Flagstar Swallows $4.8M Loss To Shed Performing Rent-Stabilized Loan
In a sign of just how badly Flagstar Bank wants to reduce its exposure to rent-stabilized buildings in New York City, it offered one of its borrowers a nearly $5M discount if it could refinance its loan, even though the buildings were full and the mortgage was being paid on time.
Alma Realty Corp., owned by billionaire Efstathios Valiotis, obliged. It landed an $83M loan for a 465-unit, five-building Brooklyn portfolio from Zions Bancorp, according to the New York City register.
The portfolio includes the 159-unit apartment complex at 545 Prospect Place in Crown Heights, which Alma converted from a nurse training center and the Brooklyn Jewish Hospital.
Zions split the debt into three pari passu notes, the largest of which was bundled into a $533.6M CMBS deal that is sponsored by Barclays, according to a loan prospectus filed with the Securities and Exchange Commission.
Last year, Flagstar approached Valiotis, Alma’s founder and CEO, with a deal, offering to discount the portfolio’s loans by $4.8M in exchange for repaying the loan by the end of this month, according to the prospectus.
The Flagstar loan was fully performing and in good standing at the time of the refinancing, the loan document said. A KBRA presale report indicated the Flagstar loan was for $80.5M. The remainder of the Zions debt went to fund reserves and closing costs, according to KBRA.
Other properties backed by the new loan include the 71-unit 480 St. Marks Ave., the 65-unit 500 St. Marks Ave., the 86-unit 565 Prospect Place and the 76-unit 713 Classon Ave.
The portfolio, which was 99.6% occupied at the end of 2025, benefits from an Article XI tax incentive that is required to stay in place until 2047, even in the case of foreclosures. The portfolio pays roughly $730K in taxes a year — unabated, that bill would be north of $3.6M, according to the prospectus. In exchange, the units must be kept in rent stabilization and certain tenant protections must be upheld.
The portfolio generated $7.8M of net operating income in 2025, up from $7M in 2024.
Regardless of the performance of the loan, Flagstar is engaged in efforts to shrink its exposure to rent-stabilized housing after it purchased $38.4B of Signature Bridge Bank’s assets in 2023, including almost $13B of loans for just $2.7B.
Flagstar culled $324M in loans linked to rent-stabilized properties between July and October, The Real Deal previously reported.
Last week, Flagstar forecast a 7% to 8% drop in its net operating income for properties that are more than 70% rent-regulated over the next three years if the city enacts a rent freeze, Chief Financial Officer Lee Smith said during the bank’s earnings call.
Valiotis and Alma Realty were once on the New York City public advocate’s “Worst Landlords” list, despite being among the largest apartment owners in the region, with more than 8,500 units and 15,000 in its management portfolio.
The landlord was one of three sued by the city in 2023 for failing to correct thousands of housing violations, and last year it gained further notoriety when one Jewish Hospital tenant set up a 24-hour live camera feed broadcasting the building’s rat infestation.
