Loan stress and Q1 loss shape Clipper Realty (NYSE: CLPR) outlook
Clipper Realty Inc. reports another quarterly loss while managing heavy leverage and key New York City lease transitions. For the three months ended March 31, 2026, total revenue was $38,115 thousand versus $39,398 thousand a year earlier, as commercial rental income fell to $6,211 thousand from $10,208 thousand after one major City of New York lease terminated and another expired.
Residential rental income grew to $31,904 thousand from $29,190 thousand, and the prior-year $33,780 thousand impairment did not recur, lifting income from operations to $4,402 thousand versus a loss of $23,581 thousand. However, higher net interest expense of $15,546 thousand resulted in a net loss of $11,144 thousand, with a loss attributable to common stockholders of $4,238 thousand, or $0.30 per share, compared with $0.86 loss per share a year earlier.
At March 31, 2026, total assets were $1,225,996 thousand, including investment in real estate, net, of $1,143,407 thousand, funded by notes payable of $1,285,799 thousand and a total equity deficit of $95,524 thousand. The company remains highly dependent on New York City government leases, which represented 11% of revenues this quarter, and faces litigation and loan challenges, including a receiver appointed over its 250 Livingston Street property. Cash and cash equivalents plus restricted cash totaled $54,651 thousand at period end, with cash provided by operating activities of $3,568 thousand. As of May 14, 2026, there were 16,157,566 common shares outstanding.
Positive
- None.
Negative
- Loan default and receivership at 250 Livingston Street: The $125,000 thousand mortgage is in default, with about $7,176 thousand of interest, default interest and fees outstanding, and a court-appointed receiver now controlling property cash flows.
- Highly leveraged capital structure with equity deficit: At March 31, 2026, notes payable of $1,285,799 thousand exceed total assets of $1,225,996 thousand, leaving a total equity deficit of $95,524 thousand and limited balance sheet flexibility.
- Ongoing dependence on New York City government leases amid changes: City of New York commercial leases contributed 11% of Q1 2026 revenues, but one lease has terminated and another expired and is in holdover, adding cash flow uncertainty.
Insights
Leverage remains high, with loan stress at key NYC assets and ongoing losses.
Clipper Realty continues to operate a concentrated New York City multifamily and mixed-use portfolio with $1,143,407 thousand of real estate assets funded largely by $1,285,799 thousand of property-level debt. Total equity is a deficit of $95,524 thousand, underscoring a highly leveraged balance sheet.
Q1 2026 revenue slipped to $38,115 thousand, mainly from lower commercial rent after City of New York leases at 250 and 141 Livingston Street lapsed or shifted to holdover status. Net loss narrowed to $11,144 thousand, helped by the absence of last year’s $33,780 thousand impairment, but interest expense rose to $15,546 thousand, keeping results in the red.
Debt-related stress is material. The $125,000 thousand loan secured by 250 Livingston Street is in default, with roughly $7,176 thousand of interest, default interest and fees outstanding and a court-appointed receiver now controlling the property’s cash flows. Separately, litigation over 141 Livingston’s mortgage was settled via a loan modification requiring a $10,000 thousand letter of credit and fees of about $2,200 thousand. The company also recorded a $3,600 thousand reserve for a wage-and-hour class action following an adverse summary judgment and mediation discussions.
