Late in March, Shanaya Ortiz, a 23-year-old student, woke up to the sound of a dozen fire trucks outside her apartment building in the Fordham section of the Bronx. Within minutes, 60 firefighters arrived, some charging up to the third floor to get the blaze under control. 

While the Fire Department is still investigating the cause, it’s not surprising that she and other tenants suspected faulty wiring. The five-floor building has been cited for more than 2,400 housing code violations since 2010, a record so extreme it helped put the owner, Moshe Piller, on the New York City Public Advocate’s 100 worst landlords list. 

“The apartment is full of roaches and mice. The radiator is leaking. The ceiling fell the other day,” Ortiz said, adding that her complaints were either ignored or led only to minor repairs that didn’t last. “It’s disgusting. It pisses me off,” she told THE CITY. 

Who would lend money to a building like this, or to the landlord who owns it?

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The answer will soon be revealed through a sale run by the Federal Deposit Insurance Corporation of the enormous mortgage portfolio of Signature Bank, which last month collapsed in the fourth largest bank failure in American history. The outcome is likely to influence the future of apartment buildings across the city.  

On the auction block are loans covering nearly 3,000 buildings with more than 80,000 apartments — 80% of them containing units covered by the state’s rent-stabilization law, which regulates roughly 1 million mostly middle and working class apartments in New York City. 

While the portfolio includes many stable, well-managed buildings that could emerge from the mortgage sale unaffected, it also includes hundreds of vulnerable properties like Piller’s at 4575 Park Avenue, and others whose value plummeted after a significant strengthening of the stabilization law in 2019 reduced the value of a key Signature investment strategy. 

The bank was a go-to mortgagee for a third of the building owners on the New York City Public Advocate’s 100 worst landlords list, and their properties abound in housing violations and accumulated debt. Piller did not respond to THE CITY’s requests for comment.

An analysis by THE CITY shows that Piller and the other Signature landlords on the list own 411 buildings that had 15,299 open housing violations at the beginning of the year. 

Likely to be at least as concerning for potential bidders are the scores of properties where the bank supported aggressive landlords who had aimed to remove apartments from rent stabilization restrictions and substantially increase their rents on the open market. The 2019 changes in the law closed off most of the routes for accomplishing this, depriving owners of the income they needed to profit, run their buildings and cover their mortgages.

“The building is not only not worth what they paid for it, but it might not even be worth the amount they owe the bank,” said Michael Weiser, president of GFI Realty, a real estate investment firm involved in the sale of billions of dollars of property around New York. 

“Signature may have had a couple billion dollar problem. Now, the FDIC has a couple billion dollar problem.” 

And tenants may have a problem as well. As the FDIC’s process unfolds, banking and real estate experts widely assume that the mortgages will sell at steep discounts and that the buyers are likely to profit handsomely from Signature’s misfortune.

But in the absence of any public detail about the process, speculation has been intense about almost every aspect of the sale, including its possible effects on tens of thousands of building residents. The winning bidders could be well-established banks interested in steady long-term returns from responsible landlords. But, given the bargain-bin possibilities, industry observers suggest that the auction could also attract buyers looking for faster and larger profits through landlords willing to squeeze already troubled buildings. 

“Over the years, many buildings in The Bronx have suffered when mortgages fell into the wrong hands,” said Jim Buckley, the executive director of the University Neighborhood Housing Program (UNHP), a housing advocacy group, who cited the example of massive foreclosures in the late ‘80’s that negatively affected many buildings and families. 

“That’s why so many of us are concerned about the future of the buildings in the Signature portfolio,” he added.

This leaves a fundamental question for government agencies: How hard should they press potential mortgage buyers to enforce basic housing standards in properties they finance? Tenant advocates want them to do so aggressively, but could that scare off prospective bidders wary of government intervention?

What the Numbers Say

To document the vast scope of Signature’s influence across New York’s four largest boroughs, THE CITY analyzed municipal property and financial records, visited a wide range of buildings with mortgages up for sale, and reviewed lawsuits and internal bank documents. The sale portfolio includes 2,939 multifamily buildings with an estimated listed market value of about $20 billion. More than half that value is in buildings with apartments covered by rent-stabilization.  

The universe spans affluent neighborhoods like Greenwich Village, where one apartment in a Signature-financed building listed for nearly $13,000 a month, to communities in the South Bronx and central Brooklyn where tenants use government housing vouchers to pay for apartments that have fallen into extreme disrepair. The neighborhoods with the highest Signature presence are Bushwick and Williamsburg with more than 300 loans, Inwood and Washington Heights with 239, Central Brooklyn with 188 and Bronx Park and Fordham with 174. 

