Flagstar Bank has raised concerns about the management and valuation of properties owned by billionaire landlord Joel Wiener. In a bankruptcy case involving 82 property entities controlled by Wiener, Flagstar accused him of mismanaging the assets and questioned the validity of expert appraisals provided to support their value.
The companies involved collectively own 93 apartment buildings in New York, with more than 5,200 units. According to court documents, they owe over $1.1 billion to both Flagstar and Israeli bondholders. The dispute has brought attention to potential risks in the Israeli bond market, which Wiener used for financing.
Wiener’s entities have requested permission to use rental income for operating expenses. However, Flagstar objected because the properties have not made mortgage payments since January and many are now facing foreclosure. In May, the bank expressed “serious concerns about where money is going,” questioning whether Wiener’s actions amounted to “simple mismanagement of the debtors’ properties, or worse.”
Neither Wiener’s attorney nor Flagstar provided comments for this article.
Flagstar also criticized how funds were distributed among the businesses. The bank alleged that while mortgages went unpaid, $12 million was paid out to Israeli bondholders.
Wiener was one of the first New York real estate figures to seek funding from Israel’s bond market, raising more than $500 million through this route. The bankruptcy proceedings have also highlighted Michelle Zell, an appraiser with Bowery Valuation who serves as an expert witness for Wiener’s companies. Zell stated she has valued properties backing over $1 billion in Israeli bonds and argued that Wiener’s portfolio is worth more than its debts.
However, Scott Fowler from Ankura Real Estate Advisory—Flagstar’s expert—challenged Zell’s report as “significantly flawed and not credible,” claiming it relied on “unsupported, incorrect or inappropriate data.” Zell’s response was filed under seal; nonetheless, the presiding judge described her as “a well-qualified valuation expert who presented generally reasonable analyses.” She did not respond to a request for comment.
Defaults among New York developers using Israeli bonds have occurred before. Brooklyn developer Yoel Goldman faced a criminal investigation in Israel after his company All Year Management collapsed due to high leverage and bankruptcy; he later settled with authorities but was barred from fundraising in Israel for five years. Starwood Capital faced a class action lawsuit from Israeli pensioners after defaulting on a $254 million bond; while denying wrongdoing, Starwood agreed to let a receiver oversee matters (https://www.costar.com/article/1260366552/starwood-capital-group-to-appoint-receiver-for-israeli-bondholders).
In another matter unrelated to Wiener’s case, Saluda Grade claimed that Zell significantly overvalued a Texas apartment complex when she assessed it at $18.4 million ahead of a loan purchase; after default by the borrower, a second review estimated its value at just $5.8 million—a difference of 68 percent.
Saluda Grade wrote in its complaint: “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!”
Flagstar further objected within the bankruptcy proceedings when Wiener’s companies sought approval to pay management fees to other businesses he controls. Court documents noted unusually high payroll expenses at these LLCs.
A federal judge observed in June: “Debtors pay a 4% management fee to an insider even though their own expert assumed that a 3% fee was more typical.”
That same month, efforts by Wiener’s companies to use rental cash for expenses were denied by a federal judge on grounds that Flagstar’s rights as secured creditor would not be protected; however, he encouraged both sides to find an interim solution due to concerns about tenant living conditions. An agreement has been reached allowing limited use of cash for several months.
