Joel Wiener’s Bankruptcy Culprit: Interest Rates

The bankruptcy case of a massive portfolio for Joel Wiener’s Pinnacle Group is in full swing.

Pinnacle blamed the big bankruptcy on interest rates that “sky-rocketed” in recent years, Bloomberg reported. The portfolio of rent-stabilized units also ran into problems due to the 2019 change to state housing law that limited rent increases, according to filings in the case.

Last week, Wiener filed petitions for bankruptcy protection across 82 entities, which control 91 properties and roughly 5,000 multifamily units. The original debt principal was $574 million, but there are also outstanding Israeli-issued bonds, according to filings, increasing the total debt to $1 billion.

Once interest rates started rising in 2022, rental income could no longer cover debt service and operating expenses, according to chief restructuring officer Ephraim Diamond.

Interest rates on much of Pinnacle’s mortgage debt jumped from between 3 and 4 percent in 2022 to as much as 7.5 percent, some even hitting 10.25 percent, according to Diamond. Debt service costs soared from $26 million in 2023 — with $20 million interest — to $36 million last year, with $25 million interest. Another jump is expected this year.

Two months ago, Flagstar filed its largest pre-foreclosure action in years, four summonses against Pinnacle. Wiener’s bankruptcy petitions covered most, though not all, of the 5,200 units linked to Flagstar’s filings.

The bankruptcy petitions and pre-foreclosure filings represent more than half of Pinnacle’s 8,700-unit multifamily portfolio in New York City. Pinnacle’s portfolio stretches across approximately 136 properties totaling about 7.5 million square feet, according to PincusCo data, which estimates the firm’s holdings are worth about $1.6 billion.

The first hearing in the bankruptcy proceeding did not include a decision on whether Pinnacle can spend cash being held as collateral for Flagstar debt. Flagstar accused Pinnacle of routing rent money towards bondholders, rather than mortgage payments.

— Holden Walter-Warner