Harlem’s Gentrification and Its Discontents
By Frank Brodhead

Early last month the residents of a run-down rooming house at 58 Edgecombe Ave. in Harlem were suddenly forced from their rooms by a crew of workers. “You have to get out in ten minutes,” they were told. The tenants’ possessions were thrown on the street, and the crew began to break up the building, knocking out windows and shutting off the water and electricity.

Luckily an alert neighbor made a few calls, and soon the police and a staff member from Councilmember William Perkins’ office arrived to help the tenants and restore them to possession. But the building had been so damaged that a few days later it was closed by the city Department of Housing Preservation and Development, and the tenants were put in temporary housing.

Ironically, the landlord was a Long Island nonprofit organization named the Family Preservation Center (FPC). At press time the tenants, represented by the West Side SRO Law Project, were pressing their claims against the FPC for illegal eviction; while HPD had brought a court action against FPC to restore the building to liveable condition and to pay the city for the costs of temporarily housing the tenants.

But there’s more to this story than a run-of-the-mill illegal eviction, and the events at 58 Edgecombe Ave. cast light on one of the dark sides of the gentrification of Harlem. For the tenants in that building were victims of a larger pattern of abuse infesting HUD's Rehabilitation Mortgage Insurance (section 203 [k]) housing program. This scandal-ridden program was intended by Congress to provide home-ownership opportunities for low-income people by insuring mortgages for qualified first-time home buyers, but abuses and corruption in it caused the Department of Housing and Urban Development to end most of its 203(k) activities a few years ago.

An exception was made, however, for nonprofit organizations working to provide affordable housing. Nonprofit organizations that could demonstrate a track record in housing could become qualified program participants, purchasing and rehabbing properties with low-interest loans, and the houses would then be used for low-income housing.

Enter the Family Preservation Center. Incorporated as a not-for-profit social-services organization in 1994 in Bohemia, FPC had no visible activity in the low-income housing field until March 1998. Since then, it has purchased at least 16 Harlem brownstones with about $5 million in federally backed loans. All of the loans came from a single Long Island mortgage-lending company. All 16 of the properties were purchased from a series of realty corporations that existed only on paper, under the same ownership and with their “corporate” address at a law firm in Mineola. In most cases the realty corporation purchased the Harlem property just a few weeks before it was resold to FPC. In most cases the buildings were apparently vacant, or had been owner-occupied. The tenants at 58 Edgecombe Ave. were the unfortunate exceptions.

While no criminal charges have been brought against FPC, the Long Island mortgage lending company, or the series of real-estate “shells” that bought and sold the Harlem properties, the case of FPC’s Harlem activities illustrates how the 203(k) program is subject to abuse. The maximum mortgage allowed for a four-story, four-unit brownstone is $327,400 — exactly the mortgage amount for four properties FPC bought from one of the Mineola shells in May and June of 1998. The mortgage amount has to cover the actual purchase, the necessary rehab funds, and typical fees and closing costs, much of which go back to the lender.

From the point of view of the realtors, Family Preservation Center was the ideal partner, apparently completely indifferent to price and asking no questions about why the half-dozen sellers they dealt with all happened to have the same address. Thus another one of the Mineola shells bought a brownstone on 120th Street in March 1998 for $60,000, and sold it to FPC three weeks later for $190,000. The Long Island mortgage lending company provided a $325,000 mortgage, and rehab work (without permits) was underway in December. Everyone wins: the guys in Mineola triple their money in three weeks; the Long Island mortgage lending company gets points and closing costs money on a $325,000 loan for a $60,000 property; and FPC has a gutted brownstone to fix up that it can use for four or more units of “affordable housing.”

Of course every silver lining has a little cloud or two. The 203(k) program requires that a HUD-certified inspector estimate the cost of necessary repairs. One industry insider told Tenant that the structure of 203(k) mortgage lending encourages both the seller and the mortgage lender to “low-ball” the estimated costs of necessary repairs, thus leaving a larger share of the mortgage to go to the seller and the mortgage lender. As a result, many nonprofit housing developers in New York have exhausted the money allocated for repairs before the building rehab is completed. At this point the nonprofit can either default on the mortgage or adopt a Ponzi-scheme strategy, buying another building to obtain mortgage rehab funds that can be used to complete earlier, still-unfinished projects. According to the industry insider, this has been the fate of several nonprofit-sponsored projects in New York City.

The New York City activities of HUD’s 203(k) program are now under investigation. One possibility is that New York nonprofits will have to be recertified by HUD before being allowed to further participate in the 203(k) program.

But the larger issue is what will happen to Harlem's brownstones as gentrification sweeps north from Midtown and the Upper West Side. While many brownstones stand vacant or in severe disrepair, a great many of these beautiful buildings have been converted to SRO housing and are home to low-income single people who cannot afford "affordable" housing like that offered by the Family Preservation Center. According to the best statistics available from HPD, some 2,000 of Manhattan's 3,800 SRO addresses are in the Harlem area covered by Community Boards 9 and 10, and these buildings include more than 28,000 SRO rooms. While many of these buildings may be dilapidated or even destroyed, Harlem's brownstones still represent a large part of Manhattan's affordable housing.

These buildings are clearly in the crosshairs of gentrifying real-estate developers. One index of this activity, applications for the Certificates of No Harassment that are needed to convert SRO buildings to other uses, shows that the number of applications for buildings in Harlem rose from 18 in 1996 to 60 in 1998—half the applications for Manhattan last year. The residents of 58 Edgecombe Ave. were lucky on several counts. They included among them some people who knew they had rights and couldn’t be pushed out of their home. They had concerned neighbors who called for help and kept records of what they saw. They had a City Councilmember whose staff reacted quickly and worked hard for the tenants’ interests. And they were able to get free legal help from the West Side SRO Law Project. But, as the waves of gentrification sweep over them, most low-income residents of Harlem’s SROs will fall through the cracks unless care is taken to protect them from real-estate speculators like the shell companies in Mineola, or from nonprofit developers like the Family Preservation Center.