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<\/p>\nThe\u00a0heavily scrutinized\u00a0bankruptcy sale of a massive portfolio of troubled New York City apartment buildings was approved\u00a0Friday by a bankruptcy judge, following a\u00a0hearing that ran from morning to evening the day before.<\/p>\n
<\/p>\n
\n Bisnow\/Sasha Jones\n <\/p>\n
\n U.S. Bankruptcy Court for the Southern District of New York in Lower Manhattan\n <\/p>\n
Summit Properties USA<\/a>, the U.S.\u00a0real estate investment firm led by\u00a0Israeli entrepreneur Zohar Levy<\/a>, got the go-ahead by the United States Bankruptcy Court for the Southern District of New York to purchase\u00a05,151 apartments across 93 buildings in Brooklyn, Manhattan, Queens and the Bronx for $451.3M. The deal is expected to close within 90 days.\u00a0<\/p>\n The portfolio was placed into bankruptcy last year by its owner, Pinnacle Group<\/a> CEO Joel Wiener, after Flagstar Bank<\/a>\u00a0filed to foreclose\u00a0on\u00a0a $564M loan tied to the property.<\/p>\n Ken Fisher, an attorney for Pinnacle, said the company and its advisers \u201cappreciate the court’s recognition that this outcome, achieved in challenging circumstances, is the best available for all constituencies, and hopes the City does too.\u201d<\/p>\n Levy attended\u00a0Thursday’s hearing from Austria via Zoom. When he turned his camera on, the\u00a0gaggle of attorneys, advisers, press and witnesses\u00a0in 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.<\/p>\n \u201cThis process has been difficult for the residents, and we understand their frustration and concerns about their homes,\u201d Levy said in a statement after the hearing. \u201cToday\u2019s 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.\u201d<\/p>\n More than a dozen tenants, many wearing \u201cAs we rise, Pinnacle will fall\u201d T-shirts, viewed\u00a0the 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<\/a> in his first day in office.<\/p>\n \u201cThis is not the end of our fight. It\u2019s a rebirth,\u201d Tracy Rosenthal, an organizer with the Union of Pinnacle Tenants, said in a statement to\u00a0Bisnow.\u00a0<\/p>\n \u201cToday, Judge David S. Jones and Flagstar Bank sided with slumlords and sold our homes to Summit Properties. …\u00a0But Summit is not done hearing from us! We\u2019re going to use our power to fight for our homes, better and faster repairs, an end to harassment, and more.\u201d<\/p>\n Summit\u00a0won the auction<\/a> for the portfolio last week with the stalking horse bid\u00a0it revealed<\/a> in December.\u00a0Jones\u00a0allowed the sale to go forward over the objection of attorneys\u00a0from Mamdani’s administration, who argued the city needed more time to evaluate Summit’s bid and its impact on thousands of New Yorkers.\u00a0<\/p>\n The city is owed nearly $13M from unpaid violations tied to the Pinnacle portfolio,\u00a0according to\u00a0court filings.<\/p>\n \u201cI know that the violations exist and people suffer,\u201d\u00a0Levy\u00a0said during the hearing. \u201cThe intention is to focus first on the things that are severe.\u201d<\/p>\n 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.<\/p>\n The declaration also contained more details about the deal and Levy’s plan to manage the portfolio. Flagstar agreed to provide $338.5M of\u00a0debt to finance the purchase \u2014 swallowing a loss of more than $200M \u2014 and Summit has already put down $45.1M in earnest money as the winning bidder.<\/p>\n 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.<\/p>\n \u201cWe don’t trust that,\u201d Mildred Ross, who has been a tenant at 1048 Union St. in Brooklyn since 1978 and has organized opposition to\u00a0Pinnacle, said when asked\u00a0before the hearing about the Summit plan. Power was shut off to her Crown Heights building last year when Pinnacle fell behind\u00a0on utility payments<\/a>.<\/p>\n \n Pinnacle Group tenants have written to the bankruptcy court, requesting a say in the sale of more than 5,000 rent-stabilized units.\n <\/p>\n 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<\/a>, the brother of Pinnacle’s CEO. The connection was\u00a0first uncovered by\u00a0Bisnow<\/a>.<\/p>\n 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.\u00a0<\/p>\n At the hearing, Levy said Wiener and Chestnut \u201care not involved in this deal in any way\u201d and that Summit will take a more active role in the former Pinnacle buildings.<\/p>\n \u201cI do think the evidence presented dispels that concern, which was a legitimate concern,\u201d said Jones, the bankruptcy judge,\u00a0adding that\u00a0the connection \u201craised some eyebrows.\u201d<\/p>\n 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.<\/p>\n 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.<\/p>\n Steven Banks, who Mamdani nominated to serve as the city’s corporation counsel \u2014 effectively its chief lawyer \u2014\u00a0told the judge the city was pressing for information \u201cso we don’t end up before you with the bankruptcy of Summit.\u201d<\/p>\n \u201cThere are 5,000 people whose lives hang in the balance,\u201d Banks said.<\/p>\n 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.\u00a0<\/p>\n Before dismissing the court for lunch, Jones told attorneys he would feel more comfortable with the deal if he saw \u201csomething in the nature of a guarantee\u201d or a dedicated reserve fund.<\/p>\n 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.<\/p>\n \u201cIt’s a lot of properties, and I assure everyone that is very much on my mind,\u201d Jones said.<\/p>\n<\/p>\n