- Community Stabilization Partners filed six foreclosure actions against Madison Realty Capital, targeting eight rent-stabilized buildings in Manhattan and Brooklyn.
- The $5.8B portfolio purchased from Signature Bank includes 35K rental units, with the majority being rent-stabilized. Experts warn this could be the beginning of a wave of foreclosures.
- Rising insurance and operating costs, combined with restrictive rent regulations under the Housing Stability and Tenant Protection Act, left many property owners in financial distress.
- New York officials raised concerns about the potential for tenant displacement and the financial challenges posed by the HSTPA, which limits rent hikes for rent-stabilized units.
- As distressed multifamily loans reach maturity, experts predict foreclosures will continue to increase, creating risks and opportunities for investors.
More than a year after a partnership involving Community Preservation Corp. (CPC), Neighborhood Restore Housing Development Fund Corp., and Related Fund Management acquired a stake in Signature Bank’s $5.8B loan portfolio—primarily tied to rent-stabilized apartments in New York City—the first foreclosure actions have been filed.
The latest filings raise concerns about the future of rent-stabilized housing, as the severely distressed portfolio faces rising pressure from rising costs and tenant protection regulations, per Bisnow.
Filing Foreclosures
An affiliate of the Community Stabilization Partners venture, which is managing a portion of the former Signature Bank portfolio, filed six foreclosure lawsuits on Friday.
The filings targeted eight properties, seven of which are in Manhattan and one in Brooklyn, and allege defaults on $76M worth of loans. According to CSP’s filings, the borrower in question, Madison Realty Capital, stopped making payments on the buildings between May 2023 and February 2024.
Despite the foreclosure actions, CSP emphasized its efforts to resolve payment delinquencies and bring the loans back into good standing.
“We have actively worked with borrowers to resolve payment delinquencies and bring the loans back into good standing,” CSP stated. “However, we are exercising our legal remedies, including foreclosure, against a subset of unresponsive and uncooperative borrowers.”
A Distressed Portfolio
The portfolio, purchased from the FDIC in December 2023 for $171M, includes loans tied to 35K rental units, most of which are rent-stabilized. These properties have long been seen as a crucial part of New York City’s affordable housing stock.
When the deal closed, Mayor Eric Adams praised the acquisition, stating it would help ensure tenants in these 30K affordable homes could breathe a sigh of relief. However, the current situation is raising doubts about the long-term viability of these properties.
CPC’s purchase of the loan book at 59 cents on the dollar was considered a best-case scenario for preserving affordable housing. But with the portfolio now entering a period of distress, the anticipated spike in foreclosures raises questions about the future of these rent-regulated units.
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Impact of Rent-Stabilized Housing
The distress in the Signature Bank portfolio is part of a larger trend impacting The Big Apple’s rent-stabilized housing market.
According to KBRA, apartment buildings built before 1974, many of which are rent-stabilized, had a 25.1% distress rate in 2024 compared to post-2000 properties, which had only a 2.9% distress rate.
As these distressed loans mature, more foreclosures are expected to follow, potentially displacing tenants from their affordable homes.
“You can’t change the net operating income on the buildings,” said Kenny Burgos, CEO of the New York Apartment Association. “The fundamental economics are the problem here.”
Political Concerns, Legal Scrutiny
The situation also raises broader political concerns. Rep. Ritchie Torres and New York City Comptroller Brad Lander have questioned the long-term implications of such deals, particularly in light of the Housing Stability and Tenant Protection Act (HSTPA) of 2019.
The law limited rent increases and, in some cases, decreased the value of apartment buildings, leaving many owners in financial distress. Lander has called on potential buyers of these portfolios to be fully aware of their obligations under the HSTPA.
In the case of CSP’s acquisition, Lander noted that many of these loans were made before the HSTPA and were based on plans to displace rent-regulated tenants and raise rents beyond the law’s limits.
The ongoing foreclosure actions indicate growing legal challenges, along with rising operational costs, will continue to push owners into default.
Zooming Out: The Bigger Picture
While CSP, a nonprofit organization with a long history in affordable housing, is committed to preserving affordability, the escalating foreclosures point to a broader crisis in NYC’s multifamily market.
Experts predict foreclosures will only increase as distressed owners seek to offload properties, potentially creating bargain bin discounts. However, this could also lead to displaced tenants and further strain New York’s already fragile affordable housing stock.
“As a nonprofit, CPC at least needs to break even,” said Shlomo Chopp, Managing Partner of Case Property Services. “But at the end of the day, everything has to work out from a monetary perspective.”
As foreclosures keep rising, the future of rent-stabilized housing in New York remains uncertain, and the impact on tenants, developers, and the broader housing market will be closely watched in the months ahead.
