Judge approves controversial sale of NYC rent-stabilized apartments over Mamdani's objections

A federal bankruptcy judge on Friday formally approved the controversial purchase of more than 5,100 rent-stabilized apartments by an international real estate firm, marking a setback for Mayor Zohran Mamdani, who attempted to delay the deal and later win legally binding commitments to address thousands of open housing violations.

The real estate firm Summit Properties USA purchased the 93-building portfolio for $451 million after its previous owner Pinnacle Group filed for bankruptcy last May. Pinnacle had allowed building conditions to deteriorate and amassed thousands of open housing code violations for hazards like broken ceilings, mold blooms and vermin infestations. The company claimed it lacked the money to fix the problems and pay its debts.

The deal is the culmination of a high-profile bankruptcy process, but comes after tenants, city officials and Attorney General Letitia James sounded the alarm over problems that have festered for years in Summit’s existing portfolio, largely concentrated in the Bronx, as well as family ties between Summit’s partners and Pinnacle.

But Judge David Jones said he was “satisfied” with a plan to resolve more than 6,500 housing code violations in Pinnacle's portfolio that Zohar Levy, Summit's chair, outlined in a court filing and in testimony, though Jones said it was not required as part of a bankruptcy process.

“Summit evinces every good intention to run this portfolio properly,” Jones said in a ruling Friday. “They have shown more than adequate financial wherewithal to do this.”

He also said Levy was “conducting an appropriate search for capable management teams that will run these properties well,” and that he had “articulated a plan to take appropriate steps at a pace that seems appropriate and responsive to the needs of the buildings it hopes to acquire.”

The deal makes Summit one of New York City’s largest owners of rent-stabilized apartments.

“This process has been difficult for the residents, and we understand their frustration and concerns about their homes,” Levy said in a written statement. “Today’s ruling is a new chapter, and we look forward to working with the city, our elected officials, stakeholders and residents to improve the buildings and move forward.”

Deputy Mayor Leila Bozorg told Gothamist that tenants' efforts, and the city's intervention, compelled Levy to outline the repair plan.

“Our administration said from day one that we would make tenants a priority, and that is exactly what we have done in these proceedings," she said in a written statement. "We will continue to closely monitor this portfolio as part of our ongoing fight for tenants.”

A citywide network of renters known as the Union of Pinnacle Tenants organized residents across Pinnacle buildings in four boroughs to try to block the sale and find a purchaser who they said would fix dangerous conditions and manage their properties more responsibly.

In a joint statement, members of the tenant union said Jones had “sided with slumlords” but credited their pressure campaign for the plan that Levy laid out in court.

“Because of our organizing, Summit was forced to commit under oath to a plan for renovations and new management of our homes,” they said. “We’re going to use our power to fight for our homes, better and faster repairs, an end to harassment, and more. And we will fight this next fight knowing that the city and Mayor Mamdani have our backs — not just in this auction, but in the long-term.”

Mamdani had instructed city attorneys to intervene in the sale hours after he took office on Jan. 1. Steven Banks, Mamdani’s nominee for corporation counsel, highlighted the city’s position as a creditor in the bankruptcy sale: It is owed nearly $13 million in unpaid housing violations by Pinnacle.

The gambit was part of a broader effort that Mamdani campaigned on to wrest control of apartment buildings from landlords who fail to maintain them or who can no longer afford repairs and maintenance.

But the new mayor faced an uphill battle from the start. Bankruptcy proceedings in the case began eight months ago and the process typically focuses on maximizing returns for lenders, not tenant protections. The judge had also already scheduled a sale and Summit, with financial backing from Pinnacle’s lender Flagstar, placed its bid before Mamdani even took office.

Spokespeople for Flagstar, which is run by former Trump administration housing finance official Joseph Otting, did not respond to multiple calls and emails seeking comment.

Flagstar’s attorneys told the judge that the company worked with Summit for months on its bid and that the deal maximized the value of the buildings, even though it cut about $275 million in debt.

At a court hearing Thursday, the company committed to extending an additional $3 million line of credit that Summit could tap to pay for ongoing repairs and maintenance, in response to concerns from the judge about available cash. Jones said in his ruling that the available funds gave him more assurance that Summit would resolve the violations and disrepair.

