- Wells Fargo is suing JPMorgan Chase for allegedly inflated net operating income (NOI) metric tied to a $481M loan in 2019—and subsequent losses.
- The loan financed the $522M purchase of 43 multifamily properties across 10 states by Chetrit Group, with a guarantee from principal Meyer Chetrit.
- Wells Fargo claims JPMorgan and Chetrit Group knew the financials were inflated and that JPMorgan offloaded the risk to a competitor instead.
- The lawsuit seeks damages or a repurchase of the loan due to a material breach of contract, as multifamily CMBS delinquencies rise.
Wells Fargo (WFC) is officially suing JPMorgan Chase (JPM) over a $481M loan tied to the 2019 acquisition of 43 multifamily properties by Chetrit Group, per Bisnow.
Allegedly Fraudulent
The loan was secured for the $522M purchase across 10 states and subsequently sold off by JPMorgan to a commercial mortgage-backed securities trust, according to the lawsuit filed Monday in Manhattan federal court.
Wells Fargo alleges that JPMorgan and Chetrit Group knowingly relied on inflated financials when structuring the loan. Specifically, the lawsuit claims the reported net operating income (NOI) was “false and dramatically inflated” by about 25%.
Wells Fargo further accuses the seller, ROCO Real Estate LLC, of providing fraudulent financial statements that exaggerated these key figures.
Get Smarter about what matters in CRE
Stay ahead of trends in commercial real estate with CRE Daily – the free newsletter delivering everything you need to start your day in just 5-minutes
Conspiracy Theory
The complaint accuses JPMorgan of failing to properly vet the inflated financials before originating the loan, and it alleges that JPMorgan “never intended” to hold the loan, instead offloading the risk to investors in the CMBS trust.
Wells Fargo contends this resulted in serious losses, as the value of the properties backing the loan collapsed. As a result, the trust is now facing tens of millions of dollars in losses. Additionally, the borrower, Chetrit Group, defaulted on the loan in 2022, while owing over $285M.
Wells Fargo’s attorneys emphasized JPMorgan offloaded the loan immediately, taking home sizeable fees after all was said and done. The lawsuit seeks either a repurchase of the loan or damages for breach of contract. JPMorgan declined to comment.
The Bigger Picture
The blockbuster lawsuit is happening as CMBS delinquency rates reached 6.6% by EoY 2024, up 4.5% YoY. Multifamily delinquencies shot up 75% YoY, totaling approximately $2.8B, as reported by Trepp.
The combination of rising operating costs and limited interest rate relief for multifamily properties has contributed to the overall uptick in delinquencies across the sector.