Key Figures
Key Terms
Real Estate Investment Trust financial
variable interest entities financial
LTIP units financial
holdover rent financial
SOFR financial
Loan Modification Agreement financial
Earnings Snapshot
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 14, 2026, there were
TABLE OF CONTENTS
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CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS |
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PART I – FINANCIAL INFORMATION |
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ITEM 1. |
CONDENSED FINANCIAL STATEMENTS |
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CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2026 (UNAUDITED) AND MARCH 31, 2025 |
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CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2026 AND 2025 (UNAUDITED) |
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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2026 AND 2025 (UNAUDITED) |
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CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2026 AND 2025 (UNAUDITED) |
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
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CONTROLS AND PROCEDURES |
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PART II – OTHER INFORMATION |
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LEGAL PROCEEDINGS |
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ITEM 1A. |
RISK FACTORS |
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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
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DEFAULTS UPON SENIOR SECURITIES |
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MINE SAFETY DISCLOSURES |
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OTHER INFORMATION |
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EXHIBITS |
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SIGNATURES |
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CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q for Clipper Realty Inc. (the “Company”), including, without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” regarding the Company’s financial position, business strategy and the plans, objectives, expectations, or assumptions of management for future operations, are forward-looking statements. When used in this Quarterly Report on Form 10-Q, words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “believe,” “expect,” “intend,” “continue,” “potential,” “plan,” “goal” or other words that convey the uncertainty of future events or outcomes are intended to identify forward-looking statements, which are generally not historical in nature. These statements involve risks and uncertainties that could cause actual results to differ materially from those described in such statements. These risks, contingencies and uncertainties include, but are not limited to, the following:
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our dependency on two commercial leases with certain agencies of the City of New York, as a single government tenant in our office buildings, and our inability to replace the City of New York as a tenant could cause a material adverse effect on us, including our financial condition, results of operations and cash flow, with one lease having terminated effective August 23, 2025 and the other lease having expired on December 27, 2025; |
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the impact of the increase in inflation in the United States which could increase the cost of acquiring, replacing and operating our properties; |
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market and economic conditions, affecting occupancy levels, rental rates, the overall market value of our properties, our access to capital and the cost of capital, and our ability to refinance indebtedness; |
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economic or regulatory developments in New York City; |
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changes in rent stabilization regulations or claims by tenants in rent-stabilized units that their rents exceed specified maximum amounts under current regulations; |
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our ability to control operating costs to the degree anticipated; |
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the risk of damage to our properties, including from severe weather, natural disasters, climate change, and terrorist attacks; |
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risks related to financing, cost overruns, and fluctuations in occupancy rates and rents resulting from development or redevelopment activities and the risk that we may not be able to pursue or complete development or redevelopment activities or that such development or redevelopment activities may not be profitable; |
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concessions or significant capital expenditures that may be required to attract and retain tenants; |
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the relative illiquidity of real estate investments; |
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competition affecting our ability to engage in investment and development opportunities or attract or retain tenants; |
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unknown or contingent liabilities in properties acquired in formative and future transactions; |
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the possible effects of departure of key personnel in our management team on our investment opportunities and relationships with lenders and prospective business partners; |
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conflicts of interest faced by members of management relating to the acquisition of assets and the development of properties, which may not be resolved in our favor; |
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a transfer of a controlling interest in any of our properties that may obligate us to pay transfer tax based on the fair market value of the real property transferred; |
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the need to establish litigation reserves, costs to defend litigation and unfavorable litigation settlements or judgments; and |
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other risks and risk factors or uncertainties identified from time to time in our filings with the SEC. |
These forward-looking statements speak only as of the date of this report, and the Company undertakes no obligation to revise or update these statements to reflect subsequent events or circumstances.
PART I – FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
Clipper Realty Inc.
Consolidated Balance Sheets
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Clipper Realty Inc.
Consolidated Statements of Operations
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See accompanying notes to these consolidated financial statements.
Clipper Realty Inc.
Consolidated Statements of Changes in Equity
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Clipper Realty Inc.
Consolidated Statements of Cash Flows
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See accompanying notes to these consolidated financial statements.
Clipper Realty Inc.
Notes to Consolidated Financial Statements
(In thousands, except for share and per share data and as noted)
1. Organization
Clipper Realty Inc. (the “Company” or “We”) was organized in the state of Maryland on July 7, 2015. On August 3, 2015, we completed certain formation transactions and the sale of shares of common stock in a private offering. We contributed the net proceeds of the private offering to Clipper Realty L.P., our operating partnership subsidiary (the “Operating Partnership”), in exchange for units in the Operating Partnership. The Operating Partnership in turn contributed such net proceeds to the limited liability companies (“LLCs”) that comprised the predecessor of the Company in exchange for Class A LLC units in such LLCs and became the managing member of such LLCs. The owners of the LLCs exchanged their interests for Class B LLC units and an equal number of special, non-economic, voting stock in the Company. The Class B LLC units, together with the special voting shares, are convertible into common shares of the Company on a one-for-one basis and are entitled to distributions.
As of March 31, 2026, the properties owned by the Company consisted of the following (collectively, the “Properties”):
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Tribeca House in Manhattan, comprising two buildings, one with |
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Flatbush Gardens in Brooklyn, a |
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141 Livingston Street in Brooklyn, a |
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250 Livingston Street in Brooklyn, a |
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Aspen in Manhattan, a |
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Clover House in Brooklyn, an |
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1010 Pacific Street in Brooklyn, |
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The Dean Street property in Brooklyn, a |
On May 30, 2025, the Company completed the sale of 10 West 65th Street in Manhattan, a
Square footage, leased occupancy percentage and rentable unit disclosures in the consolidated financial statements are unaudited.
