An 18-month rent strike coupled with rising rates has put Atlas Capital Group between a rock and a hard place at 15 Park Row.
After the investor snapped up the half-empty apartment building at a hefty discount in early 2021, it unveiled plans to rehab the property.
In June 2022, the firm, headed by co-founders Jeffrey Goldberger and Andrew Cohen,
nabbed $137 million in financing, including $15.6 million to fund capital improvements at the property, just across from City Hall.
The loan, with a two-year term and a floating-rate, was provided by MF1 Capital just as the Federal Reserve signaled a series of rate hikes that have rocked the real estate world.
In May, the loan landed on a servicer watchlist, according to Morningstar: Its debt service coverage ratio had slipped to a paltry 0.3, meaning its cash flow could not even cover a third of its loan payments. Rising rates were partly to blame but a rent strike by tenants has undoubtedly crippled Atlas’ income at the building.
A representative for the firm said the loan was never on a watchlist and is performing. The loan is not delinquent, according to Morningstar.
In February 2022, four months before Atlas scored the loan, some tenants at 15 Park Row began withholding rent, citing toxic conditions and a reduction in services. The initial move motivated 63 renters to put their monthly payments in escrow, according to Jack Lester, an attorney representing the renters.
Since Atlas took over ownership and management of 15 Park Row, problems at the building have proliferated, the lawyer alleged. A gas outage in 2022 lasted seven months, he said. Hot-water outages were frequent, the elevators were often broken and construction dust from a neighboring project at 1 Park Row and interior renovations cloaked the floors.
The Atlas representative said that the elevator issues predated their ownership and that the landlord offered tenants concessions and accommodations, including dinners in the building, gift cards and hot plates, throughout the gas outage.
An environmental assessment of the property late last year revealed the dust contained high levels of gypsum, a respiratory irritant; quartz, a carcinogen; and lead, which causes kidney and nervous system damage and learning disabilities in children.
Atlas’ representative said the dust levels in some apartments merely exceeded the standards of LEED, a measure set by the Green Building Council.
Lester said Atlas has made “no real substantive” attempts to cure those issues, apart from the gas service, which it restored last September. So the tenants continued their rent strike.
As of June 2022, about a quarter of the 271 households in the building were not paying. Those tenants have still not resumed making payments, Lester said. Their arrears are about $1.5 million and counting, Lester said.
The Atlas representative, however, said the percentage of striking tenants is small and has fallen off over time. Atlas has sued at least 30 tenants for nonpayment since December, court records show.
The arrears have depleted 15 Park Row’s income, but only account for part of the damage. The bigger hit has been declining occupancy, servicer commentary shows.
As of December, effective gross income — a measure of total revenue — had fallen 52 percent, or about $6 million, from when the loan was made as Atlas has cleared units to renovate, according to Morningstar. A more recent occupancy figure was not available. The Atlas representative said the building is 99 percent occupied.
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It’s likely Atlas will be able to boost revenue as it wraps up work and returns units to the market. When the firm took out its loan, the average rent at the building was about 35 percent below the area average, according to Morningstar. Rents in New York City have continued to break records, creating even more room for growth.
But the rent strike will continue to pressure income. The firm’s eviction suits could be stalled if the tenants can show repairs have not been made.
“The landlord should come to the table and try and resolve this,” Lester said. “He could get that cash flow going very easy if he did.”