Meyer Chetrit’s Rent-Stabilized Loan in Special Servicing

The rent-stabilized plague has claimed its largest victim since the 2019 rent law crippled properties’ revenues and decimated values.

This month, $540 million in CMBS debt sponsored by Meyer Chetrit and the Gluck family of Stellar Management and tied to two Upper East Side rental buildings was transferred to special servicing.

The portfolio comprises the Yorkshire and Lexington Towers, which total 808 units. There’s also $175 million in mezzanine debt tied to the deal.

A spokesperson for Chetrit’s firm, the Chetrit Group, did not immediately respond to a request for comment.

Yorkshire, at 305 East 86th Street, is the bigger of the two buildings with 692 units, about one-third of which are rent-stabilized. About half of Lexington’s 149 units are regulated.

Since Albany changed the rent law in 2019, nearly all rent-stabilized landlords have struggled with the legislation’s hardened cap on revenues. Meanwhile, expenses and interest rates have surged, loans are coming due and more owners are hurtling toward default.

But a specific subset of landlords — those whose business strategy hinged on converting rent-stabilized units to free-market by renovating them — have been hit particularly hard.

Chetrit and Gluck had planned to renovate 311 units, according to Morningstar credit. The towers hold a combined 305 rent-stabilized units. It’s unclear how many of the planned renovations they managed to execute.

Financial data shows net cash flow has also suffered, in part because of falling occupancy. The buildings were 97 percent full when the loan was made in mid-2022; as of last December they were 89 percent leased.

Revenue fell 24 percent in that period, while expenses jumped 16 percent. Rent collections at the end of 2023 were still covering 1.6 times mortgage payments. But that figure, known as the debt service coverage ratio, had slipped from 3.6 in 2022.

Chetrit and Gluck, two of the city’s most prolific property investors, could hash out new terms in special servicing. But it’s unclear what might help. Time isn’t the issue — the loan isn’t due until June 2027 — and the sponsors are already paying a low interest rate of 3 percent on a fixed-rate loan.

As of December, the sponsors were not delinquent on payments, according to Morningstar.

To boost performance, Chetrit would need to first plug vacancies — what should be easy given the strong demand for rental units in New York City. But the 2019 law’s cap on rent increases to pay for improvements to rent-stabilized units can make it financially infeasible to bring empty apartments up to code.

It’s possible that even full buildings would not produce enough revenue for the sponsors to refinance at maturity, at least without injecting a lot of cash. Chetrit now faces the challenge of persuading the servicer representing CMBS bondholders that there’s a road to recovery.