The operations of Clipper Realty Inc. and its consolidated subsidiaries are conducted primarily through the Operating Partnership. The Company has elected to be taxed as a Real Estate Investment Trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code (the “Code”). The Company is the sole general partner of the Operating Partnership and the Operating Partnership is the sole managing member of the LLCs that comprised the Predecessor.
For the three months ended March 31, 2026 and 2025, the Company’s interest, through the Operating Partnership, in the LLCs that own the properties generally entitled it to
The Company determined that the Operating Partnership and the LLCs are variable interest entities (“VIEs”) and that the Company was the primary beneficiary. The assets and liabilities of these VIEs represented substantially all of the Company’s assets and liabilities.
2. Significant Accounting Policies
Segments
At March 31, 2026, and December 31, 2025, the Company had two reportable operating segments, Residential Rental Properties and Commercial Rental Properties. Our Chief Operating Decision Maker (“CODM”), represented by our Co-Chairman and Chief Executive Officer, reviews the results in which the revenue and Income from Operations is divided between the commercial and residential performance.
Basis of Consolidation
The accompanying consolidated financial statements of the Company are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The effect of all intercompany balances has been eliminated. The consolidated financial statements include the accounts of all entities in which the Company has a controlling interest. The ownership interests of other investors in these entities are recorded as non-controlling interests.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management adjusts such estimates when facts and circumstances dictate. The most significant estimates made include the recoverability of accounts receivable, allocation of property purchase price to tangible and intangible assets acquired and liabilities assumed, the useful lives of long-lived assets, review of long-lived assets for impairment and contingent liabilities. Actual results could materially differ from these estimates.
Investment in Real Estate
Real estate assets held for investment are carried at historical cost and consist of land, buildings and improvements, furniture, fixtures and equipment. Expenditures for ordinary repair and maintenance costs are charged to expense as incurred. Expenditures for improvements, renovations, and replacements of real estate assets are capitalized and depreciated over their estimated useful lives if the expenditures qualify as betterments or the life of the related asset will be substantially extended beyond the original life expectancy.
In accordance with ASC 805, "Business Combinations” the Company evaluates each acquisition of real estate or in-substance real estate to determine if the integrated set of assets and activities acquired meets the definition of a business and needs to be accounted for as a business combination. If either of the following criteria is met, the integrated set of assets and activities acquired would not qualify as a business:
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Substantially all of the fair value of the gross assets acquired is concentrated in either a single identifiable asset or a group of similar identifiable assets; or |
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The integrated set of assets and activities is lacking, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs (i.e., revenue generated before and after the transaction). |
An acquired process is considered substantive if:
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The process includes an organized workforce (or includes an acquired contract that provides access to an organized workforce) that is skilled, knowledgeable and experienced in performing the process; |
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The process cannot be replaced without significant cost, effort or delay; or |
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The process is considered unique or scarce. |
Generally, the Company expects that acquisitions of real estate or in-substance real estate will not meet the revised definition of a business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e., land, buildings and related intangible assets) or because the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay.
Upon acquisition of real estate, the Company assesses the fair values of acquired tangible and intangible assets including land, buildings, tenant improvements, above-market and below-market leases, in-place leases and any other identified intangible assets and assumed liabilities. The Company allocates the purchase price to the assets acquired and liabilities assumed in an asset acquisition based on their relative fair values. In estimating fair value of tangible and intangible assets acquired, the Company assesses and considers fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates, estimates of replacement costs, net of depreciation, and available market information. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.
The Company records acquired above-market and below-market lease values initially based on the present value, using a discount rate which reflects the risks associated with the leases acquired based on the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed renewal options for the below-market leases. Other intangible assets acquired include amounts for in-place lease values and tenant relationship values (if any) that are based on management’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with the respective tenant. Factors to be considered by management in its analysis of in-place lease values include an estimate of carrying costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, management considers leasing commissions, legal and other related expenses.
