Flagstar Bank hasn’t been happy with billionaire landlord Joel Wiener.
The bank has accused Wiener of mismanaging his properties and disputed the expert appraisals of their value. The allegations have shined a light on some of the issues that could be coming to the Israeli bond market, which Wiener tapped for cheap financing.
Flagstar made the allegations in a bankruptcy case involving Wiener’s 82 property entities, which owe more than $1.1 billion to Flagstar and Israeli bondholders, according to court documents. Together, the companies control 93 New York apartment buildings and more than 5,200 units.
Wiener’s entities want to use rental income to cover their operating expenses. But Flagstar has strenuously objected. The properties haven’t paid their mortgages since January and many are facing foreclosure. The bank said in May it has serious concerns about where money is going, questioning whether Wiener’s role included “simple mismanagement of the debtors’ properties, or worse.”
An attorney for Wiener did not offer a comment for this article. Flagstar did not respond to requests for comment.
Flagstar has also raised alarms about the flow of funds at the businesses. The businesses paid Israeli bondholders $12 million, the bank alleged, while not paying their mortgages.
“Significantly flawed and not credible”
Wiener was among the first New York real estate players to tap into the Israeli bond market for financing, raising more than $500 million. His bankruptcy case has highlighted another player in that market: Michelle Zell, an appraiser for Bowery Valuation.
Zell, who says she’s valued properties for Israeli bond issuances totalling more than $1 billion, is serving as the companies’ expert witness in the bankruptcy case. In the case of the 93 New York buildings in Wiener’s portfolio, she has argued the properties are worth more than their debt.
Flagstar’s expert cast doubt on Zell’s determinations, calling her report “significantly flawed and not credible.” Appraiser Scott Fowler of Ankura Real Estate Advisory said her report was based on “unsupported, incorrect or inappropriate data.”
Zell’s response was filed under seal, but the judge in the case said she was “a well-qualified valuation expert who presented generally reasonable analyses.” She did not respond to a request for comment for this story.
New York real estate dealmakers who tapped into the Israeli bond market notably saw several defaults in the last decade.
Brooklyn developer Yoel Goldman was the subject of a criminal investigation in Israel after his All Year Management unraveled under high leverage, declaring bankruptcy. He reached a settlement with the Israel Securities Authority, but was banned from raising money in the country for five years.
Starwood Capital drew a class action lawsuit from Israeli pensioners for allegedly misleading investors after it defaulted on a $254 million bond. Starwood said the allegations were meritless, but agreed to the appointment of a receiver, according to CoStar.
In a separate unrelated case, Zell is facing direct allegations that she misappraised property. Investment firm Saluda Grade alleged it purchased a $13.7 million loan for a 40-building apartment complex in southeast Texas after Zell and a colleague valued it at $18.4 million. But once the borrower defaulted, Saluda Grade got a second opinion. That review placed the retrospective value at just $5.8 million, a 68 percent difference.
“The appraisal was so bad that the appraiser defendants’ agent only inspected one building out of the forty buildings that made up the development being appraised!” the lender wrote in its complaint.
Elsewhere in the bankruptcy case, Flagstar has taken issue with the companies’ effort to pay management fees to other Wiener-controlled businesses. Experts say payroll expenses at the property entities are unusually high at the LLCs, according to court documents.
“Debtors pay a 4% management fee to an insider even though their own expert assumed that a 3% fee was more typical,” a judge wrote in June.
In June, a federal judge denied the Wiener’s companies’ efforts to use rental cash to cover expenses, saying Flagstar’s interests as a secured creditor were not protected. But he urged Flagstar to work something out with the companies on an interim basis, given that the living conditions of thousands of tenants were on the line. The parties have agreed to the use of cash for a period of a few months.
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