Joel Wiener's Pinnacle Group and the Praedium Group of New York are seeking to convert more than 1,000 rental apartments in 36 financially distressed buildings on the Upper West Side into condominiums rather than market-rate apartments as they originally planned, according to an article in today's edition of The Wall Street Journal by Maura Webber Sadovi.
The two companies formed a partnership that "is under increasing legal and financial pressure to map out a new strategy for the buildings," the article said, as "a $192 million loan backed by the properties which went delinquent earlier this month, according to Trepp LLC, a firm that monitors the commercial real-estate debt market."
Pinnacle, which owns hundreds of other apartment buildings throughout the city, and Praedium, a New York real-estate firm with more than $7 billion in assets, obtained the loan for the 36 buildings, which include 834 Riverside Drive, in 2007, the article said, adding that at that time "the companies projected they could raise average monthly rents in the properties to $2,913 by the end of 2012 from about $1,000 in 2007, according to Manus Clancy, a senior managing director with Trepp."
The conversions, however, have gone slower than expected and the partnership, the article said, is now "talking to LNR Partners, the special servicer overseeing the $192 million mortgage for bondholders, about a plan to sell the units as condominiums which they hope would boost the value of the properties, according to Trepp."
Since the partnership acquired the buildings their "occupancies have dropped to 82% last year from 96% in 2007 and the portfolio's net operating income fell to $2.7 million last year from $4.7 million in 2008, not enough to cover the annual debt service of about $12 million, according to Trepp," the article said.
"They're having trouble with their original business plan so they're looking to go this route," says Frank Innaurato, a managing director at Realpoint, a unit of Morningstar Inc. that also monitors commercial real-estate mortgages, the article said.
"The partnership," the article said, "is discussing the conversion plan at a time that Pinnacle and Mr. Wiener are facing other legal issues. They are being sued by a group of tenants at a number of their properties that claimed Pinnacle and Mr. Wiener had used 'illegal, fraudulent, and harassing practices' to inflate rents above what are allowed under New York's rent-control and rent-stabilization laws, according to an amended complaint filed in Manhattan federal court in 2007. The case was granted class-action status in April and a settlement conference has since been scheduled."
The article said that "Kenneth Fisher, a former New York City Council member and a lawyer who represents Mr. Wiener and Pinnacle, said the claims of the tenants in the case are unfounded and the landlord is proud of its record of providing safe and well-managed housing for thousands of New Yorkers."
"Manhattan Borough President Scott Stringer, who has supported the tenants in their suit," the article continued, "said he was concerned about the possible conversion of the rentals to condos he because it would continue to erode the rent-regulated housing stock."
The two companies formed a partnership that "is under increasing legal and financial pressure to map out a new strategy for the buildings," the article said, as "a $192 million loan backed by the properties which went delinquent earlier this month, according to Trepp LLC, a firm that monitors the commercial real-estate debt market."
Pinnacle, which owns hundreds of other apartment buildings throughout the city, and Praedium, a New York real-estate firm with more than $7 billion in assets, obtained the loan for the 36 buildings, which include 834 Riverside Drive, in 2007, the article said, adding that at that time "the companies projected they could raise average monthly rents in the properties to $2,913 by the end of 2012 from about $1,000 in 2007, according to Manus Clancy, a senior managing director with Trepp."
The conversions, however, have gone slower than expected and the partnership, the article said, is now "talking to LNR Partners, the special servicer overseeing the $192 million mortgage for bondholders, about a plan to sell the units as condominiums which they hope would boost the value of the properties, according to Trepp."
Since the partnership acquired the buildings their "occupancies have dropped to 82% last year from 96% in 2007 and the portfolio's net operating income fell to $2.7 million last year from $4.7 million in 2008, not enough to cover the annual debt service of about $12 million, according to Trepp," the article said.
"They're having trouble with their original business plan so they're looking to go this route," says Frank Innaurato, a managing director at Realpoint, a unit of Morningstar Inc. that also monitors commercial real-estate mortgages, the article said.
"The partnership," the article said, "is discussing the conversion plan at a time that Pinnacle and Mr. Wiener are facing other legal issues. They are being sued by a group of tenants at a number of their properties that claimed Pinnacle and Mr. Wiener had used 'illegal, fraudulent, and harassing practices' to inflate rents above what are allowed under New York's rent-control and rent-stabilization laws, according to an amended complaint filed in Manhattan federal court in 2007. The case was granted class-action status in April and a settlement conference has since been scheduled."
The article said that "Kenneth Fisher, a former New York City Council member and a lawyer who represents Mr. Wiener and Pinnacle, said the claims of the tenants in the case are unfounded and the landlord is proud of its record of providing safe and well-managed housing for thousands of New Yorkers."
"Manhattan Borough President Scott Stringer, who has supported the tenants in their suit," the article continued, "said he was concerned about the possible conversion of the rentals to condos he because it would continue to erode the rent-regulated housing stock."
Architecture Critic
Carter Horsley
Since 1997, Carter B. Horsley has been the editorial director of CityRealty. He began his journalistic career at The New York Times in 1961 where he spent 26 years as a reporter specializing in real estate & architectural news. In 1987, he became the architecture critic and real estate editor of The New York Post.
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