S08675 Summary:

BILL NOS08675A
 
SAME ASSAME AS A11083-A
 
SPONSORHOYLMAN
 
COSPNSRBAILEY, HAMILTON, KRUEGER, SEPULVEDA
 
MLTSPNSR
 
 
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.
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S08675 Actions:

BILL NOS08675A
 
05/10/2018REFERRED TO BANKS
06/12/2018AMEND (T) AND RECOMMIT TO BANKS
06/12/2018PRINT NUMBER 8675A
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S08675 Committee Votes:

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S08675 Floor Votes:

There are no votes for this bill in this legislative session.
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S08675 Text:



 
                STATE OF NEW YORK
        ________________________________________________________________________
 
                                         8675--A
 
                    IN SENATE
 
                                      May 10, 2018
                                       ___________
 
        Introduced by Sens. HOYLMAN, HAMILTON, KRUEGER -- read twice and ordered
          printed, and when printed to be committed to the Committee on Banks --
          committee  discharged,  bill amended, ordered reprinted as amended and
          recommitted to said committee
 
        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-
    23  alone  commercial  buildings.   The legislature further finds that it is
    24  necessary to scrutinize the role of the lenders  involved  in  predatory
 
         EXPLANATION--Matter in italics (underscored) is new; matter in brackets
                              [ ] is old law to be omitted.
                                                                   LBD15805-07-8

        S. 8675--A                          2
 
     1  equity,  in order to determine appropriate accountability for the finan-
     2  cial institutions involved. Affordable housing is  critically  important
     3  to  the  wellbeing  of  middle and low-income New Yorkers as well as the
     4  state as a whole. It is incumbent upon the state to take remedial action
     5  to  resolve  the affordability crisis and ensure that lenders are acting
     6  in the best interest of the  local  community  by  preserving  long-term
     7  affordability and stability through their lending.
     8    § 2. 1. For the purposes of this act:
     9    (a)  "financial  institutions" means a commercial bank, trust company,
    10  savings institution, credit union, or any  other  entity  authorized  to
    11  originate and service loans; and
    12    (b) "small business" means a business that has revenues of one million
    13  or  less,  or meets the definition of a small business as defined by the
    14  United States Small Business Administration (SBA).
    15    2. The department of  financial  services  is  hereby  authorized  and
    16  directed  to  prepare  or have prepared a study to review the process in
    17  which financial institutions provide loans  to  landlords  acquiring  or
    18  refinancing  property that includes rent-regulated and/or small business
    19  tenants. Such study shall examine and report upon trends,  both  in  the
    20  aggregate, and disaggregated by type of lender, range of building sizes,
    21  and  any  other  criteria that would show trends in predatory equity and
    22  shall include:
    23    (a) whether and how financial institutions are considering the follow-
    24  ing factors when reviewing a landlord's loan application:
    25    (i) debt service coverage ratio;
    26    (ii) capitalization rate;
    27    (iii) gross rent multiplier;
    28    (iv) loan to value; and
    29    (v) net operating income, including income and expenses;
    30    (b) whether and how financial institutions are including the following
    31  factors in their underwriting calculations of debt:
    32    (i) sources of income, including residential rent, commercial rent and
    33  maintenance from cooperative apartment owners;
    34    (ii) current rent charged and projected rent increases to  be  charged
    35  in the future;
    36    (iii)  the  number  and  size  of units in a building and whether such
    37  units are used for residential, commercial or another use;
    38    (iv) whether any preferential rent is charged and any  projections  to
    39  terminate such preferential rent in the future;
    40    (v)  the  number of vacant units in a property, including whether such
    41  units are classified as market rate, deregulated or  rent-regulated  and
    42  how many vacant units are used for commercial or another non-residential
    43  use;
    44    (vi)  whether  individual  apartment improvements will be performed on
    45  any vacant units;
    46    (vii) the number of rent-regulated units at the time  of  loan  origi-
    47  nation and how the financial institution verifies those numbers with the
    48  division of housing and community renewal;
    49    (viii) any projected construction or major capital improvements;
    50    (ix) projections of any turnover in rent-regulated apartments;
    51    (x) number of buildings financed in the loans;
    52    (xi) any reserve funds for buyouts;
    53    (xii)  any  regulatory  agreements  on the building and explanation of
    54  such agreements; and
    55    (xiii) any government operating or capital subsidies  and  explanation
    56  of such subsidies.

