Flagstar Bank has raised concerns about the management and valuation of properties controlled by billionaire landlord Joel Wiener. The bank’s allegations, made in a bankruptcy case involving 82 entities owned by Wiener, have drawn attention to possible risks in the Israeli bond market, which provided significant financing for these real estate holdings.
According to court documents, Wiener’s property companies owe over $1.1 billion to Flagstar and Israeli bondholders. These entities own 93 apartment buildings in New York, comprising more than 5,200 units. The companies have proposed using rental income to cover operating expenses, but Flagstar has objected strongly. The properties have not paid their mortgages since January, and many are now facing foreclosure. In May, the bank stated it had “serious concerns about where money is going,” questioning whether Wiener’s role involved “simple mismanagement of the debtors’ properties, or worse.”
Neither an attorney for Wiener nor representatives from Flagstar provided comments on these matters.
Flagstar also highlighted issues regarding the flow of funds within Wiener’s businesses. The bank claims 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 use Israel’s bond market for financing, raising more than $500 million through this channel. His current bankruptcy proceedings have brought attention to Michelle Zell of Bowery Valuation. Zell has valued properties for Israeli bond issuances totaling over $1 billion and is serving as an expert witness for Wiener’s companies in court. She maintains that the portfolio of 93 buildings is worth more than its debt.
However, Flagstar’s expert challenged Zell’s conclusions. Scott Fowler from Ankura Real Estate Advisory described her report as “significantly flawed and not credible,” arguing it relied on “unsupported, incorrect or inappropriate data.” While Zell’s response remains sealed by the court, the presiding judge noted she was “a well-qualified valuation expert who presented generally reasonable analyses.” Zell did not respond to requests for comment.
Other New York developers who sought funding through Israel’s bond market have also faced difficulties in recent years. Brooklyn developer Yoel Goldman underwent a criminal investigation in Israel after his firm All Year Management collapsed under heavy leverage and filed for bankruptcy; he later settled with regulators and received a five-year fundraising ban from the country. Starwood Capital encountered a class action lawsuit from Israeli pensioners after defaulting on a $254 million bond; though Starwood denied wrongdoing, it agreed to let a receiver oversee certain assets (https://product.costar.com/home/news/shared/263605208?utm_source=newsletter&utm_medium=email&utm_campaign=costar-national-news-headlines).
Michelle Zell is also facing unrelated allegations regarding her appraisal work elsewhere. Investment firm Saluda Grade accused her and a colleague of significantly overvaluing an apartment complex in southeast Texas at $18.4 million before selling a loan based on that figure; when default occurred and another review was conducted, the value was determined to be only $5.8 million—a difference of 68 percent.
“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!” Saluda Grade wrote in its complaint.
In addition to disputes over property values and fund distribution, Flagstar objects to high payroll costs among Wiener-controlled LLCs as well as payments of management fees above industry norms—court records indicate insiders were paid a 4% fee when their own expert considered 3% typical.
A federal judge ruled against allowing Wiener’s companies unrestricted use of rental cash for operating expenses until secured creditor interests could be protected but encouraged both parties to reach an interim agreement due to tenant welfare concerns. A short-term arrangement allowing use of cash has been reached.
