Community Preservation Corp. has cleaned up $900 million worth of bad loans
Crain's New York
February 9, 2016
By Joe Anuta
A major New York affordable-housing financier that strayed from its original mission by placing huge bets on condominium projects before the real estate downturn announced last week it has officially returned from the brink of financial collapse and plans to expand.
The Community Preservation Corp. celebrated its turnaround by unveiling a new logo and website at a reception last Wednesday. The organization was created in 1974 and had become a major lender to developers of small affordable-housing projects until the years leading up to the real estate crash. Over time, the organization began lending to riskier market-rate projects. And in early 2009, CPC found itself on the brink of disaster with $900 million in troubled loans on its books.
"We went through a period, driven by the boom in the real estate market, where we got away from our core mission," said Rafael Cestero, former head of the city's Housing Preservation and Development, who was hired in 2012 by CPC's board to turn the organization around.
Now CPC has whittled down the amount of those troubled loans to about $3 million. The organization has also rebranded itself and returned to its roots—issuing loans to the sort of small or unconventional affordable-housing projects it originally catered to.
CPC is on track to issue about $420 million in loans by the end of its fiscal year in June, more than triple what it was doing in 2013. But that is still short of where Cestero wants to be within five years. Ideally, CPC wants to fund up to 175 projects across the state annually for a total of up to $600 million, which will likely involve raising more money. Last year, the organization announced it had received $350 million from 16 investors.
With New York City's population and real estate prices on the rise, market-rate development activity has expanded farther out into the boroughs, which is why housing experts believe CPC is needed more than ever to help smaller landlords get financing to preserve existing affordable apartments.
“They fill a segment of the market that is not as heavily populated by [larger] banks,” said Adam Weinstein, chief executive of Phipps Houses, one of the largest builders of affordable housing in the city. "That was always their bread and butter, and Rafael refocused them on it."
At the time of the financial collapse, CPC had borrowed money from 72 institutions so it could in turn lend to developers, many of whom were building market-rate projects. Those loans eventually got the company in trouble—borrowers defaulted and CPC spent years trying to repay its investors. By 2012, it had eliminated nearly $600 million in bad loans, and over the next four years Cestero further drove down its troubled portfolio to $3 million by overseeing foreclosure proceedings, selling troubled loans to investors and arranging deals in which developers agreed to extend repayments to CPC.
As part of its restructuring, CPC also wound down a for-profit arm called CPC Resources, which began developing projects in addition to lending. The arm invested in a number of sites including part of a large housing complex in the Bronx called Parkchester, which it will continue to partially operate. In 2004, CPC Resources purchased the site of the former Domino Sugar refinery on the Williamsburg waterfront with plans for a $1.4 billion development. Eight years later, the firm defaulted on its $125 million loan, and under Cestero the company sold the site for $180 million, far below what many believed it to be worth.
"We've been through a lot, and proven to the world that we can still be effective," Cestero said. "Now it’s about what we can do in the future."