S&P is an agency which should hold zero credibility when it comes to ratings. Having said that, protesting against S&P for what the tenants consider bad business practices may, ultimately, be somewhat of a stretch, though the reasoning toward a refinement in credit rating considerations seem legitimate.
First, I must note that as long as the the owner (Vantage) abides by the leasing agreements and any other contractual obligations it has, then I see nothing wrong with them adjusting asking prices or changing terms of services from those of the prior owners. If those are unsatisfactory conditions and prices, then ultimately Vantage will suffer a monetary loss by losing money on their investment when its business practices drive away customers.
However, when it comes to credit ratings, if the above holds true, then such business practices would indeed provide conditions for increased risk for a highly leveraged company, and any impact toward risk for a company should be an indicator for S&P to factor that into their rating system -- if they don't already do so. Unfortunately, the problems with S&P rating system is far more flawed than this protest would have us believe.
What Standard and Poor's Should Know About Problems
with Vantage Building Portfolio Loans
Standard and Poor's has provided credit ratings for a number of commercial mortgage-backed securities (CMBS) that include large portfolio loans for New York City apartment buildings owned by Vantage Properties. These CMBS have been sold to investors, and include CSMC 2007 C 1. CSMC 2007 C2, CSMC 2007 C4. and CSMC 2006 CS.
Tenants who live in some Vantage Properties buildings have concerns about physical and financial distress in the buildings. The tenants believe that Standard and Poor's should know the following information:
- Vantage Properties, and their equity partner AREA Real Estate Advisors, have been described in the press as a "predatory equity" developer who purchased buildings with outsized mortgages that could only be justified if low-rent-paying tenants were forced to move out and building services were cut back In fact, a judge recently ruled that actions alleged by tenants constitute illegal harassment, and that a lawsuit against Vantage may proceed in State Supreme Court (Jose Ricardo Aguatza, et al. v Vantage Properties LLC. et al. Index 9 105197108)
- Information from the loan serv►cer for the CMBS suggests that the buildings were badly
overleveraged when the financing was underwritten, and may now be in financial distress. In June. 2006, loan servicer reports indicated that two of the above mention four portfolio loans were on the servrcer's "default watchlhst". By December. 2008. all four of the above loans were on the servicer's default watchlist According to notes from the loan servicer, one of the primary reasons that these loans were marked as being potentially distressed is that the debt-servrce-coverage-ratios (DSCR) were low. In June. 2008. the average DSCR for the four Vantage Property bars was .7111. By December, 2008. the average DSCR had fallen to SO/ 1. That is, that only 50 cents was being produced by the properties for every dollar of debt owed.
- Tenants have complained to the New York City Department of Housing Preservation and
Development that Vantage is denying necessary services to tenants These complaints include
the fact the on-site superintendent has been removed from puny of the buildings, which tenants behave has reduced the maintenance and repair of the buildings.
Tenants are calling on the Securities and Exchange Commission to issue rules for credit rating agencies such as Standard and Poor s to insure that all relevant information, such as the above, is taken into account when a rating Is issued (or a mortgage-backed security
For further information, contact
Teresa Pere, President - 718.926-9225; Shirh.id Meah. Vice President - 718.709.19&1 Lauren Spnnger, Secretary - 917 805-1905