“The city's approach to this case gives me every confidence that the city will monitor and police Summit's performance so that tenants can have confidence as well,” he said.

Lawyers for the tenants and the city said they were skeptical of Summit’s ability to manage the properties and the company’s accounting of building needs.

“This is 5,000 people whose lives hang in the balance,” Banks told the judge.

Dozens of tenants appeared at the courthouse in Lower Manhattan on Thursday to observe the court proceedings and seek concrete financial commitments to improve their homes.

“We are going to keep the pressure on no matter who wins the auction because we are organized  and we deserve safe and dignified homes,” said Susan Rinkunas, a writer who has lived in her Brooklyn apartment for three years.

Need for repairs

Residents in many Pinnacle buildings across the city have repeatedly documented the crumbling conditions of their apartments in recent years.

In a letter to the court last Friday, Brooklyn tenant Joseph Lorwin described how he and his wife moved into a blood and urine-covered apartment that had a torn-up kitchen floor and maggots in its refrigerator.

Pinnacle, he said, “intentionally bought stabilized buildings in poor condition with the predatory intention of making them less livable, neglecting, harassing, and evicting tenants” so that they could eventually raise rents.

New tenant protection laws upended the once-common business model in 2019 and have strained the finances of owners of rent-stabilized apartments who took on debt they needed higher rents to pay off. The Pinnacle bankruptcy and sale process emerged as a flashpoint in a larger debate over New York City’s rent regulations.

Lawyers for Pinnacle pushed back against the characterization of the buildings, saying most of the violations were concentrated in a subset of the apartments.

But tenants and attorneys for the city said Thursday that they worry Summit will replicate the same practices of neglect given its own track record of racking up housing code violations and neglecting building maintenance.

In a court filing, Levy described his “long-term vision” for investing in the properties and pledged to spend a total of $30 million on repairs and maintenance over the next five years.

He included an “immediate action plan” for resolving half of the roughly 6,500 housing code violations in the buildings within "approximately" two months.

Summit, he said, would address the remaining problems within six months, and that nearly all of the violations are concentrated in 420 apartments.

Testifying remotely Thursday from Austria, Levy said his company would hire two new management companies for the buildings, with one operating in Brooklyn and the other running buildings in the Bronx, Manhattan and Queens. He said one of those firms is a company called REM Management but said he had not yet hired the other.

Throughout the hearing Thursday, attorneys for the city and for the Union of Pinnacle Tenants challenged Summit’s analysis of building needs and estimated expenses. They said Levy and Summit had not provided any documentation backing up the assessments, including the $30 million long-term plan.

Levy said Summit’s analysis was based on sales materials provided by Pinnacle, as well as building visits by Summit employees. He said he could not provide paperwork proving the assessments.

Family ties

Levy also addressed questions surrounding his business connections to Pinnacle that were raised by Gothamist, the news outlet BisNow and officials from the city and state.

Levy partnered with Jonathan Wiener, the brother of Pinnacle CEO Joel Wiener, to purchase and operate thousands of rent-stabilized apartments in the Bronx, Manhattan and Queens starting in 2021. As Gothamist reported, Jonathan Wiener — who founded the firms Chestnut Holdings and Denali Management — signed the deed or mortgage documents for at least 53 of the buildings listed on Summit’s website. Other executives from Chestnut and Denali signed the property records for at least 29 other Summit properties.

Executives from Chestnut and Denali have appeared on the city’s annual worst landlords list as recently as last year.

Levy said neither firm is involved in the Pinnacle purchase. Jones, the federal judge, said he was convinced by Levy’s testimony though the connections had “ given rise to serious concerns.”

Tenants said they were optimistic that conditions may change, given the city’s focus on their homes and Mamdani’s pledge to penalize negligent landlords.

Mildred Ross, who has lived in her Brooklyn apartment since 1978, said she has endured leaking radiators, chronic heat outages and, more recently, a burst of steam that filled her granddaughter's bedroom.

“We’ve always had slumlords,” Ross said. “The building is beautiful. It just needs someone to come in and take care of it.”