Bankruptcy Lawyers for Joel Wiener Can’t Tap Rental Income

Cash is becoming a concern for Pinnacle Group’s contested portfolio of thousands of rental units.

A federal judge denied a request to tap rental income for more than 5,000 rent-stabilized apartments owned by Joel Wiener’s Pinnacle Group, leaving the massive portfolio without funding for basic operations as it navigates Chapter 11 bankruptcy, Bloomberg reported.

Judge David Jones ruled that lawyers overseeing the portfolio couldn’t use cash flow to cover operating costs because they didn’t provide enough assurance that Flagstar Bank’s financial interest was protected. Flagstar opposed the request to tap the rental income to cover operating costs and has claimed Pinnacle stopped making mortgage payments at the start of the year.

Advisers overseeing the properties warned that buildings could shut off utilities or delay critical repairs to elevators and plumbing without access to cash, a potential concern as heat rolls through.

Pinnacle blamed the bankruptcy on interest rates that surged in recent years, according to court filings. Mortgage rates on the portfolio jumped from between 3 and 4 percent in 2022 to as much as 10.25 percent, causing debt service costs to soar from $26 million in 2023 to $36 million last year.

The 82-entity bankruptcy filing covers 91 properties with roughly 5,000 units across Manhattan, Queens, Brooklyn and the Bronx. The original debt principal was $574 million, but outstanding Israeli-issued bonds pushed total debt to $1 billion.

The portfolio also ran into problems after a change to state housing law announced in 2019 limited rent increases on stabilized units. 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.

In March, Flagstar filed its largest pre-foreclosure action in years against Pinnacle. The bank accused Pinnacle of routing rent money towards bondholders rather than mortgage payments.

Jones said he would consider alternative funding requests on an expedited basis and scheduled a follow-up hearing before the holiday weekend.

The distress Wiener is facing represents more than half of Pinnacle’s 8,700-unit portfolio, which stretches across 136 properties worth about $1.6 billion.

— Holden Walter-Warner