Bill Text: NY S01476 | 2019-2020 | General Assembly | Introduced

NOTE: There are more recent revisions of this legislation. Read Latest Draft

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Bill Title: Directs the department of financial services to study, evaluate and make recommendations concerning lending practices by financial institutions to landlords acquiring property that includes small business and/or rent-regulated tenants; requires a report on the department's findings and recommendations for legislative action within eighteen months.

Spectrum: Partisan Bill (Democrat 5-0)

Status: (Passed) 2020-12-23 - approval memo.55 [S01476 Detail]

Download: New_York-2019-S01476-Introduced.html

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                STATE OF NEW YORK
        ________________________________________________________________________
                                          1476
                               2019-2020 Regular Sessions
                    IN SENATE
                                    January 15, 2019
                                       ___________
        Introduced  by  Sens.  HOYLMAN, BAILEY, KRUEGER, SEPULVEDA -- read twice
          and ordered printed, and when printed to be committed to the Committee
          on Banks
        AN ACT to direct the department of financial services to study, evaluate
          and make recommendations concerning  lending  practices  by  financial
          institutions to landlords acquiring property that includes small busi-
          ness tenants and/or rent-regulated tenants
          The  People of the State of New York, represented in Senate and Assem-
        bly, do enact as follows:
     1    Section 1. Legislative findings and intent. The legislature finds  and
     2  declares that the practice known as "predatory equity" is furthering the
     3  state's  affordable  housing crisis. Predatory equity is a model that is
     4  known to be exceptionally destructive of  existing  affordable  housing,
     5  and  is  commonly understood to be defined by one or both of the follow-
     6  ing: (a) a speculative sale in which the landlord  purchases  naturally-
     7  occurring affordable rental housing with the explicit or implicit under-
     8  standing  that  low- and moderate-rent paying tenants will be encouraged
     9  or actively pushed to move out of the building at a rate that  does  not
    10  reflect  normal  tenant  turnover, with the goal of the landlord to take
    11  advantage of the vacancies in order to use loopholes in the  rent  regu-
    12  lation  laws  to  dramatically increase the building's rent roll; and/or
    13  (b) a financing source used by a landlord to fund the  acquisition  debt
    14  or  the  acquisition equity in which the financing source expects a rate
    15  of return that is significantly in excess of the profit  that  would  be
    16  generated  by a building operating within the rent law's historic norms,
    17  and in which case the landlord is encouraged to resort to  tactics  that
    18  aggressively undermine the building's affordability in order to meet the
    19  demands of the financing source.
    20    Increasingly,  speculative  behavior  is  also  being  linked  to  the
    21  displacement of commercial tenants, mostly  small  businesses,  who  are
    22  being pushed out of mixed-use residential buildings and others in stand-
         EXPLANATION--Matter in italics (underscored) is new; matter in brackets
                              [ ] is old law to be omitted.
                                                                   LBD02520-01-9
        S. 1476                             2
     1  alone  commercial  buildings.   The legislature further finds that it is
     2  necessary to scrutinize the role of the lenders  involved  in  predatory
     3  equity,  in order to determine appropriate accountability for the finan-
     4  cial  institutions  involved. Affordable housing is critically important
     5  to the wellbeing of middle and low-income New Yorkers  as  well  as  the
     6  state as a whole. It is incumbent upon the state to take remedial action
     7  to  resolve  the affordability crisis and ensure that lenders are acting
     8  in the best interest of the  local  community  by  preserving  long-term
     9  affordability and stability through their lending.
    10    § 2. 1. For the purposes of this act:
    11    (a)  "financial  institutions" means a commercial bank, trust company,
    12  savings institution, credit union, or any  other  entity  authorized  to
    13  originate and service loans; and
    14    (b) "small business" means a business that has revenues of one million
    15  or  less,  or meets the definition of a small business as defined by the
    16  United States Small Business Administration (SBA).
    17    2. The department of  financial  services  is  hereby  authorized  and
    18  directed  to  prepare  or have prepared a study to review the process in
    19  which financial institutions provide loans  to  landlords  acquiring  or
    20  refinancing  property that includes rent-regulated and/or small business
    21  tenants. Such study shall examine and report upon trends,  both  in  the
    22  aggregate, and disaggregated by type of lender, range of building sizes,
    23  and  any  other  criteria that would show trends in predatory equity and
    24  shall include:
    25    (a) whether and how financial institutions are considering the follow-
    26  ing factors when reviewing a landlord's loan application:
    27    (i) debt service coverage ratio;
    28    (ii) capitalization rate;
    29    (iii) gross rent multiplier;
    30    (iv) loan to value; and
    31    (v) net operating income, including income and expenses;
    32    (b) whether and how financial institutions are including the following
    33  factors in their underwriting calculations of debt:
    34    (i) sources of income, including residential rent, commercial rent and
    35  maintenance from cooperative apartment owners;
    36    (ii) current rent charged and projected rent increases to  be  charged
    37  in the future;
