A potential rent freeze in New York City is intensifying pressure on a $506 million CMBS loan, leading to projected losses exceeding $80 million for bondholders. The loan, originated by JPMorgan Chase in 2021, is backed by a portfolio of more than 3,500 units across Queens, Brooklyn, Manhattan, and the Bronx, including the 1,200-unit Riverton Square complex in Harlem. Owner A&E Real Estate defaulted on the mortgage in June 2024, and lenders began foreclosure proceedings in February 2025. The portfolio, 86% rent-stabilized, was valued at approximately $717 million in 2021, but KBRA Credit Profile analysts now estimate its value has dropped to $460 million.
The Rent Guidelines Board approved a rent freeze in June 2026, set to take effect in October, impacting one- and two-year leases. This compounds challenges from the Housing Stability and Tenant Protection Act of 2019, which limited landlords' ability to increase rents and deregulate apartments. Operating expenses for the portfolio have run 13% above expectations, with annualized expenses 22% above initial levels while revenue is up only 6%. By late 2025, the investment was generating just $0.58 for every dollar of debt payments. A&E Real Estate has accumulated over $5.5 million in unpaid interest, though the debt servicer has advanced $29 million, allowing interest payments on most bonds to continue.
Analysts, including former Federal Housing Finance Agency official Phillip Millman, warn that if the rent freeze takes effect, losses for bondholders will increase significantly. Fitch Ratings has indicated that while near-term systemic CMBS risk is modest, credit risk will likely rise over the medium to long term. Proposed offsetting measures by the Mamdani administration, such as a city-backed insurance program, are viewed by Fitch as insufficient to materially offset the pressure. A lawsuit challenging the rent freeze ruling has been filed by a group of landlords, claiming the Rent Guidelines Board did not act independently of Mayor Zohran Mamdani, who campaigned on a four-year rent freeze.