        S. 8675--A                          3
 
     1    (c)  whether financial institutions are appropriately considering only
     2  currently established rents and realistic maintenance costs when  deter-
     3  mining  the  net  operating  costs  for  the property such that they are
     4  acting in the best interest of the long-term affordability and stability
     5  of the local community;
     6    (d)  whether  financial  institutions  are appropriately examining the
     7  types of capital improvements included in the landlord's plans  for  the
     8  property;
     9    (e)  whether  financial  institutions  are  using  realistic appraisal
    10  values and appropriately doing so;
    11    (f) whether financial institutions are ascertaining whether the  land-
    12  lord  or  property  manager is taking on more debt than the property can
    13  support;
    14    (g) whether financial institutions are considering a landlord's  addi-
    15  tional  private  equity  including  the  source  of  such equity and the
    16  expected rate of return;
    17    (h) whether financial institutions are considering a landlord's  addi-
    18  tional debt on the building or buildings including debt from other lend-
    19  ers  and  whether  financial  institutions  are  considering  any  other
    20  outstanding debt a landlord has outside of the loan applied for;
    21    (i) whether financial institutions are considering a landlord's  other
    22  investments and what research is completed during such consideration;
    23    (j)(i)  how financial institutions are evaluating the records of land-
    24  lords and property managers and whether such financial institutions  are
    25  utilizing  multiple  sources  and considering factors including, but not
    26  limited to liens and violations against the property managers and  land-
    27  lords, media reports, investigations by governmental agencies, and find-
    28  ings  that  the  landlord engaged in tenant or commercial harassment, as
    29  well as any prior indication by not-for-profits or  governmental  organ-
    30  izations  that  such landlords or property managers have ever engaged in
    31  the practices associated with  "predatory  equity"  including,  but  not
    32  limited to hazardous conditions and tenant harassment; and
    33    (ii)  whether  financial institutions have an explicit plan to protect
    34  tenants if they choose to lend to a landlord that has engaged in any  of
    35  the practices reviewed in subparagraph (i) of this paragraph;
    36    (k)   whether   financial  institutions  intend  to  have  individuals
    37  personally visit the  buildings  and  correspond  with  the  tenants  to
    38  address their needs;
    39    (l)  whether  financial  institutions  hold  information sessions with
    40  and/or conduct outreach regularly to tenant advocacy groups, small busi-
    41  ness advocacy groups and organizers;
    42    (m) whether and how financial institutions monitor the number of rent-
    43  regulated units in a building prior to and after a loan disbursement;
    44    (n) whether financial institutions have any established standards  and
    45  practices  when  loaning  to  a landlord or property manager and if such
    46  practices are at least as rigorous as those that apply to  one  to  four
    47  family mortgages;
    48    (o)  whether  financial institutions take any measures to ensure loans
    49  are not used for buyouts;
    50    (p) whether mortgages include clauses  that  require  a  certain  debt
    51  service  coverage  ratio  or  debt  yield  which  are predicated on rent
    52  increases or tenant turnover; and
    53    (q) any other criteria the  department  of  financial  services  deems
    54  necessary to understand the nature and frequency of predatory equity.
    55    §  3.  The  superintendent of financial services, in consultation with
    56  appropriate staff, is authorized  to  draft  and  issue  a  request  for

        S. 8675--A                          4
 
     1  proposal  (RFP)  to  an  outside  firm or entity in order to conduct the
     2  study.
     3    §  4.  The  department  of  financial services is authorized to charge
     4  financial institutions, collectively, for the costs  of  conducting  the
     5  study up to $350,000.
     6    §  5.  No  later than eighteen months after the effective date of this
     7  act, the department of financial services shall report to  the  legisla-
     8  ture and the governor on the findings of the study conducted pursuant to
     9  section  two of this act including on the scope, nature and frequency of
    10  involvement in predatory equity throughout the  financial  industry  and
    11  any legislative recommendations deemed to be necessary.
    12    § 6. This act shall take effect immediately.
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