Bondholders invested in a $506M CMBS loan tied to a 53-building New York City apartment portfolio are being forced to watch their losses rack up as a rent freeze looms over the mostly rent-stabilized properties. 

The portfolio, which consists of more than 3,500 units across Queens, Brooklyn, Manhattan and the Bronx, has accumulated more than $5.5M in unpaid interest, Bloomberg reports. Owner A&E Real Estate defaulted on the mortgage when it matured in June 2024. 

The portfolio, which is 86% rent-stabilized, was valued at approximately $717M in 2021, when A&E secured the loan from JPMorgan Chase. KBRA Credit Profile analysts said the valuation has dropped to $460M. Bondholders are projected to lose more than $80M. There is also $93.7M of mezzanine debt, according to a presale report for the CMBS loan.

In February 2025, lenders began foreclosure proceedings, which remain ongoing. By late last year, the investment was generating just 58 cents for every dollar of debt payments, according to Bloomberg. 

“We remain in constant communication with both the senior and mezzanine debt holders as we seek a resolution that serves the best interests of everyone involved, most especially the hard-working New York City residents who call these buildings home,” a spokesperson for A&E said in a statement to Bisnow. 

The collateral includes the 12-building East Harlem complex known as Riverton Square. The property alone accounts for more than 1,200 units. Other properties in the portfolio are La Mesa Verde, which spans six buildings in central Queens, and Queens Boulevard Apartments, which contains three buildings, five professional spaces and a below-ground garage. 

Although a rent freeze has yet to take place, the borrower has suffered from operating expenses running 13% above expectations, Bloomberg reported. Overall, annualized expenses were roughly 22% above initial levels, while revenue is up just 6%. 

A&E is among the largest landlords in New York City, managing more than 20,000 apartments. In January, the city announced a $2.1M settlement with the firm to address more than 4,000 building condition violations across 14 buildings. The deal was reached under the Adams administration.

The city's Rent Guidelines Board in June approved a rent freeze that is set to go into effect in October. The freeze on one- and two-year leases is set to compound pressure from the Housing Stability and Tenant Protection Act of 2019, which eliminated alternative ways for landlords to increase rents and deregulate apartments, causing property values to plummet. 

A report released by Fitch Ratings last month found that near-term systemic CMBS risk for the market remains modest, but credit risk will likely increase over the medium to long term. 

The Mamdani administration has proposed various offsetting measures, such as a city-backed insurance program. Still, the report says, “Fitch views these measures as insufficient to materially offset pressure from frozen revenue, but it may revise that view as it assesses their effectiveness.”

There is still a chance that the freeze doesn't take effect — a group of landlords filed a lawsuit last month challenging the ruling, claiming the RGB didn't act independently of Mayor Zohran Mamdani, who campaigned on a four-year rent freeze.