By MAURA WEBBER SADOVI
A partnership that is one of New York's largest apartment owners is seeking to convert more than 1,000 rental units in 36 financially distressed Upper West Side buildings into condominiums.
The partnership, which includes Joel Wiener's Pinnacle Group and Praedium Group of New York, is under increasing legal and financial pressure to map out a new strategy for the buildings.
The most recent headache facing the venture: a $192 million loan backed by the properties which went delinquent earlier this month, according to Trepp LLC, a firm that monitors the commercial real-estate debt market.
The building seen here at 894 Riverside Dr. on Manhattan's Upper West Side is one of 36 that the owners are seeking to convert from rental runs into condos.
Pinnacle, which owns hundreds of other apartment buildings throughout the city, and Praedium, a New York real-estate firm with more than $7 billion in assets, pursued a strategy that tripped up numerous investors during the boom years. The partnership bought the 36 buildings with plans to upgrade as many rent-regulated units as possible and convert them to market-rate rentals.
But the conversions have gone slower than expected. So the partnership is talking to LNR Partners, the special servicer overseeing the $192 million mortgage for bondholders, about a plan to sell the units as condominiums which they hope would boost the value of the properties, according to Trepp.
"They're having trouble with their original business plan so they're looking to go this route," says Frank Innaurato, a managing director at Realpoint, a unit of Morningstar Inc. that also monitors commercial real-estate mortgages.
Praedium didn't return calls seeking comment and LNR declined to comment. Pinnacle said it doesn't discuss its relationships with partners or lenders.
The partnership is discussing the conversion plan at a time that Pinnacle and Mr. Wiener are facing other legal issues.
They are being sued by a group of tenants at a number of their properties that claimed Pinnacle and Mr. Wiener had used "illegal, fraudulent, and harassing practices" to inflate rents above what are allowed under New York's rent-control and rent-stabilization laws, according to an amended complaint filed in Manhattan federal court in 2007. The case was granted class-action status in April and a settlement conference has since been scheduled.
Kenneth Fisher, a former New York City Council member and a lawyer who represents Mr. Wiener and Pinnacle, said the claims of the tenants in the case are unfounded and the landlord is proud of its record of providing safe and well-managed housing for thousands of New Yorkers.
"Any large organization makes occasional mistakes but the allegation of some vast conspiracy is completely bogus," Mr. Fisher stated in an email.
Manhattan Borough President Scott Stringer, who has supported the tenants in their suit, said he was concerned about the possible conversion of the rentals to condos because it would continue to erode the rent-regulated housing stock.
"Dwindling affordable housing options will force working and middle class families to migrate elsewhere, causing New York City to become a City for the rich with enclaves for the poor," Mr. Stringer wrote in a statement.
The owners hope to convert more than 1,000 units.
When Pinnacle and Praedium obtained the loan for the 36 buildings in a refinancing in 2007, the companies projected they could raise average monthly rents in the properties to $2,913 by the end of 2012 from about $1,000 in 2007, according to Manus Clancy, a senior managing director with Trepp.
Since then occupancies have dropped to 82% last year from 96% in 2007 and the portfolio's net operating income fell to $2.7 million last year from $4.7 million in 2008, not enough to cover the annual debt service of about $12 million, according to Trepp.
Praedium and Pinnacle aren't the only apartment investors considering conversions of rental apartments to condos. The plan also is being considered in connection with the financial collapse of the Stuyvesant Town and Peter Cooper Village rental complex in Manhattan.
A partnership led by activist investor William Ackman is battling for control of Peter Cooper Village and Stuyvesant Town and seeking to convert the complex's units into cooperative apartments.
Write to Maura Webber Sadovi at maura.sadovi@wsj.com
