Isaac Kassirer defaulted on debt secured by a $110 million portfolio of rent-stabilized Bronx buildings earlier this year. Now he stands to lose them.
A trustee for the CMBS debt filed eight pre-foreclosure actions this week.
Performance on the debt, issued by Sabal Capital, went south after expenses ate away at cash flow and some tenants of the 27 buildings quit paying rent, loan servicer commentary in Morningstar showed.
Kassirer might have been able to overcome those headwinds if not for the 2019 rent law.
Kassirer’s Emerald Equity Group built a business snapping up scores of rent-stabilized buildings and finding ways to raise the rent before the state law severely restricted those increases.
Emerald’s strategy typically centered on deregulation. Before June 2019, owners could renovate, then raise rents to recapture the expense — and more. If rents surpassed a certain threshold, the units could be converted to market rate.
Lenders in that period underwrote for that rent growth, meaning they provided mortgages that anticipated revenue increases. But the increases never materialized, and building values have plummeted as much as 40 percent.
Sabal Capital originated Kassirer’s debt on the expectation of revenue growth he couldn’t realize or operating expenses he couldn’t control.
The Bronx loans now in pre-foreclosure were issued in 2019 and 2020, so at least some came after the rent law passed. But other blows were unanticipated, notably soaring interest rates and operating expenses, a seemingly endless eviction moratorium and a “cancel rent” movement that led some tenants to stop paying.
Servicer commentary notes the distressed buildings sustained value declines of 60 percent on average.
Kassirer told The Real Deal in September that Emerald Equity had been in talks with its lender since early in the year about the defaults and was “in the process of finalizing an agreement.”
After the pre-foreclosure filings, Emerald Equity pointed to servicer commentary to signal what will happen next.
“The sponsor has expressed a willingness to forgo litigation and turn the properties over to the lender if they are unable to make progress toward a resolution,” the commentary provided by Emerald states.
In other words, Emerald was looking to hand back the keys rather than battle it out in court.
In a so-called friendly foreclosure, a borrower works with its lender to speed the process and save on legal fees. Conventional foreclosures, by comparison, are notoriously time-consuming.
Emerald’s willingness to walk away points to the severity of the trouble at some rent-stabilized buildings. Many owners have lost their equity, and with no hope of raising rents, there’s little reason to fight for their buildings.
Some of the assets named in the pre-foreclosure filings include 741 Hunts Point Avenue, 1202 Spofford Avenue, 440 East 187th Street, 441 East 187th Street, 1475 Fulton Avenue, 1235 Morris Avenue, 2224 Lyon Avenue, 109 West 225th Street, 1103-1105 Sheridan Avenue and 1083 Sheridan Avenue.