New York City owner has 25 properties in the Bronx sent to special servicing

Dive Brief:

A group of New York City workforce apartments is facing financial stress, according to a recent report from credit ratings agency DBRS Morningstar.
Emerald Equities’ 28-property portfolio, comprising 747 units in multiple neighborhoods in the Bronx, is secured by eight loans. Seven of those loans, covering 25 properties and 663 units, were transferred to special servicing over the summer for imminent monetary default, according to DBRS Morningstar.
The Emerald portfolio is reporting cash flows significantly below issuance expectations, as the properties backing the defaulted loans continue to “show sharp value declines from the issuance appraised values,” according to DBRS Morningstar.

Dive Insight:

If the parties are unable to make progress on a path forward, the sponsor is willing to forego litigation and hand over the keys to the properties, according to DBRS Morningstar.

Emerald cited non-paying tenants and inflated expenses as the source of its problems, according to Morningstar. The servicer is working on a loan modification and is in discussions with the owner “regarding plans for correcting various property conditions and general performance issues across the portfolio.”

Emerald has run into issues before. Founder Isaac Kassirer bought a series of rent-stabilized buildings aiming to convert them to market-rate properties, according to The Real Deal. However, the passage of a 2019 rent law thwarted those plans and forced some of its properties into bankruptcy in 2020.

Emerald isn’t alone in struggling with unpaid rent after eviction moratoriums and rental assistance programs have expired. For instance, servicers foreclosed on four buildings owned by New York City-based City Skyline Realty in early September, according to The Real Deal. The owner defaulted on $26 million in debt on four Upper Manhattan rent-stabilized properties — 174 West 137th Street, 507 West 139th, 510 West 148th Street and 505 West 161 Street.

A survey from the Community Housing Improvement Program, a trade association for owners of rent-stabilized rental properties across New York City, estimates that 93,500 tenants are more than three months behind on rent, 37,500 owe more than $25,000 and 4,500 tenants are more than $50,000 in arrears.

With less revenue coming in, apartment owners are less equipped to deal with increasing expenses, which are rising around the country. Expenses at multifamily properties grew 9.3% in the trailing 12-month period that ended in June 2023, according to a report from Yardi. That was a 63% increase compared to the previous 12-month period, in which costs increased 5.7%.

“The rapid growth reflects national inflation trends, such as the increasing number of weather-related events that cause property damage, the tight labor market that is driving up employee wages, growing energy costs and supply-chain issues that increase the cost of materials and appliances,” Yardi said in the report.

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