When rental startup Rezi folded last year, few batted an eye.
The platform, which claimed to lease vacant units faster than a landlord could, was another casualty of the popped proptech bubble. It hadn’t profited, so investors shut off the spigot.
Now, a lawsuit signals Rezi deserved a closer look.
The proptech firm allegedly wreaked havoc on a rent-stabilized portfolio by wrongfully taking rents and driving landlord Leagem Partners to default on a $49 million loan, according to court documents and a foreclosure complaint filed Monday.
“That revenue … is key to figuring out why the foreclosure filing happened in the first place,” Matthew Blum, an attorney with Rosenberg & Estis representing Leagem in another lawsuit.
Rezi’s Sean Mitchell did not respond to a request for comment; Mitchell’s spokesperson did not comment in time for publication.
A New York Community Bank subsidiary filed to foreclose on the $49 million loan alleging Leagem quit making mortgage payments in April. The debt is collateralized by four overwhelmingly rent-stabilized properties: 5 Seaman Avenue, 144 Sherman Avenue and 40 Arden Street in Upper Manhattan, and 119-20 Union Turnpike in Kew Gardens, Queens.
Put rent-stabilized, NYCB and foreclosure together in a whodunnit and the rent law — a known revenue killer — is typically the culprit.
NYCB barely avoided collapse this year after it axed dividends to prepare for rent-stabilized loan losses, in part. As the dust settled, the bank brought in a new C-suite, which promised to “aggressively” manage those troubled loans and shore up operations.
But in this murder mystery, Rezi allegedly played the bigger role.
When Leagem tapped Mitchell’s proptech firm to rent vacant units, the deal was Rezi would pay the landlord a minimum base rent for each apartment, regardless of what Rezi leased it for, according to Blum’s letter to NYCB subsidiary Flagstar in March.
If Rezi fetched more than the base rent, it got to pocket the difference; if Rezi leased the unit for less, it still had to pay Leagem the minimum. The rents Rezi collected should have gone into a trust for Leagem, Blum details.
But in November 2023, Rezi’s credit lines ran dry and Leagem discovered how Rezi was really running the game.
The startup wasn’t dropping rents in the trust. It was depositing them into accounts with lenders, which would then use the deposits to pay down or pay off the credit lines. Excess deposits would go to Rezi as profits.
When lenders froze Rezi’s credit lines, they continued to collect rents from all of Rezi’s contracts, Leagem tenants being one of them.
“Even after Rezi defaulted, tenants kept paying rent through the platform to the tune of hundreds of thousands of dollars that should have belonged to the landlord,” Blum said.
Leagem sued one of Rezi’s lenders, WebBank, in May to recoup the funds Rezi allegedly deposited with the bank. Leagem claims WebBank has refused to return the funds.
WebBank did not immediately respond to a request for comment.
In the meantime, the search for Leagem’s rents has spiraled into a wild goose chase.
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“We’ve been playing this game where we’ll go to a lender that was involved in the Rezi platform, which we have grounds to believe received the money paid by tenants, and they’ll say ‘Oh, no, that’s not us,” Blum said.
“A lot of this is just tracking down where the money went,” Blum added.
The fate of Leagem’s properties depends on it.