After months of discussions and no resolution, Meyer Chetrit’s special servicer on a distressed multifamily loan has filed to foreclose.
The Chetrit Group head defaulted on the $225 million debt collateralized by the Parkhill City apartment complex in Jamaica, Queens in February 2023, according to Morningstar Credit.
When the loan came due in July of that year, payment default turned to maturity default. Special servicer CWCapital Asset Management and Chetrit spent the better part of a year talking solutions before negotiations “stalled” in March 2024, Morningstar details.
A few months later, bondholders on the securitized debt pulled the trigger on a foreclosure complaint, Commercial Real Estate Direct reported.
A spokesperson for The Chetrit Group did not respond to a request for comment.
Chetrit’s problems can be boiled down to a rocky path to stabilization.
The developer scored the $225 million loan in 2021, opting for a floating-rate option as it worked to lease up 150-13 89th Avenue — one of two buildings that comprise the Parkhill City complex.
Chetrit had converted a 1930s-era hospital to construct 89th Avenue, a 481-unit apartment building, in 2019. The developer had already wrapped the smaller piece of Parkhill City, the 57-unit 152-09 88th Avenue, in 2016.
At 89th Avenue, the pandemic complicated leasing, servicer commentary details, and Chetrit failed to bring net operating income in line with projections. As of December, about one-tenth of the larger building was vacant.
Meanwhile, Chetrit had hoped to lock down a 421a tax abatement to cut his property tax payments to zero for a few decades. When the loan transferred to special servicing in early 2023, servicer commentary noted Chetrit had yet to lock down the tax break and likely wouldn’t until construction on the 89th Avenue building wrapped in mid-2023.
It’s unclear if the developer nabbed 421a in the past year, but a Google search shows no sign of a housing lottery for the affordable units required under the abatement. That signals Chetrit may have failed to secure that key revenue booster.
The developer had made the wise choice to buy a rate cap, insulating him from higher mortgage payments as the Federal Reserve plowed ahead with interest rate increases. But that cap expired when the loan matured, and the cost of caps soared, creating another financial hurdle as maturity dawned.
The foreclosure complaint against Parkhill City doesn’t mean the property is headed to auction. Sometimes special servicers, working on behalf of the CMBS securitization’s bondholders, will file suit to light a fire under a sponsor.
But a sale could also be the best case scenario for bondholders. Chetrit’s loan is the only one in the securitization, meaning there are no other debts to buffer losses.
If the court approves a sale, the asset could fetch more than the loan at auction, especially if the properties are entirely market rate. Rents remain high and buyer appetite for New York City multifamily surged in the second quarter and looks likely to continue, according to brokerage Ariel Property Advisors.
If the Federal Reserve follows through with rate cuts later this year, that could serve as another boon to prices that would only benefit bondholders.
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