NYC Fights Sale of Bankrupt Rentals After Mamdani Blasts Living Conditions

New York City is challenging the January 8 bankruptcy auction of 5,100 rent-stabilized units owned by Pinnacle Group. The city has filed a motion asking for the sale to be delayed while it reviews the $451.3 million offer from Summit Properties USA. The properties have been in Chapter 11 bankruptcy since May 2025.

Mayor Zohran Mamdani and city officials have cited concerns about living conditions in the buildings, including heating failures and pest infestations. Mamdani, in a press conference shortly after being sworn in, stated that residents are enduring conditions that no New Yorker should have to live through. The city has asked for more time to evaluate whether the proposed sale will lead to improved tenant safety and long-term affordability.

Summit Properties, a real estate firm that also owns commercial and residential properties in New York City, submitted its offer as a stalking horse bid. This means that it is the initial bid that sets the floor price, and other offers may come in at auction. The deal could be reduced to $420 million if the current lender, Flagstar Bank, refuses to finance the purchase.

Why Did the City Challenge the Sale?

City authorities argue that advisers overseeing the Pinnacle properties have not provided sufficient information about Summit's ability to complete the sale or repair the buildings. The city also expressed concerns that the properties may not be able to support the proposed sale price or ongoing maintenance costs, given their rent-regulated status.

The city has raised concerns about the financial feasibility of maintaining the properties. The current rent levels are considered too low to support a sustainable business model, and the need for emergency repairs could fall to tenants or city officials. Pinnacle has reportedly failed to make payments to the city, owing $12.7 million in unpaid debts and housing violations.

What Are the Financial and Legal Challenges?

Pinnacle Group has faced mounting debt and financial instability since 2025, when it placed the properties into Chapter 11 bankruptcy. The debt owed by the portfolio includes over $564 million in loans from Flagstar Bank. Advisers have cited rising interest rates and inflation as contributing factors to the company's financial difficulties. Debt service costs have risen sharply, from $26 million in 2023 to $45 million in 2025.

The city's legal team has also questioned the adequacy of the proposed repairs for the buildings. Advisers have not provided a detailed assessment of the condition of the units, and the city is worried that tenants could be left with the burden of maintaining their homes. Tenants have reported years of neglect, including issues with heating, mold, and broken appliances.

What Could Happen Next in the Bankruptcy Auction?

The proposed sale must be approved by Judge David Jones, who is overseeing the Chapter 11 bankruptcy case. A competing offer could still emerge from the Union of Pinnacle Tenants, which has been exploring options to purchase some of the buildings themselves. The tenants have until January 11 to file an objection to the sale in bankruptcy court.

If Summit Properties wins the auction, it will need to refinance the properties or purchase the existing debt. The deal could also lead to the properties being sold at a discount if Flagstar Bank does not agree to finance the purchase.

The outcome of the case will have broader implications for the New York City housing market, particularly for rent-stabilized properties. The city has emphasized its commitment to protecting tenants and ensuring affordable housing, and any decision will need to align with those goals.

The case is currently in the Southern District of New York and is being closely watched by investors, tenants, and housing advocates.