Funding to maintain thousands of rent-stabilized apartments in New York City owned by landlord Joel Wiener is in limbo after a federal judge denied a request to tap income belonging to its major lender, Flagstar Bank.
Judge David S. Jones ruled on Sunday that lawyers overseeing more than 5,000 apartments connected to Wiener's Pinnacle Group couldn't use rental income to cover operating costs because they didn't provide enough proof that Flagstar's financial interest was protected. The properties — facing foreclosure and saddled with more than $564 million in debt — were put into Chapter 11 bankruptcy in May.
Rent and other cash, which
Jones said bankruptcy law compelled his ruling, but he would consider alternative or shorter-term funding to avert potential harm to tenants or the buildings' operations. Advisers overseeing the properties in Chapter 11 warned in court papers that buildings could turn off utilities, or potential fixes to elevators or plumbing could be jeopardized without access to cash.
Sunday's decision follows days of extreme heat in New York City. Jones said he'd schedule a follow-up court hearing before the July 4 holiday weekend and would consider revised requests for cash on an expedited basis.
"The court is keenly aware that debtors provide more than 5,000 units of affordable housing in New York City, and any disruption of debtors' operations could have serious impact on tenants as well as other stakeholders," Jones said in his ruling. "The court urges Flagstar and debtors to take immediate steps to ensure that needed services continue without interruption."
A lawyer representing the bankrupt properties declined to comment Monday. Flagstar also declined to comment.
Advisers have blamed last month's bankruptcies on "sky-rocketed" interest rates and changes to New York housing law that restricted the property owners' ability to increase rent on tenants.
New York City mayoral candidate Zohran Mamdani has vowed to freeze the rent on the city's 2.5 million rent-stabilized tenants. He is poised to win the Democratic primary, making him the likely frontrunner in the November general election.
Lenders that have already been making a beeline out of the business may see the prospect of a Mamdani mayorship as motivation to accelerate those efforts, analysts said.
Banks with major loan concentrations in the New York rent-regulated market have been trying to shrink those portfolios since 2019, when the state passed a law, designed to protect tenants, that limited their revenue streams by capping rent increases and eliminating eviction plans.
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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