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. A property’s value is impaired if management’s estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property is less than the carrying value of the property. To the extent impairment has occurred, a write-down is recorded and measured by the amount of difference between the carrying value of the asset and the fair value of the asset. Management of the Company does not believe that any of its properties within the portfolio were impaired as of March 31, 2026 and December 31, 2025. On May 30, 2025, the Company completed the sale of 10 West 65th Street in Manhattan, a
For long-lived assets to be disposed of, impairment losses are recognized when the fair value of the assets less estimated cost to sell is less than the carrying value of the assets. Properties classified as real estate held-for-sale generally represent properties that are actively marketed or contracted for sale with closing expected to occur within the next twelve months. Real estate held-for-sale is carried at the lower of cost, net of accumulated depreciation, or fair value less cost to sell, determined on an asset-by-asset basis. Expenditures for ordinary repair and maintenance costs on held-for-sale properties are charged to expense as incurred. Expenditures for improvements, renovations and replacements related to held-for-sale properties are capitalized at cost. Depreciation is not recorded on real estate held-for-sale.
If a tenant vacates its space prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balances of the related intangibles are written off. The tenant improvements and origination costs are amortized to expense over the remaining life of the lease (or charged against earnings if the lease is terminated prior to its contractual expiration date).
Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:
|
Building and improvements (in years) |
|
– |
|
||
|
Tenant improvements |
Shorter of useful life or lease term |
||||
|
Furniture, fixtures and equipment (in years) |
|
– |
|
||
The capitalized above-market lease values are amortized as a reduction to base rental revenue over the remaining terms of the respective leases, and the capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed rate renewal options of the respective leases. The value of in-place leases is amortized to expense over the remaining initial terms of the respective leases.
Cash and Cash Equivalents
Cash and cash equivalents are defined as cash on hand and in banks, plus all short-term investments with a maturity of three months or less when purchased. The Company maintains some of its cash in bank deposit accounts, which, at times, may exceed the federally insured limit. No losses have been experienced related to such accounts.
Restricted Cash
Restricted cash generally consists of escrows for future real estate taxes and insurance expenditures, repairs, capital improvements, loan reserves and security deposits.
Tenant and Other Receivables and Allowance for Doubtful Accounts
Tenant and other receivables are comprised of amounts due for monthly rents and other charges less allowance for doubtful accounts. In accordance with Accounting Standards Codification ("ASC”) 842 "Leases,” the Company performed a detailed review of amounts due from tenants to determine if accounts receivable balances and future lease payments were probable of collection, wrote off receivables not probable of collection and recorded a general reserve against revenues for receivables probable of collection for which a loss can be reasonably estimated. If management determines that the tenant receivable is not probable of collection it is written off against revenues. In addition, the Company records a general reserve under ASC 450.
Deferred Costs
Deferred lease costs consist of fees incurred to initiate and renew operating leases. Lease costs are being amortized using the straight-line method over the terms of the respective leases.
Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining financing. These costs are amortized over the term of the financing and are recorded in interest expense in the consolidated statements of operations. Unamortized deferred financing costs are expensed when the associated debt is refinanced or repaid before maturity. Costs incurred in seeking financing transactions which do not close are expensed in the period the financing transaction is terminated.
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income (loss) adjusted for changes in unrealized gains and losses, reported in equity, for financial instruments required to be reported at fair value under GAAP. For the three months ended March 31, 2026, and 2025, the Company did not own any financial instruments for which the change in value was not reported in net income (loss); accordingly, its comprehensive income (loss) was its net income (loss) as presented in the consolidated statements of operations.
Revenue Recognition
As mentioned above under Tenant and Other Receivables and Allowance for Doubtful Accounts the Company records lease income under ASC 842,“Leases” which replaces the guidance under ASC 840. ASC 842 applies to the Company principally as lessor; as a lessee, the Company’s leases are immaterial. The Company has determined that all its leases as lessor are operating leases. The Company has elected to not bifurcate lease and non-lease components under a practical expedient provision. With respect to collectability, the Company has written off all receivables not probable of collection and related deferred rent, and has recorded income for those tenants on a cash basis. When the probability assessment has changed for these receivables, the Company has recognized lease income to the extent of the difference between the lease income that would have been recognized if collectability had always been assessed as probable and the lease income recognized to date. For remaining receivables probable of collection, the Company has recorded a general reserve under ASC 450.
For the three months ended March 31, 2026 and 2025, the Company charged revenue in the amount of $
In accordance with the provisions of ASC 842, rental revenue for commercial leases is recognized on a straight-line basis over the terms of the respective leases. Deferred rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with lease agreements. Rental income attributable to residential leases and parking is recognized as earned, which is not materially different from the straight-line basis. Leases entered by residents for apartment units are generally for one-year terms, renewable upon consent of both parties on an annual or monthly basis.
