A&E Real Estate Holdings has reached a deal to prevent Santander Bank from seizing a 1,268-unit apartment portfolio.

The $165M loan modification, which closed Oct. 23, discontinues a foreclosure suit that the lender initiated earlier this month, according to court records and an A&E spokesperson. The debt is backed by 12 walk-up buildings in Queens.

Santander previously alleged that A&E defaulted on the loan, owing nearly $9.8M of the principal balance, almost $3M in interest, $1.7M in tax escrow payments and $5M in outstanding water and sewer bills. As a result, the lender demanded full, immediate repayment of the loan.

Within days of the filing, A&E said it scheduled a meeting with Santander, promising to put new equity into the buildings.

“As had been our stated intention, this modification gives us the ability and confidence to invest additional equity into these buildings to ensure our hard-working residents benefit from the safe, comfortable and well-maintained homes they deserve,” an A&E spokesperson said in a statement.

Santander declined to comment.

The foreclosure action was the second that Santander had brought against Manhattan-based A&E. In the other, the bank claims the landlord defaulted on a $43M loan tied to a 126-unit rental building in Manhattan. The case, filed Sept. 19, remains active.

“We fully expect to achieve a similarly positive outcome with this same joint venture on our loan at 400 E 58th St. in the very near future,” the spokesperson said.

Both loans are part of a $9B Signature Bank book that Boston-based Santander, a subsidiary of Spanish financial giant Santander Group, acquired following Signature’s collapse. Rent-stabilized and rent-controlled housing serves as most of the debt’s collateral.

Many of those properties have plummeted in value following the passage of New York rent reforms in 2019. Balance sheets shared with Bisnow earlier this year show that the deterioration is likely to continue as landlords face rising costs in addition to debt service and capital expenses.

Roughly 57% of affordable housing owners in New York City are bringing in less income than they are spending on expenses, according to a study released last week.

While the loan modification settles one headache for A&E, a larger one remains. In February, the landlord, which owns more than 10,000 apartments in New York City, was hit with a foreclosure filing related to a 31-property portfolio with more than 3,500 units.

The $506.3M CMBS loan, along with a $93.7M securitized mezzanine loan, is backed by 53 buildings across the city. A&E filed a motion in July to dismiss the lawsuit, after which Wells Fargo, acting as trustee for the CMBS bondholders, filed an amended complaint in August seeking to enforce the foreclosure. That case is ongoing.