the urgently needed funds ordered by  the court,” said James Jantarasami, Housing Unit Staff Attorney at Legal Services NYC—Bronx, counsel for the tenants.  “We are confident that the court will not allow the Trust to use its appeal as a stalling tactic, while it pays millions of dollars in interest to its investors each month.” 

The ten distressed apartment buildings, which house more than 500 families, have been in a steady state of decline since their owner, a private equity firm known as Milbank Real Estate, defaulted on its $35 million mortgage. Milbank had purchased the rent stabilized properties in 2007 at a grossly inflated price financed by Deutsche Bank. Deutsche Bank made the loans to be included in the securities trust that now owns them.    Such Commercial Mortgage Backed Securities Trusts are suffering the same type of financial collapse seen in the single family mortgage market. At the time, advocates questioned the financial sustainability of the $35 million mortgage debt, and placed the portfolio on their “watch list” of potentially troubled buildings.

In March of 2009, LNR Partners, Inc., the special servicer for the trust, initiated foreclosure proceedings against the ten buildings.  The foreclosure judge appointed a receiver who was charged with collecting rents and managing the properties, but due to the high number of vacancies in the buildings, along with the already severely distressed conditions in most of the units, the income from rent collection has not been adequate to properly maintain the portfolio. As a result the tenants have endured horrible living conditions since Milbank over-leveraged their buildings. 

For months LNR has resisted the tenants’ demands that it help remedy the disastrous conditions that were the inevitable result of irresponsible lending practices.  Most recently, the lender sought to sell the buildings to an undisclosed purchaser, but the buyer backed away from the sale. 

On September 29th, Judge Stanley Green, in a precedent-setting decision, directed the Trust to advance $2.5 million to the building’s receivers. However, to date the building’s tenants have not seen a dime.

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