Judge Approves Sale Of 5,200 NYC Apartments Over City's Objections

The heavily scrutinized bankruptcy sale of a massive portfolio of troubled New York City apartment buildings was approved Friday by a bankruptcy judge, following a hearing that ran from morning to evening the day before.

Summit Properties USA, the U.S. real estate investment firm led by Israeli entrepreneur Zohar Levy, got the go-ahead by the United States Bankruptcy Court for the Southern District of New York to purchase 5,151 apartments across 93 buildings in Brooklyn, Manhattan, Queens and the Bronx for $451.3M. The deal is expected to close within 90 days. 

The portfolio was placed into bankruptcy last year by its owner, Pinnacle Group CEO Joel Wiener, after Flagstar Bank filed to foreclose on a $564M loan tied to the property.

Ken Fisher, an attorney for Pinnacle, said the company and its advisers “appreciate the court's recognition that this outcome, achieved in challenging circumstances, is the best available for all constituencies, and hopes the City does too.”

Levy attended Thursday's hearing from Austria via Zoom. When he turned his camera on, the gaggle of attorneys, advisers, press and witnesses in the courtroom craned their necks to see the screen and get a look at the landlord, who now controls one of the city's biggest portfolios of rent-stabilized housing.

“This process has been difficult for the residents, and we understand their frustration and concerns about their homes,” Levy said in a statement after the hearing. “Today’s ruling is a new chapter, and we look forward to working with the City, our elected officials, stakeholders and residents to improve the buildings and move forward. We are assembling a strong team and have the capacity, commitment and resources to succeed for everyone’s benefit.”

More than a dozen tenants, many wearing “As we rise, Pinnacle will fall” T-shirts, viewed the hearing in an overflow room. Residents of the apartments have been publicly campaigning for months to have a say in the future of their homes, sending letters to Bankruptcy Judge David Jones describing substandard living conditions and hosting Mayor Zohran Mamdani in his first day in office.

“This is not the end of our fight. It’s a rebirth,” Tracy Rosenthal, an organizer with the Union of Pinnacle tenants,” said in a statement to Bisnow highlighting. “Today, Judge David S. Jones and Flagstar Bank sided with slumlords and sold our homes to Summit Properties. ... But Summit is not done hearing from us! We’re going to use our power to fight for our homes, better and faster repairs, an end to harassment, and more.”

Rosenthal said the union’s organizing led to promises from Summit to renovate and better manage the units, and it called on other Summit tenants to join forces with the existing union to push for further improvements.

Summit won the auction for the portfolio last week with the stalking horse bid it revealed in December. Jones allowed the sale to go forward over the objection of attorneys from Mamdani's administration, who argued the city needed more time to evaluate Summit's bid and its impact on thousands of New Yorkers. 

The city is owed nearly $13M from unpaid violations tied to the Pinnacle portfolio, according to court filings.

“I know that the violations exist and people suffer,” Levy said during the hearing. “The intention is to focus first on the things that are severe.”

In a sworn declaration filed this week, Levy said Summit plans to spend $30M over the next five years fixing up the properties. He estimates there are more than 6,400 open violations with the city's Department of Housing Preservation and Development in the portfolio, but he wrote that the problems are confined to 400 units.

The declaration also contained more details about the deal and Levy's plan to manage the portfolio. Flagstar agreed to provide $338.5M of debt to finance the purchase — swallowing a loss of more than $200M — and Summit has already put down $45.1M in earnest money as the winning bidder.

The portfolio's overall debt would shrink by more than $275M, and Levy said lower interest rates and smaller monthly payments will free up more cash for improvements and preventive maintenance.

“We don't trust that,” Mildred Ross, who has been a tenant at 1048 Union St. in Brooklyn since 1978 and has organized opposition to Pinnacle, said when asked before the hearing about the Summit plan. Power was shut off to her Crown Heights building last year when Pinnacle fell behind on utility payments.

The city filed another objection to the sale this week, as did the New York state attorney general. Both took issue with the thousands of housing violations racked up in NYC apartments Summit already owns, which are managed by a local partner. They also raised concerns that the local partner is Chestnut Holdings, owned by Jonathan Wiener, the brother of Pinnacle's CEO. The connection was first uncovered by Bisnow.

Levy described Summit as a passive investor in its existing New York City holdings and said in the declaration it was recently made aware of the buildings' maintenance issues and is in the process of addressing them. 

At the hearing, Levy said Wiener and Chestnut “are not involved in this deal in any way” and that Summit will take a more active role in the former Pinnacle buildings.

“I do think the evidence presented dispels that concern, which was a legitimate concern,” said Jones, the bankruptcy judge, adding that the connection “raised some eyebrows.”

Summit plans to hire two property managers to run the portfolio, one for the 2,358 units in Brooklyn and one for the other 2,793 across the city, according to Levy's declaration. He said at the hearing that R.E.M. Residential would be tapped as manager for some of the buildings.

Attorneys representing the city and a group of Pinnacle tenants were allowed to question Levy during the hearing, asking about his Israeli investors, his connection to Chestnut Holdings and his existing portfolio.

Steven Banks, who Mamdani nominated to serve as the city's corporation counsel — effectively its chief lawyer — told the judge the city was pressing for information “so we don't end up before you with the bankruptcy of Summit.”

“There are 5,000 people whose lives hang in the balance,” Banks said.

At multiple points, attorneys for Summit, Flagstar, the bankrupt estate, tenants and the city conferred in a separate room to negotiate terms of the deal. 

Before dismissing the court for lunch, Jones told attorneys he would feel more comfortable with the deal if he saw “something in the nature of a guarantee” or a dedicated reserve fund.

After several breaks during the afternoon's testimony for negotiations, Flagstar agreed to fund an additional $3M revolving line of credit to Summit to upgrade the buildings.

“It's a lot of properties, and I assure everyone that is very much on my mind,” Jones said.

Attorneys representing the city weren't satisfied that enough protections were in place to prevent Summit from falling victim to the same math problem that dragged Pinnacle into bankruptcy and has resulted in widespread distress among the city's rent-stabilized landlords.  

“This is not a plain vanilla transaction,” a city attorney said during closing arguments, adding that Summit “hasn't made assurances that this is not just lip service.”

This is a developing story.