THE CITY’s analysis also documents longstanding accusations that Signature repeatedly awarded loans to property owners notorious for long histories of violations and lawsuits. And it confirmed the bank’s well-known practice of basing mortgages not on a building’s current rent roll, but on what it could rise to if current tenants were replaced by higher paying ones. Removal of properties from rent regulation, though sharply curtailed in 2019, continues to be permissible under certain circumstances under the stabilization law.

THE CITY’s analysis of UNHP data detailed physical and financial indicators of distress in many of the Signature-financed buildings:   

  • The portfolio racked up 63,787 open housing code violations as of Jan. 1. More than 80% of those were classified as “hazardous” or “immediately hazardous,” reflecting conditions required to be corrected quickly because they pose a threat to the life, health, or safety of tenants. Examples include the inadequate supply of heat and hot water, rodents, defective plumbing, or leak and mold affecting multiple apartments. 
  • Forty-five Signature buildings were in such dire shape that over the last five years the city’s housing department included them on a list of the most severely distressed residential properties in the city. They were subjected to intense monitoring, and periodic inspections and fines, to force landlords to make repairs and address the unusually high number of violations per unit. 
  • Almost 40% of Signature’s active loans were signed before 2019, when the state legislature tightened the provisions of the stabilization law in ways that undercut  borrowers’ ability to repay the loans.  

No change has hit the market — or Signature — as hard as the modifications made four years ago to New York’s rent regulations. In wealthier and gentrifying communities before 2019, Signature’s strategy often was to grant mortgages based not only on a building’s current rent roll, but on an estimate of what it could rise to if apartments were emptied, renovated and removed from stabilization. Landlords whose mortgages were based on anticipated rents often attempted to negotiate buyouts of longtime tenants. Sometimes they engaged in move-inducing harassment. 

Contrasting the two banks that dominated the mortgage market for stabilized buildings — Signature and New York Community Bank — Weiser, of GFI Realty, said Signature leaned far more heavily toward higher mortgages based on anticipated turnover. 

“New York Community was nowhere near as aggressive as Signature Bank,” said Weiser. “They were aggressive in their rate, but not necessarily in their proceeds,” he added, referring to the size of their mortgages. 

Signature’s Strategy

When Signature Bank collapsed on March 12, it was in the shadow of the even bigger failure of Silicon Valley Bank. Both had lent to the crypto industry, and their depositors were fleeing in droves after the downfall of industry guru Sam Bankman-Fried. In a report released last Friday, the FDIC attributed Signature’s failure to a run on its deposits triggered by the collapse of SVB and an overreliance on uninsured deposits. (On Monday, a third bank, First Republic, collapsed and its assets were acquired by JP Morgan Chase.) 

But at its heart, Signature’s business was rooted in lending to small- and medium-sized businesses, including landlords. Founded in 2001 by former executives of a bank that was acquired by HSBC, it sought to distinguish itself by emphasizing strong personal relationships with its clients.

“There was always one relationship that was unbreakable, and that was our banking relationship with Signature,” said Arak Lifshatz, a New York landlord and longtime client of the bank. “We would actually say no to certain loan deals that were advantageous to us because they required us to move the banking relationship” away from Signature. 

The bank’s housing strategy was developed by George Klett, an executive at a competitor bank who was brought in to found Signature’s commercial real estate division in 2007 and went on to run the division for 10 years until his retirement.

Klett and his team built deep ties with landlords who owned large portfolios of buildings across New York, including rent-stabilized ones, he explained in an interview with THE CITY.  In changing and more affluent neighborhoods, it was common for the bank to calculate the size of its mortgages on a building’s potential rent roll after apartments were vacated and renovated. Before the 2019 law, if the new rents topped $2,775 a month, that allowed the apartment to be removed from the stabilization program and opened the way for price hikes that in some neighborhoods doubled the old rent. 

In poorer neighborhoods, like Fordham in The Bronx, where Piller’s Park Avenue building is, Klett said the strategy was similar, with an exception. Landlords could hike rents after a renovation, but often not enough for them to reach the threshold that would allow them to exit the stabilization program.

