How L+M’s New Model is Handing Off Neighborhoods to Private Equity Firms

Ron Moelis amassed a fortune building unaffordable housing; now with the help of the City he’s flipping buildings to Private Equity firms for even bigger profits

Ron Moelis describes L+M Development as a company that “revives neighborhoods,” and believes that “affordable housing development goes hand in hand with social responsibility.” [1] But recent deals from L+M Development show that to be empty rhetoric from a company that is increasing profit at the expense of social responsibility – and New York City is subsidizing the deals that are pushing gentrification.

In two major recent deals, L+M Development has sold major developments to private equity firms from Wall Street. This revealed a potential emerging business model for L+M. And for current residents of the neighborhoods where the company develops, it’s far from “responsible.”

First, the company uses taxpayer dollars to acquire and develop housing that is largely unaffordable for local residents. These large projects spur a neighborhood gentrification process – something that L+M has acknowledged in the past [2] and Moelis seems to be alluding to when he talks about doing development that “revives neighborhoods.” Once gentrification is well on its way, L+M has begun flipping its buildings to private equity companies and has made a financial windfall in the process.

The City, which approves the transactions, needs to immediately put a halt to this practice. It is debilitating to low-income New Yorkers to allow Moelis and other developers like him to use taxpayer subsidies and then sell off supposedly affordable housing to private equity. HPD must stop approving the sale of any affordable housing that has a regulatory agreement with the city to private equity.

While extremely lucrative for Ron Moelis and the company in the two recent deals, this emerging business model spells disaster for neighborhoods and building residents. Private equity companies are characterized by the high financial return their investors require – a common goal for private equity executives is a 20% annual rate of return. [3] Historically, the rate of return on real estate in New York City’s low- and moderate- income neighborhoods have been closer to 7% or 8% – which, while still lucrative, is less than half of what private equity wants to earn.[4] In order for private equity companies to achieve desired profits, they have to cut operating costs or displace lower-rent paying residents and raise rents. Or both.

Either through deferred maintenance or displacement, tenants suffer.

Beyond the numbers, private equity companies have a horrendous track record as owners and managers of affordable housing in New York and across the country. The last time private equity companies purchased large amounts of affordable housing, the result was catastrophic: large-scale multifamily foreclosures and extreme tenant harassment.[5]

By “reviving” neighborhoods only to flip projects to private equity groups, L+M Development has acted as a linchpin in a speculative process that has been proven to undermine quality housing and affordable neighborhoods. This entire process is even more shameful thanks to the public dollars and subsidy that were provided to L+M at the point of initial investment. At The Aspen and at Savoy Park – two recent deals in Harlem -- one can see how L+M accepts public investment to make a profit from private equity.


In 2011, L+M Development was praised across the City for “rescuing” Savoy Park from private equity. Just five years later, Moelis has sold the building back to the same type of predatory private equity actors who ran it into the ground in the first place.

The perils of private equity investment in rent-stabilized housing can be clearly seen at this development in Central Harlem. In 2006, the project – then known as Delano Village – was purchased by notorious private equity companies Apollo Real Estate and Vantage Properties. By 2011, the project was buckling under $300 million in debt, and the owners were facing foreclosure. Tenants suffered most of all – from crumbling building conditions and illegal rent overcharges as owners pursued any means necessary to service their debt.[6]

Enter Moelis. L+M Development and partners Savanna restructured the debt down to $210 million and the City Council approved an Article XI tax abatement valued at $2.4 million annually for 40 years.7 Under the associated regulatory agreement, 20% of the units are targeted for families at 80% of AMI, 70% of the units are targeted for families at 120% of AMI, and 10% of units are targeted for families at 150% of AMI.[8] According to the regulatory agreement, the most affordable units in the building (studio units at 80% of AMI) started at vacancy at $1,162.[9]

At the time, median rents in Central Harlem were just $874 and the average rents at Savoy Park were just $857; [10] median income in Central Harlem was approximately $36,000 for a family of four [11] – far below 80% of AMI at the time ($65,450).[12] It is also possible that rents at Savoy Park, home to many longtime rent-stabilized tenants, were far lower than what the regulatory agreement prescribed for the apartments as they were to become vacant. In order for Moelis to achieve a profit, then, he just had to do one thing: evict the residents or somehow convince them to move out.

And that’s exactly what he has done. In marketing documents for the project, Moelis brags that on 234 units in the development they have been able to reposition the rents and raise them on average $750.[13] The offering memo goes on to explain that if the future owners just follow the Moelis playbook, they will be able to raise rents on average $912 a month.[14] For a low-income family, a rent increase of $750 a month (not to mention $912) means having to leave your apartment and probably your neighborhood.

To make matters worse, Moelis took significant City subsidy at Savoy Park, and the result is a wave of gentrification into a historically low-income and affordable neighborhood. Neighborhood trends (and, in offering documents, Moelis himself) indicate that for existing tenants, this has meant displacement – being uprooted from their homes and the only communities they have ever known. As the project flips, one can only expect this trend to continue.

In July 2016, Fairstead Capital, a private equity company controlled by Stephen Siegel, finalized a deal to purchase the Savoy from Moelis for $315 million, with over $200 million in financing from Capital One and Freddie Mac.[15] L+M Development and partners made over $100 million in just five years. Fairstead is a restructuring of SG2 – a group that is notorious for running thousands of units of rent-stabilized housing in the Bronx into the ground during the recent foreclosure crisis.[16] Fairstead is also known for taking over the 1,181 unit Dawnay Day portfolio in East Harlem after it entered foreclosure in 2009.[17] NYC Department of Finance records show that that project has lost over 300 units of rent stabilized housing since that time. Private equity in affordable housing means two things: bad conditions and displacement.


