NYC fights sale of bankrupt rentals after Mamdani blasts living conditions

City authorities on Monday asked a bankruptcy judge to postpone the Chapter 11 auction scheduled for Thursday, saying they need more time to evaluate a proposed $451 million deal for Summit Properties USA and “explore any potential alternatives.” After the buildings went bankrupt last year, Summitt offered to buy dozens of buildings in Brooklyn, Manhattan, the Bronx and Queens in the form of a buyout offer, meaning the deal is subject to potentially better offers at auction.

New York City corporate counsel Muriel Good Trufant said in a lawsuit that consultants representing the bankrupt properties did not provide the city with information about Summit’s ability to complete the proposed sale or whether it was willing and financially able to repair the buildings. The Pinnacle-owned buildings owe the city $12.7 million in unpaid debts and housing violations, the city said.

“Completing the bankruptcy auction process will bring financial stability along with the opportunity to stabilize services, outcomes we expect the city will not want to disrupt,” Pinnacle attorney Ken Fisher said in an email. Summit did not immediately return a message Tuesday seeking comment.

This challenge comes after Mamdani confirmed, just hours after taking office as mayor, that the city would intervene in the bankruptcy process to protect tenants. It heralds the 34-year-old’s ambitious plans after he campaigned relentlessly on affordability, especially regarding housing, before ascending to the position of chief supervisor of the most populous city in the United States.

Residents faced lack of heat, cockroaches and “the kind of conditions no New Yorker should live in,” Mamdani said at a news conference after touring a Pinnacle-owned building in Brooklyn.

A number of Pinnacle building residents organized in response to what they described in letters as “years of mismanagement and neglect” and garnered support from other elected city officials before filing suit in court Monday. Pinnacle Buildings filed for Chapter 11 in May and assumes more than $500 million in mortgage debt.

“Our intervention in the Pinnacle case shows that we are on the move, fighting to ensure that any outcome of this case improves living conditions and protects affordability for Pinnacle tenants,” said Sia Weaver of the Mayor’s Office of Tenant Protection.

The city also raised concerns about the economics of the proposed deal on Monday, saying consultants overseeing the bankrupt Pinnacle buildings had not demonstrated that the properties could support the proposed sales price or ongoing maintenance costs since the apartments are rent-regulated. The consultants also did not provide New York City authorities with a comprehensive assessment of what repairs the buildings require, the city said.

The proposed sale also would not result in a “subsidized business” as long as the bankrupt properties have rent-controlled apartments or apartments because current rents are “very low on average,” the city said in its court filing. This could mean that the task of handling emergency repairs may fall to New York City authorities or tenants themselves, or it may pressure residents to move out, the city said.

Consultants blamed the bankruptcy on rising interest rates, inflation-induced increases in operating expenses and lower rent collections. Tenants at several Pinnacle properties told Bloomberg News that the company has either failed for years or has been slow to respond to repair requests.

Summit owns a large portfolio of properties, including regional malls as well as apartments in New York City and office properties in Manhattan, according to the company’s website. The proposed sale of the Pinnacle buildings must be approved by Judge David Jones, who is overseeing the bankruptcy case.

The city said: “Continuing losses and escalating expenses may lead to the need for additional bankruptcy or reorganization, and a state of financial and social chaos that may be worse than the current situation of the debtors themselves.”

The case is brought before Broadway Realty I Co. LLC, No. 25-11050, in the U.S. Bankruptcy Court for the Southern District of New York.