The owner of 4575 Park Ave in The Bronx, Moshe Piller, is on the Public Advocate’s 100 worst landlord’s list and has a loan with Signature Bank, April 5, 2023. Credit: Ben Fractenberg/THE CITY

Klett said the bank would retain the portion of the mortgage based on the anticipated new rents until they were actually paid. “We would hold that money in reserve, and that wouldn’t be released until it was rented out,” he explained. “So we always had the cash flow to support the loan.”  

From the bank’s perspective, landlords who renovated units improved the property and “created more value,” as Klett framed it. But the dynamic also created a natural incentive for landlords to empty out units and jack up rents in order to obtain larger mortgages — and they didn’t always use their loan money to make significant improvements. 

Klett said there was no obligation to put mortgage money into the improvement of their buildings. “When they would refinance and take out the money, they could do whatever they want with it – often it was to buy another property,” he said.

That set up a dynamic where owners could use their mortgage money to buy new buildings rather than to fix up the one their loan was based on. They could also ignore repairs for another reason — to drive tenants to move.

The FDIC was aware of these practices. For a March 2022 performance evaluation of Signature Bank, examiners contacted community development organizations and took note of concerns about “bad landlords” who own deteriorating buildings and still are able to secure financing to purchase additional properties. “Such bad landlords also appear to engage in various forms of harassment tactics to encourage current tenants to move out, in order to move the properties to full market rent rates,” evaluators wrote in the report.  

Mortgaging Mayhem

In one notorious instance in September 2015, Signature helped finance a deal with Rafael Toledano to acquire 16 rent-stabilized buildings in the East Village and Lower East Side. A plucky 25-year old at the time, Toledano bought the buildings for $97 million with $124 million of financing from Madison Realty Capital, a real estate private equity firm. Signature Bank acquired $70 million of the debt a year later, betting on Toledano and Madison Realty raising rents across the portfolio. 

Georgia Christ, who had been living on East 12th Street for more than four decades before her building was snapped up in the deal, noticed the change in management immediately. Toledano offered buyouts to incentivize tenants to move out. But he wasn’t making any necessary repairs for the tenants who remained in the building, Christ alleged. 

First, a sewer line cracked causing leaks in some apartments, she said. Then, there was a bedbug infestation. THE CITY substantiated Christ’s account of the conditions based on photos and complaint records. 

“We went through some pretty horrific times with Rafael Toledano, with his gutting and getting rid of tenants,” said Christ. 

Reached by phone, Toledano declined to comment. 

Rent-stabilized tenants at 327 E. 12th St. say they felt harassed after Rafael Toledano acquired the building through financing from Signature in 2015. Credit: Courtesy of Georgina Christ

According to the terms of the loan, Toledano had to repay the mortgages within just two years, rather than the usual five to 10 years. As Signature deliberated whether to buy a majority of the debt in the spring of 2016, an internal Signature memo filed in a court proceeding revealed that Toledano “intends to execute buyouts with as many rent regulated tenants as possible to bring the units to market.” 

Exhibits in the case showed that Signature Bank estimated the rent roll of the portfolio could increase from $3.42 million to $4.78 million — about 40% higher. And if Toledano couldn’t make the mortgage payments and defaulted on his loans, this seemed safe to Signature, too — Madison Realty Capital “would have no problem foreclosing and or owning these assets,” a Signature Bank executive wrote in an email in April 2016. 

While it’s legal for landlords to offer buyout deals to tenants, the aggressive terms of the loan meant that Toledano had to push out tenants as fast as possible in order to increase the rent roll and make his mortgage payments.

Tenants across his newly acquired buildings protested and collected evidence of neglect and harassment. 

In March 2017, East Village Properties, LLC, the Toledano entity that managed the buildings, filed for bankruptcy, prompting the court case in which the internal Signature documents were revealed. Madison Realty Group took possession of the properties and one arm of the company, Silverstone Property Group, began managing the buildings. 

While Silverstone submitted a plan to fix the property violations as part of the bankruptcy proceedings, it moved forward with plans to bring the units to market rate. Soon there was lots of construction to combine units into larger apartments, creating a cacophony of noise and dust and other problems, Christ recalled. Requests for comment left at Madison Realty Group offices went unanswered.

One positive seemed to come out of the experience. Following the outcries of tenants in  Toledano’s buildings and in others around the city with similar problems, Signature agreed to follow a best practices protocol put forward by the nonprofit Association for Neighborhood & Housing Development (ANHD). 

“Signature Bank’s policies discourage the extension of credit to overleveraged or highly speculative properties where economic viability is highly dependent on fostering tenant displacement,” the bank posted on its website at the time. 

