What happens when, after an extended period of easy money, a private equity firm gets so desperate to buy into real estate that it ends up doing a deal that turns it evil? Gretchen Morgenson tells us the story of one such private equity firm, whose highly-levered purchases of affordable housing properties allegedly led it to pursue a business model of harassment in order to get rid of rent-stabilized tenants.
From the New York Times:
On Thursday, Andrew M. Cuomo, the New York attorney general, said he was preparing to sue Vantage Properties, a private-equity-backed owner of 9,500 mostly rent-regulated apartments in working-class neighborhoods across New York City.
In a letter warning Vantage of impending litigation, Mr. Cuomo’s office contended that Vantage, which has bought more than 125 buildings in Queens, Harlem and other areas since 2006, had engaged in a “systemic pattern of harassment” to generate significant tenant turnover. Increasing turnover was central to Vantage’s business strategy, the attorney general’s office said, so that it could charge much higher rents after renovating the newly vacant apartments.
The firm is said to have given a name to this charming business model…
Vantage routinely tried to evict tenants by sending them notices that their leases were not being renewed. Vantage justified the letters, known as Golub notices, with phony claims, like contending that the tenants didn’t have the right to live in the rent-regulated apartments, Mr. David’s letter said. In the company’s business plans and annual reports to its investors, the attorney general’s office said, Vantage even named its business model the “Golub program.” One of the company’s business plans said that its “legal efforts are starting to bear fruit and rent prices continue to exceed plan, all contributing to what should be a strong year to come.”
Cuomo’s going after Vantage for these practices right now but even if he fails to make the case, I think we all know what ends up happening to people like these in the end anyway. I’m amazed at the uses that some people put their Ivy League eductions towards.