    38    (iii)  the  number  and  size  of units in a building and whether such
    39  units are used for residential, commercial or another use;
    40    (iv) whether any preferential rent is charged and any  projections  to
    41  terminate such preferential rent in the future;
    42    (v)  the  number of vacant units in a property, including whether such
    43  units are classified as market rate, deregulated or  rent-regulated  and
    44  how many vacant units are used for commercial or another non-residential
    45  use;
    46    (vi)  whether  individual  apartment improvements will be performed on
    47  any vacant units;
    48    (vii) the number of rent-regulated units at the time  of  loan  origi-
    49  nation and how the financial institution verifies those numbers with the
    50  division of housing and community renewal;
    51    (viii) any projected construction or major capital improvements;
    52    (ix) projections of any turnover in rent-regulated apartments;
    53    (x) number of buildings financed in the loans;
    54    (xi) any reserve funds for buyouts;
    55    (xii)  any  regulatory  agreements  on the building and explanation of
    56  such agreements; and
        S. 1476                             3
     1    (xiii) any government operating or capital subsidies  and  explanation
     2  of such subsidies.
     3    (c)  whether financial institutions are appropriately considering only
     4  currently established rents and realistic maintenance costs when  deter-
     5  mining  the  net  operating  costs  for  the property such that they are
     6  acting in the best interest of the long-term affordability and stability
     7  of the local community;
     8    (d) whether financial institutions  are  appropriately  examining  the
     9  types  of  capital improvements included in the landlord's plans for the
    10  property;
    11    (e) whether  financial  institutions  are  using  realistic  appraisal
    12  values and appropriately doing so;
    13    (f)  whether financial institutions are ascertaining whether the land-
    14  lord or property manager is taking on more debt than  the  property  can
    15  support;
    16    (g)  whether financial institutions are considering a landlord's addi-
    17  tional private equity including  the  source  of  such  equity  and  the
    18  expected rate of return;
    19    (h)  whether financial institutions are considering a landlord's addi-
    20  tional debt on the building or buildings including debt from other lend-
    21  ers  and  whether  financial  institutions  are  considering  any  other
    22  outstanding debt a landlord has outside of the loan applied for;
    23    (i)  whether financial institutions are considering a landlord's other
    24  investments and what research is completed during such consideration;
    25    (j)(i) how financial institutions are evaluating the records of  land-
    26  lords  and property managers and whether such financial institutions are
    27  utilizing multiple sources and considering factors  including,  but  not
    28  limited  to liens and violations against the property managers and land-
    29  lords, media reports, investigations by governmental agencies, and find-
    30  ings that the landlord engaged in tenant or  commercial  harassment,  as
    31  well  as  any prior indication by not-for-profits or governmental organ-
    32  izations that such landlords or property managers have ever  engaged  in
    33  the  practices  associated  with  "predatory  equity" including, but not
    34  limited to hazardous conditions and tenant harassment; and
    35    (ii) whether financial institutions have an explicit plan  to  protect
    36  tenants  if they choose to lend to a landlord that has engaged in any of
    37  the practices reviewed in subparagraph (i) of this paragraph;
    38    (k)  whether  financial  institutions  intend  to   have   individuals
    39  personally  visit  the  buildings  and  correspond  with  the tenants to
    40  address their needs;
    41    (l) whether financial  institutions  hold  information  sessions  with
    42  and/or conduct outreach regularly to tenant advocacy groups, small busi-
    43  ness advocacy groups and organizers;
    44    (m) whether and how financial institutions monitor the number of rent-
    45  regulated units in a building prior to and after a loan disbursement;
    46    (n)  whether financial institutions have any established standards and
    47  practices when loaning to a landlord or property  manager  and  if  such
    48  practices  are  at  least as rigorous as those that apply to one to four
    49  family mortgages;
    50    (o) whether financial institutions take any measures to  ensure  loans
    51  are not used for buyouts;
    52    (p)  whether  mortgages  include  clauses  that require a certain debt
    53  service coverage ratio or  debt  yield  which  are  predicated  on  rent
    54  increases or tenant turnover; and
    55    (q)  any  other  criteria  the  department of financial services deems
    56  necessary to understand the nature and frequency of predatory equity.
        S. 1476                             4
     1    § 3. The superintendent of financial services,  in  consultation  with
     2  appropriate  staff,  is  authorized  to  draft  and  issue a request for
     3  proposal (RFP) to an outside firm or entity  in  order  to  conduct  the
     4  study.
     5    §  4.  The  department  of  financial services is authorized to charge
     6  financial institutions, collectively, for the costs  of  conducting  the
     7  study up to $350,000.
     8    §  5.  No  later than eighteen months after the effective date of this
     9  act, the department of financial services shall report to  the  legisla-
    10  ture and the governor on the findings of the study conducted pursuant to
    11  section  two of this act including on the scope, nature and frequency of
    12  involvement in predatory equity throughout the  financial  industry  and
    13  any legislative recommendations deemed to be necessary.
    14    § 6. This act shall take effect immediately.