Cestero Demanding Answers From Milbank, LNR and Building’s Appointed Receiver Regarding Ownership, Management and Maintenance of the Properties

Subpoena Issued On Heels of Letter From Cestero To LNR Outlining Guiding Principles City Wants Debt Holder To Use In Soliciting Bids

New York, NY – NYC Department of Housing Preservation and Development (HPD) Commissioner Rafael E. Cestero today announced that the agency has issued a subpoena commanding the parties responsible for the Milbank portfolio of properties in the Bronx to appear at HPD headquarters on January 11, 2011 to answer questions about the ownership, management and maintenance of the buildings. The properties at issue are 10 occupied rental buildings in the Bronx, now in foreclosure, whose tenants continue to suffer deplorable living conditions that range from vermin and mold infestations to cascading leaks, collapsing ceilings, inoperable elevators and missing locks on building entrances despite the presence of a Court-ordered receiver charged with making repairs.

“In late October I toured three of these properties because I had to see for myself what I was hearing from our Code enforcement staff,” said Commissioner Cestero. “To say I was disturbed and disgusted by what I saw is an understatement. Not only are these buildings clearly suffering from years of neglect, but the families who call them home have endured indecent hardships. I ordered cellar-to-roof inspections of all 10 properties. As a result, we have issued 1,579 new Housing Code violations, bringing the total to 4,372 violations. HPD’s goal in taking the extraordinary step of using our subpoena powers is to learn first-hand why tenants are still living in these deplorable conditions and violations are continuing to climb.”

The Commissioner’s overriding concern is seeing that Consolato Cicciu, the appointed receiver charged with the responsibility of maintaining the properties and fixing violations, has the necessary financial resources to do the job. Given the mounting violations and deteriorating conditions the tenants are being forced to live in, it was necessary to subpoena both LNR and Milbank in order to gain access to information regarding income, operating expenses and other financial data, along with correspondence between the two parties to track the money and ensure that it is going toward building maintenance needs. Likewise, Mr. Cicciu is being subpoenaed in order to better understand what resources are available and how they are being used. He is asked to produce documents related to the maintenance that has been performed, the outstanding needs of the portfolio and resources available to meet those needs.

 “I want to commend Department of Housing Preservation Development Commissioner Cestero today for taking this legal action,” said Speaker Christine C. Quinn. “It is another indicator that working with the City Council, HPD is proactively helping tenants living in the Milbank buildings. I’m proud to say that this action has come out of the coordination of the Task Force on Financially Distressed Rental Housing. And with today’s subpoenas, we are one step closer to getting our residents the relief they deserve so they don’t have to live in these dangerous and atrocious conditions. The message here to LNR, Milbank and other irresponsible banks is clear: As long as you unfairly mistreat our New York tenants, the City of New York will do everything in its power to fight back.”

The Task Force on Financially Distressed Rental Housing – a collaborative effort with the New York City Council, HPD, and housing experts – has been working on Milbank for the past year. Speaker Quinn and the New York City Council has been closely working with tenants for months, putting constant pressure on the servicer LNR to make repairs on these 10 overleveraged buildings.

Larry Golinsky, Vice President of LNR Partners Inc, the company that now holds the mortgage for the properties and which is seeking to dispose of it to new owners; Aaron Yashouafar and Solyman Yashouafar of California-based Milbank Real Estate, which defaulted on the mortgage; and Mr. Cicciu, the appointed Receiver for the properties, were all named in the subpoena, and are required to testify in person or by designee in front of a hearing board convened by the Commissioner.

This subpoena comes on the heels of a letter sent by Commissioner Cestero to Thomas J. Hughes, LNR’s Chairman and CEO, which outlined his concerns and strongly urged Mr. Hughes to follow a set of guiding principles when soliciting bids on the portfolio.

The December 3^rd letter referred to the conditions of the buildings as “disgraceful,” and in no uncertain terms stated that HPD holds LNR and Milbank, “responsible for the current conditions in which the tenants are living.” He reminded LNR that HPD has provided them a preapproved list of owners qualified to manage distressed properties, and that the agency would make its rehabilitation financing programs available to an HPD-approved purchaser. The Commissioner also urged the Chairman and CEO of LNR to follow several guidelines when bidding out the package including:

• Only considering bids from developers qualified to turn around distressed rental housing.
• Bidders should be able to access all common and mechanical areas and a significant portion of occupied units as part of their due diligence.
• The new buyer should have a plan to immediately repair the hazardous violations.
• HPD should have the ability to review the rehabilitation plan before the deal is closed. 

Last month, Commissioner Cestero and City Council Speaker Christine Quinn announced that despite being able to gain access to fewer than half of the occupied units, HPD’s ongoing proactive cellar-to-roof inspections of the 10 building portfolio produced 1,245 new violations. HPD logged 243 new Class A, 823 new Class B, and 179 new Class C violations. Commissioner Cestero reminds tenants that to request an inspection and to report any concerns over housing conditions they should call 311.

California based Milbank Real Estate purchased the rent stabilized properties in 2007, and ultimately defaulted on the $35 million mortgage. Already in a state of distress, the condition of the buildings rapidly declined under Milbank’s watch, leaving the tenants to suffer in deplorable and hazardous living conditions. In March of 2009, the mortgage holder, a $3.78 billion commercial mortgage-backed security trust controlled by Wells Fargo and serviced by LNR Partners, Inc., initiated foreclosure proceedings. HPD, the Council Speaker’s office, and housing advocates all voiced their strong concerns about LNR’s plans to sell the property to an undisclosed bidder. In addition to pushing LNR to make the badly needed repairs, they called on the servicer to find a responsible owner with a proven track record of managing distressed properties. After the attempt to sell the portfolio failed, LNR enlisted real estate firm Massey Knakal to market the portfolio. The first bids from prospective buyers are reportedly due back soon. 

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About the NYC Department of Housing Preservation and Development (HPD):

HPD is the nation’s largest municipal housing preservation and development agency. Its mission is to promote quality housing and viable neighborhoods for New Yorkers through education, outreach, loan and development programs and enforcement of housing quality standards. It is responsible for implementing Mayor Bloomberg’s New Housing Marketplace Plan to finance the construction or preservation of 165,000 units of affordable housing by 2014. Since the plan’s inception, a total of more than 108,000 affordable homes have been created or preserved. For more information, visit www.nyc.gov/hpd.