Arbor Realty pushes back against claims of short sale fraud

Arbor Realty Trust stands by its accounting and investing practices. 

The firm released a statement Monday, first reported by Bloomberg, as it faces an FBI investigation, which began after Viceroy Reports published a report in May accusing Arbor of fraud.

A short seller claimed an off-balance sheet Arbor-funded entity acquired properties that the firm foreclosed on. The foreclosure would have allowed Arbor to avoid writing down its loans on the properties. Viceroy noted Arbor excluded Westchase Houston, a group of apartment buildings that were allegedly foreclosed, from its first quarterly results.

Chief financial officer Paul Elenio told Bloomberg that the Westchase Houston transaction happened in the second quarter and would be registered in the second quarter results.

“Arbor’s annual financial statements are audited by an independent auditor and its quarterly reports are also reviewed by its external auditor,” Monday’s statement read. “Arbor stands behind its accounting, as well as its originating and investing practices.”

The firm has faced diminishing stock prices in recent months. The Real Deal reported the price had tanked over 18 percent as of 1:20 p.m. EST Friday.

This comes amid a spike in multifamily apartment loan delinquencies over the past six months. Arbor’s loan book is exposed to multifamily borrowers who used floating-rate bridge debt to buy thousands of units when interest rates were low only to suffer cash crunches when rates increased in 2022. 

Thirty-five percent of all multifamily loans are set to mature in the next 18 months, TRD reported. The challenge will be refinancing when borrowers are still forced to find new loans when rates are still high.

Arbor is the most heavily shorted property stock in the country. Approximately 40 percent of the company’s shares are on loan, according to MarketWatch.

-Christina Previte