Dive Brief:
- More than 5,100 rent-stabilized New York City apartments are being marketed for a potential bankruptcy auction, though they could also solicit offerings for potential refinancing, Bloomberg was the first to report.
- Flagstar Bank holds more than $564 million in debt on the buildings, which fell into Chapter 11 earlier in the year. The apartments span dozens of buildings across Brooklyn, Queens, Manhattan and the Bronx, according to Bloomberg.
- Bidders should submit non-binding indications of interest by Nov. 21, while lawyers overseeing the properties have proposed a Dec. 21 bid deadline. If approved by a judge, the auction is expected to take place in January, according to Bloomberg.
Dive Insight:
Collectively, there are 82 debtor corporations on the buildings. Those entities are indirectly and directly controlled by a company called Zarasai and managed by Pinnacle Group, with Joel Weiner serving as CEO, according to court documents and Bloomberg.
Flagstar contended that the debtors stopped making payments in January 2025, according to court documents. However, the company reported no cash on hand as of May, “suggesting serious net operating losses by debtors, and/or some other transfer of debtors’ funds that has not been explained,” according to court documents.
In addition, those documents cite “a challenging rent-regulated housing market, in which landlords are experiencing significant cost increases while they have a limited ability to increase their rental income, compounded by sharp increases in debtors’ financing costs due to upward adjustments of the interest rates on much of their debt.”
Housing violations deemed by New York City as “immediately hazardous” at Pinnacle’s bankrupt buildings increased fourfold from 2019 to 2024, which is twice the rate of similar rent-stabilized properties, according to a Bloomberg analysis of municipal data.
However, the 5,000-plus units potentially heading to auction aren’t the only rent-stabilized workforce apartments in New York City that have faced issues in recent years.
For instance, in 2024, the special servicer for eight commercial mortgage-backed securities loans in New York City instructed its legal counsel to foreclose on the 28 workforce properties that back the loans, according to DBRS Morningstar. New York City-based Emerald Equity Group owned the properties.
“The Housing Stability & Tenant Protection Act of 2019, high inflation rates, increasing operating expenses — which continue to outpace permitted rental increases for rent-stabilized apartments — and an inability to collect rents have critically impaired the value of rent-stabilized assets in NYC over the past five years,” DBRS Morningstar said in the report.
