A spokeswoman for Wells Fargo tells GlobeSt.com she hasn't seen the motion, and she referred inquiries about the properties' upkeep to the special servicer, LNR Partners. Calls to LNR and to Milbank Real Estate Services, which defaulted on a $35-million mortgage on the portfolio, were not returned by deadline.
The filing on behalf of tenants at the portfolio was announced Wednesday by attorneys from Legal Services NYC-Bronx and several lawmakers, including City Council Speaker Christine Quinn. "As properties like these move into foreclosure, tenants are left in a state of limbo, not knowing who is responsible for critical repairs," Quinn says in a release. "Through this lawsuit, we're saying that lenders must be held accountable for the properties they helped finance. No family should have to live in deplorable conditions because of the unsustainable investments that someone else made."
In 2007, Los Angeles-based Milbank acquired the rent-stabilized apartment buildings, on the premise that the Bronx was poised for gentrification, according to the filing. The acquisition was financed through a $35-million Deutsche Bank loan in connection with the $3-billion COMM 2006-C8 CMBS trust.
According to court papers, the rental income on the properties did not support the debt burden on the portfolio, and the properties fell into disrepair. Following Milbank's default in early 2009, the trust began foreclosure proceedings, court documents show.
Since then, the receiver "has evidently struggled to secure the resources to properly maintain the subject buildings," the motion states. It describes living conditions that include collapsed ceilings, holes in walls, boarded-up windows, broken intercoms and non-operating elevators.
Court documents include citations by the New York City Department of Housing Preservation and Development of hundreds of violations in each property. "Because of the low rent rolls, high vacancy rate and sheer scope of the work needed to make these buildings habitable, the receiver's efforts to date have been inadequate," according to the motion. Calls for comment to partner Irving Siegel of law firm Agins, Siegel, Rdeiner & Bouklar LLP, the attorney for receiver Consolato Cicciu, were not returned by deadline.
In the motion, filed by LS-NYC attorney Jonathan Levy, the Milbank portfolio is described as "a dramatic early example of what will likely become a wave of multifamily foreclosures that will pose a serious threat to the stability of affordable housing in New York City. The response of the courts will determine whether the coming crisis can be successfully contained."
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