In practice, though, tenant organizers said, the bank did not fully comply. Signature “never went forward with implementing their commitment and pledge,” said Barika Williams, the executive director of ANHD. 

Toledano, however, was sanctioned. Last January, state Attorney General Letitia James’s office secured a court victory banning him from engaging in real estate activity in New York for at least five years. Her investigation concluded that Toledano engaged in a pattern of fraudulent and illegal conduct that included harassing hundreds of tenants through coercive buyouts and illegal construction practices, and misrepresenting himself as a lawyer. 

While tenants were wrestling with Signature over Toledano downtown, a landlord named Shaul Kopelowitz signed another Signature mortgage on a six-story building at 570 West 156th Street in Manhattan. 

Today, the 56-unit building is among Signature-financed buildings that, according to a metric developed by  UNHP, exhibit strong indications of physical and financial distress. At the end of last year, Kopelowitz’s property had 109 open housing code violations, including ones for leaks, visible mold, broken and defective plastered surfaces, and paint and mice infestations. More than half of these are classified by the city as hazardous or immediately hazardous. On top of that, as of Jan. 1, Kopelowitz owed the city nearly $300,000 in water bills for the building, according to a UNHP analysis of city liens and water and sewer charges. 

It’s hard to see how he will pay this off. The annual net operating income of the building is only $338,835, according to landlord-provided expense figures filed with the city Department of Finance. Kopelowitz did not respond to several emails requesting comment.

Leaks drive up water consumption, and the 113-year-old building on West 156th St. is awash in them. “There has been leaking in my kitchen and a part of the ceiling came down because of the water piling up, and now there’s mold everywhere,” the first-floor tenant of a two-bedroom apartment, who declined to be named out of fear of retaliation, told THE CITY. 

At best, another building tenant said, the repairs have been Band-Aids. “They just tried using mold-killer paint, and the leaking continued,” he said. “My fiance always describes the building as ‘putting makeup on a pig’.”

Kopelowitz owns 13 additional properties with Signature mortgages. Four of those have also been identified as in grave physical and financial distress by UNHP. 

A Tough Environment

Before the bank collapse, filings with the FDIC showed that less than half of 1% of Signature’s apartment building mortgages had past due payments. But the sale of the portfolio comes as factors beyond the 2019 tightening of the law have thrown the rent-stabilized world into turbulence. 

As part of the current landlord-tenant battle over how much rents will be allowed to rise in the next year, the city Rent Guidelines Board released a study using the most recent available data that found that building income declined by 9% between 2020 and 2021. Expenses increased more than 3% during that period, it concluded. 

But tenants were encountering their own considerable financial squeeze at the same time. According to board research, 39.5% of rent-stabilized tenants spent more than half their income on rent, a figure that has increased over the years. Many other factors add to the swirl of economic pressure: Government payments to landlords that covered rental losses during the height of the COVID pandemic expired last year. Meanwhile, interest rates on new mortgages and loans have ballooned over the past year.

As the FDIC sale, which is being managed by the Newmark Group, a real estate giant, moves along behind closed doors, real estate professionals look for indications of how deep a discount the portfolio may sell for. Their thoughts often turn to the quality of Signature’s mortgages. 

Some found significance in the fact that New York Community Bank, Signature’s chief competitor in the multifamily residential market, chose not to snap it up as it purchased billions in other Signature’s assets days after the collapse. In comments made at the time, Tom Cangemi, Community Bank’s CEO, said its decision was based on wanting to diversify its portfolio, but observers wondered whether there wasn’t more to it than that. 

“The fact that a certain type of loan was left out of this deal creates a signal to the market that there’s something suspicious going on,” said Sehwa Kim, a professor at Columbia Business School who researches the regulations and standards of financial institutions. “Any reasonable market participant would suspect that these loans will possibly become troubled in the future.” 

For Samuel Stein, a housing policy analyst at the Community Service Society, the place to look is in the repercussions on the pre-2019 Signature loans of the tightening of the stabilization law.  “The loans were based on the idea that they would destabilize the properties,” he told THE CITY. “You can’t gamble on ever-rising rents and on the idea that the legislature will forever allow them to subvert rent stabilization.”

Still, that doesn’t mean that, if the price is right, the portfolio doesn’t offer attractive investment opportunities, real estate professionals agreed. 

“Signature Bank focused on the stabilized market because it’s seen as a safe investment, there is high demand and not a lot of supply. They are not going to make billions, but they are not going to lose money either,” said Jay Martin, Executive Director of the Community Housing Improvement Program, a trade association for owners of rent-stabilized rental properties.

