2009 Saving the Ocelot Portfolio

As the last millennium drew to a close, the Bronx was party to the same economic charge that the rest of the country enjoyed and private market investors looking to make money in real estate began buying up some of the big multi-family buildings that are a hallmark of Bronx housing stock. Buildings were bought in anticipation of quick profits: often at wildly inflated sales prices spurred by improbable predictions of how rent stabilized tenants would leave their buildings.

In relatively short order, simple math took over. The income generated by rent stabilized buildings covered neither mortgage nor maintenance. Ocelot Capital Group, owner of 25 occupied buildings bought on this speculation eventually disappeared, swanky offices vacated, phone disconnected. The apartment buildings went without services for a couple of years, with devastating effects. Many of the tenants in these buildings could not afford to relocate, and their circumstances became dire, a front door removed for drug money, no heat or hot water. Thanks to exhaustive work on the part of HPD Code Enforcement, 10 of Ocelot’s 25 properties in the Bronx were placed into the City’s Alternative Enforcement Program (AEP) earning them a place on the City’s worst buildings list in 2007 and 2008, racking up 5,000 serious and immediately hazardous Housing Maintenance Code violations.

A final blow was the discovery that the in absentia landlord would be auctioning off the abandoned and severely distressed properties via the internet. Tenants and tenants’ rights organizations who had been working for some resolution with these properties knew that this type of auction—with buyers unfamiliar with the circumstances—would likely result in more financial and physical distress, compounding what already existed, and the remaining residents, just barely hanging on, would be left homeless.

Foreclosure followed. HPD, fearing a repeat performance at the hands of a new owner, weighed in and began working with Fannie Mae to expedite new ownership that would be responsible and responsive to the existing tenants and their needs. Following  vocal protests from residents and advocates, the sale was canceled, and Fannie Mae along with Deutsche Bank, at the request of HPD Commissioner Rafael E. Cestero, agreed to create a pool of companies that would be eligible to bid for ownership of 14 of the Ocelot buildings, Omni was one successful bidder: “These units were in a very distressed state when purchased by Omni,” said Eugene Schneur, Executive Director of Omni New York, LLC. “Many were uninhabitable and even the occupied units were in a state of total disrepair. Working with HDC, Omni was able to structure this transaction in a manner that provided approximately $12 million for the full rehabilitation of these buildings.”

Through its LAMP Preservation program, HDC stepped up to finance renovations on three of the buildings, issuing more than $8 million in bonds to fund the construction work. The funding sources required that the renovated units be reserved for households earning less than 60% of the area median income.