Major NYC Landlord Blames Bankruptcy On High Interest Rates

Mint

28-05-2025

(Bloomberg) -- A portfolio of rent-stabilized New York City apartments owned by Joel Wiener was pushed into bankruptcy by 'sky-rocketed' interest rates and changes to state housing law that restricted the property owners' ability to increase rent on tenants, according to court papers.
Dozens of properties managed by Wiener's Pinnacle Group were put into Chapter 11 last week, saddled with roughly $564 million in mortgage debt and facing foreclosure actions from its primary lender, Flagstar Bank. The apartments also have outstanding amounts on Israeli-issued bonds, pushing the total debt on the properties to roughly $1 billion, according to bankruptcy papers filed Tuesday.
Interest rate hikes in 2022 significantly increased the cost of the mortgage debt, to the point that rental income was no longer enough to cover debt service and operating expenses, Ephraim Diamond, the properties' chief restructuring officer said in a court filing.
Rates on a large portion of the Pinnacle properties' mortgage debt has 'sky rocketed' since 2022, from between 3% to 4% to as high as 7.5% and 10.25%, in certain circumstances, Diamond said. The cost to service the debt was about $26 million in 2023, including $20 million interest. Last year, that amount jumped to $36 million, including $25 million in interest, and is projected to increase again in 2025, he said.
US Bankruptcy Judge David Jones, during the first hearing in the case since the filing, delayed ruling on a request by the apartment business to spend cash being held as collateral for the Flagstar debt. Jones asked both sides to try to come to a compromise about how the money would be used during the next few weeks. If they can't agree, Jones said he was prepared to rule on the request as soon as tomorrow, when both sides are scheduled to return to court.
Flagstar claims that rent money that should have gone to pay the mortgage instead may have been funneled to a related holding company where 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 said in court papers filed Wednesday.
A lawyer for the apartment company did not immediately return a request for comment.
Most of its tenets get some form of rent stabilization and changes to state law in recent years intended to protect renters created further financial stress on the buildings, Diamond said. In 2019, state lawmakers placed restrictions on building owners' ability to raise rents when a tenement leaves a rent-regulated apartment and limited landlords' ability to turn apartments into condos, according to court documents.
'These legislative changes put further strain on the Company's and the Debtors' cash flow, and significantly slowed their condominium conversion initiatives,' Diamond said.
Diamond said bankruptcy will give advisers time to devise a restructuring strategy and discuss options with creditors.
The case is Broadway Realty I Co. LLC, number 25-11050, in the U.S. Bankruptcy Court for the Southern District of New York.
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