Dive Brief:

• New York City-based apartment owner Conway Capital had three Brooklyn properties transferred to special servicing despite 100% occupancy, according to a report shared with Multifamily Dive by Morningstar DBRS last month.
• Two apartment buildings — 350 5th Street and 372 Baltic Street — were backed by a $6.3 million loan. The third building — 566 7th Street — had a $5.9 million loan and has been delinquent for several months, according to Morningstar DBRS. 
• The three buildings are in prime locations and have been recently renovated. Rents in some apartments jumped more than 80% from 2021 to 2023. However, rising interest rates and market volatility weighed on the buildings' performance, according to The Real Deal.

Dive Insight:

Conway, led by Abe Cohen, purchased the three properties in 2022 and then refinanced them in 2023 with $12 million of commercial mortgage-backed security debt with fixed rates of 6.85% and 7%, according to The Real Deal. 

The outlet speculated that Cohen may have needed money from the refinance to handle earlier defaults in New York City. It reported that he was delinquent on three buildings —155 and 162 Montague Street in Brooklyn Heights and 6 Stone Street in the Financial District in Manhattan — a few months before buying the three Brooklyn buildings now in servicing.

Conway has 43 properties listed in its portfolio on its website. The firm’s attorney told The Real Deal that the company is working with its servicers and the delinquencies would soon be resolved.

NYC slowdown?

Although New York City rent-controlled properties have run into trouble over the past couple of years, market-rate apartments (or free-market as they are called New York City) like Conway’s have performed well as rents began to rise so much in 2022 that bidding wars broke out.

However, rents in the Big Apple are now softening. In Manhattan rents fell in November for the first time in two years, according to NBC News.

On Equity Residential’s recent fourth-quarter earnings call, chief operating officer Michael L. Manelis said the market was suffering from rent fatigue. “You started to see certain types of units, like one-bedrooms, suddenly hit a price point at $4,000, and the activity level slowed,” Manelis said. “The renewal conversations became a little bit more challenging.”

But Manelis is still optimistic about the market. “We still expect pretty good growth out of New York in 2024,” he said. “We're just saying we're tempering those expectations a little bit.”

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