Soon after Alicia Glen – now deputy mayor for housing and economic development – took over as head of Goldman Sach’s Urban Investment Group in 2002, she began to partner with Moelis and his company on projects across the city. One of their earliest ventures was The Aspen, a 232-unit mixed income rental project in East Harlem.

Moelis (and his partners BFC Partners and River Equities) acquired a large parcel of City-owned land at 1955 First Avenue, the future site of The Aspen, for the nominal price of $1 in 2003.[18] The project also received subsidy in the form of a $44,000,000 mortgage New York City Housing Development Corporation (HDC), with additional subsidy from the New York City Department of Housing Preservation and Development (HPD).[19] The $44 million HDC mortgage was funded with bonds purchased by Alicia Glen and Goldman Sachs Urban Investment Group.[20] The building additionally receives a 421-a tax abatement, valued at nearly $1.8 million annually.[21]

The result of all that subsidy? A project is 50% market rate, 30% affordable to families at 130% of AMI, and 20% to families at 50% of AMI.

In 2005, when the Aspen opened, the median income of East Harlem was just $23,000 for a family of four – making the neighborhood poorer than 47 out of the City’s 59 community districts.[22] So even the most affordable apartments in The Aspen were not affordable to East Harlem residents. The middle-income affordable units, at 130% of AMI, started renting at $1,775 a month for a two-bedroom.[23] According to American Community Survey 5 Year estimates, that same year median monthly rent in the neighborhood started at $683 for a two-bedroom apartment.[24] The most affordable units – the 20% at 50% of AMI – were in fact close to the average rent in the neighborhood, at $682. (And even this was about $100-a- month more than the median neighborhood household could afford without being rent-burdened).

The Aspen is a perfect example of an “affordable housing” development that did more to gentrify the neighborhood for outsiders than it did to provide housing for the current residents of the neighborhood who were in need. With the crucial financial support of Goldman Sachs UIG, Moelis began to create a high-end market in East Harlem.

Today, thanks to planned gentrification fueled by The Aspen and other East Harlem developments, housing prices in the area are much different. In fact, according to NYU’s Furman Center, between 2010 and 2014 rents in East Harlem rose faster than every neighborhood except Williamsburg, Bushwick, Central Harlem, and the Lower East Side.[25] Moelis and his partners are well positioned to take advantage of this market change, and they are doing so.

In January, news broke that L+M was in contract to sell The Aspen for $103 million to David Bistricer’s Clipper Equities – a private equity company that focuses on “strategic, value-add investments.”[26] New partnership agreements imply that L+M stands to make over $30 million, with nearly $17 million possibly earmarked for Moelis himself.[27] Clipper Equities has been called a slumlord and is subject of numerous lawsuits by community groups across the City, including an April 2016 suit alleging that the company discriminates against tenants who pay their rent with subsidies[28] and a June 2016 suit that reveals the company’s penchant for illegally removing units from rent stabilization.[29] Not to mentions years of complaints and court actions over slum conditions. The 232 units at The Aspen receive 421-a tax abatement, and are rent stabilized and subject to regulated rent increases and tenant protections. In order for Clipper Equities to achieve the profit that private equity companies typically require, they will have to exploit loopholes in the rent laws or illegally raise rents.


Ron Moelis – a favorite partner of now-Deputy Mayor Alicia Glen since their first deal together in 2002 – follows a classic gentrification playbook: come into a distressed neighborhood, purchase property or buildings from the City or with City funds, use City funds to renovate or build an “affordable” development, take full advantage of real estate tax abatements, “reposition” the development over time by bringing in higher paying residents, and then flip it for a profit to private equity.

Tenants and community members already know what happens when private equity companies speculate on affordable housing. They know because they have lived through it – up to and during the market crash of 2008-2011. Tenant harassment is the business model; buildings fall apart as operating costs are cut in half. When it comes to housing, the restructuring and cost cutting that characterize private equity simply means evicting tenants, raising rents, and deferring or neglecting to make repairs. As New York City gentrifies, private equity is reemerging in the affordable housing world as a development partner like never before.

The Aspen, Savoy Park, and affordable housing developments across New York City are subject to regulatory agreements to protect (albeit insufficient) affordability requirements for low- and moderate-income residents; HPD is required to sign off/approve any sale of buildings with regulatory agreements.

Private equity companies, as a rule, promise irrational and unrealistic returns to investors – returns that cannot be made without evicting residents and running operating costs into the ground. When looking to approve transfers of buildings with regulatory agreements, the City must take a portfolio-wide look at the purchasing companies and automatically reject any sale to private equity landlords.

If the regulatory agreements are no longer effective tools to protect its investment, the City must devise other means to stop the hemorrhaging of public funds for private profit and devise other tools to maintain long-term affordability.

The City has an obligation – to residents and to taxpayers - to protect its investment in affordable housing and stop this business model in its tracks. HPD must reject any sale to private equity companies, and no city subsidy money should ever go or be passed along to a private equity company.


[5] predatory-equityhit_

[6] buildings-reminders- of-abubble-
and- a-collapse.html

[7] on-315m- purchase-of- savoy-park/
[8] Regulatory agreement available here:

[9] Regulatory agreement available here:

[15] on-315m- purchase-of- savoy-park/
[16] machines-rats- life-at- the-bronxs-
2320-aqueduct- ave-6394119

[17] look-to- sell-47- building-eastharlem-



[20] HDC Bond Offering Available at
[23] Regulatory Agreement available at:

[26] snags-70m- for-acquisition- ofeast-


[28] april-21- 2006/
[29] residential-sued- over-421g/