And they might do better than that. While the 2019 law boosted tenant protections, landlords still have at least one loophole that can be used to destabilize units: Vacant apartments that are refurbished and combined into larger apartments can be rented for market prices because they are considered new units. 

Debbie Ciraolo watched her building at 220 W. 13th St. in Greenwich Village change after Leor Sabet bought it in January 2020, backed with financing from Signature Bank. In a similar playbook to Toledano’s, Sabet offered buyouts to longtime rent-stabilized tenants in a bid to combine units, Ciraolo, who has lived in the building since 1980, recalled. 

Construction soon began to combine smaller apartments into larger apartments. But debris wasn’t properly contained, and electrical wiring was left exposed in the hallway, according to photos taken at the time and Department of Buildings records. The landlord was fined $850 in an administrative proceeding for doing electrical work without a permit.

Ciraolo wasn’t offered a buyout for her one-bedroom apartment but felt the pressure to leave. Her heat stopped working for days over the holidays in the winter, she said. She was frequently coughing from the dust and debris of the construction as workers tore down thick layers of drywall in the midst of the pandemic. And for months, she’s been unable to get her hot water fixed, records show. 

Debbie Ciraolo has lived in her rent-stabilized apartment on W. 13th St. for 43 years, April 3, 2023. Credit: Ben Fractenberg/THE CITY

“It’s gone from day to night,” she said, adding that under prior management, “Anything that needed to be fixed got fixed immediately.” With building management often unresponsive, she’s made nearly two dozen calls to 311 over the past years in a plea to get the basics fixed, records show. 

Sabet did not reply to repeated requests for comment by THE CITY.

One of the recently reconfigured units in her building was listed for rent as high as nearly $13,000 a month, according to StreetEasy

What Happens Next?

In a best-case scenario for tenants, some real estate professionals said, if the portfolio is sold at a big enough discount, the new owner of a Signature loan could pass off some of that markdown to property owners who owe them money. That would mean the landlord could pay off his debt at a lower price and wind up with more cash-on-hand that could be used on maintenance. 

But the motivations of the possible mortgage buyers are a matter of speculation, as are concerns about whether an economic recession looms nationally and locally. Kim, the Columbia professor, pointed out that layoffs caused by any recession make it more difficult for people to pay their mortgages, which can lead to foreclosures. 

“One major concern we should keep in mind is whether the real economy will be fine and whether layoffs will begin,” Kim said, adding that right now, “no one really knows whether that will happen or not.” 

Public officials say they are watching how the sale develops closely. 

“We are concerned that an irresponsible or untrusted buyer of this debt could prioritize displacement and disinvestment, further jeopardizing the stability of residents and their properties,” Rep. Ritchie Torres. (D-The Bronx) told THE CITY after he pressed the FDIC at a hearing of the House Committee on Financial Services to bar this kind of investor.

The FDIC subsequently released a statement saying that it planned to reach out to state and local government agencies as well as community-based organizations.

What this will mean in practice is also uncertain. 

“We are monitoring this unfolding situation closely and investigating all tools, options and possibilities to ensure the best outcome for all New Yorkers,” said Ilana Meier, a spokesperson for the city Department of Housing Preservation and Development. 

“While decisions regarding Signature Bank’s loans will ultimately be made by the FDIC, we will continue our ongoing conversations with them, as well as the State and the housing advocacy community.”

The housing agency did not respond to questions about how it will conduct a review of proposed buyers and whether it will retain industry experts to evaluate them, their business plans and the likely effect on the mortgaged buildings. The FDIC also did not answer specific questions about the process and directed reporters to its press releases. 

Advocacy groups like ANHD are pressing to be included in the process. “We don’t want the portfolio to end up in the hands of people who are not invested in maintaining affordable and habitable homes,” said Williams, the executive director of the organization. 

Among tenants who’ve locked horns with Signature landlords there’s a concern that goes a step further. If no one buys the Signature loans, “those buildings may go into foreclosure and then it might create another feeding frenzy of LLCs to purchase those properties,” said Georgia Christ, the longtime resident of one of the East Village buildings purchased by Toledano. “That breaks my heart.”

Several real estate experts interviewed by THE CITY said that for the right price everything ought to sell. Weiser, the president of GFI Reality put it succinctly: 

“These loans will get sold and someone is going to make a lot of money on them.”