Major NYC Landlord Blames Bankruptcy On High Interest Rates

(Bloomberg) — A portfolio of rent-stabilized New York City flats owned by Joel Wiener was pushed into chapter 11 by “sky-rocketed” rates of interest and adjustments to state housing regulation that restricted the property homeowners’ skill to extend hire on tenants, in line with court docket papers.

Dozens of properties managed by Wiener’s Pinnacle Group have been put into Chapter 11 final week, saddled with roughly $564 million in mortgage debt and dealing with foreclosures actions from its major lender, Flagstar Bank. The flats even have excellent quantities on Israeli-issued bonds, pushing the overall debt on the properties to roughly $1 billion, in line with chapter papers filed Tuesday. 

Interest price hikes in 2022 considerably elevated the price of the mortgage debt, to the purpose that rental revenue was now not sufficient to cowl debt service and working bills, Ephraim Diamond, the properties’ chief restructuring officer mentioned in a court docket submitting.

Rates on a big portion of the Pinnacle properties’ mortgage debt has “sky rocketed” since 2022, from between 3% to 4% to as excessive as 7.5% and 10.25%, in sure circumstances, Diamond mentioned. The price to service the debt was about $26 million in 2023, together with $20 million curiosity. Last yr, that quantity jumped to $36 million, together with $25 million in curiosity, and is projected to extend once more in 2025, he mentioned.

US Bankruptcy Judge David Jones, through the first listening to within the case for the reason that submitting, delayed ruling on a request by the residence enterprise to spend money being held as collateral for the Flagstar debt. Jones requested either side to attempt to come to a compromise about how the cash can be used through the subsequent few weeks. If they will’t agree, Jones mentioned he was ready to rule on the request as quickly as tomorrow, when either side are scheduled to return to court docket.

Flagstar claims that hire cash that ought to have gone to pay the mortgage as a substitute might have been funneled to a associated holding firm the place it went to bondholders. “No one knows where the rental income went, but it did not go to pay the lenders and appears to have been consolidated to pay bondholders,” Flagstar mentioned in court docket papers filed Wednesday.

A lawyer for the residence firm didn’t instantly return a request for remark.

Most of its tenets get some type of hire stabilization and adjustments to state regulation lately supposed to guard renters created additional monetary stress on the buildings, Diamond mentioned. In 2019, state lawmakers positioned restrictions on constructing homeowners’ skill to lift rents when a tenement leaves a rent-regulated residence and restricted landlords’ skill to show flats into condos, in line with court docket paperwork.

“These legislative changes put further strain on the Company’s and the Debtors’ cash flow, and significantly slowed their condominium conversion initiatives,” Diamond mentioned.

Diamond mentioned chapter will give advisers time to plan a restructuring technique and talk about choices with collectors. 

The case is Broadway Realty I Co. LLC, quantity 25-11050, within the U.S. Bankruptcy Court for the Southern District of New York.

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