Reimbursements for operating expenses due from tenants pursuant to their lease agreements are recognized as revenue in the period the applicable expenses are incurred. These costs generally include real estate taxes, utilities, insurance, common area maintenance costs and other recoverable costs and are recorded as part of commercial rental income in the condensed consolidated statements of operations.
Stock-based Compensation
The Company accounts for stock-based compensation pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, “Compensation — Stock Compensation.” As such, all equity-based awards are reflected as compensation expense in the Company’s consolidated statements of operations over their vesting period based on the fair value at the date of grant. In the event of a forfeiture, the previously recognized expense for unvested options would be reversed.
As of March 31, 2026, and December 31, 2025, there were
In March 2026, the Company granted employees and non-employee directors
In March 2025, the Company granted employees and non-employee directors
Transaction Pursuit Costs
Transaction pursuit costs primarily reflect costs incurred for abandoned acquisition, disposition or other transaction pursuits.
Income Taxes
The Company elected to be taxed and to operate in a manner that will allow it to qualify as a REIT under the Code. To qualify as a REIT, the Company is required to distribute dividends equal to at least
In accordance with FASB ASC Topic 740, the Company believes that it has appropriate support for the income tax positions taken and, as such, does not have any uncertain tax positions that, if successfully challenged, could result in a material impact on its financial position or results of operations. The prior three years’ income tax returns are subject to review by the Internal Revenue Service.
Fair Value Measurements
Refer to Note 6, “Fair Value of Financial Instruments”.
Derivative Financial Instruments
FASB derivative and hedging guidance establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. As required by FASB guidance, the Company records all derivatives on the consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation.
Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecast transactions, are considered cash flow hedges. For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (loss) (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in the fair value or cash flows of the derivative hedging instrument with the changes in the fair value or cash flows of the designated hedged item or transaction. For derivatives not designated as hedges, changes in fair value would be recognized in earnings. As of March 31, 2026 and December 31, 2025, the Company has no derivatives for which it applies hedge accounting.
Loss Per Share
Basic and diluted net loss per share is computed by dividing net loss attributable to common stockholders by the weighted average common shares outstanding. As of March 31, 2026 and 2025, the Company had unvested LTIP units which provide for non-forfeitable rights to dividend-equivalent payments. Accordingly, these unvested LTIP units are considered participating securities and are included in the computation of basic and diluted net loss per share pursuant to the two-class method. The Company did not have dilutive securities as of March 31, 2026, or 2025.
The effect of the conversion of the
The following table sets forth the computation of basic and diluted net loss per share for the periods indicated:
|
Three Months Ended March 31, |
||||||||
|
2026 |
2025 |
|||||||
|
(in thousands, except per share amounts) |
||||||||
|
Numerator |
||||||||
|
Net loss attributable to common stockholders |
$ | ( |
) | $ | ( |
) | ||
|
Less: income attributable to participating securities |
( |
) | ( |
) | ||||
|
Subtotal |
( |
) | ( |
) | ||||
|
Denominator |
||||||||
|
Weighted-average common shares outstanding |
||||||||
|
Basic and diluted net loss per share attributable to common stockholders |
$ | ( |
) | $ | ( |
) | ||
Recently Adopted Accounting Standards
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires entities to disclose additional information with respect to the effective tax rate reconciliation and to disclose the disaggregation by jurisdiction of income tax expense and income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We adopted this update effective December 15, 2025. The adoption of ASU 2023-09 did not have a material impact on our disclosures.
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), and in January 2025, the FASB issued ASU 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date ("ASU 2025-01"). ASU 2024-03 requires additional disclosure of the nature of expenses included in the income statement as well as disclosures about specific types of expenses included in the expense captions presented in the income statement. ASU 2024-03, as clarified by ASU 2025-01, is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. We are currently evaluating the impact of these standards on our consolidated financial statements.
3. Deferred Costs and Intangible Assets
Deferred costs and intangible assets consist of the following:
|
March 31, |
December 31, |
|||||||
|
Deferred costs |
$ | $ | ||||||
|
Lease origination costs |
||||||||
|
In-place leases |
||||||||
|
Real estate tax abatements |
||||||||
|
Total deferred costs and intangible assets |
||||||||
|
Less accumulated amortization |
( |
) |
( |
) |
||||
|
Total deferred costs and intangible assets, net |
$ | $ | ||||||
Amortization of deferred costs, lease origination costs and in-place lease intangible assets was $
Deferred costs and intangible assets as of March 31, 2026, amortize in future years as follows:
|
2026 |
$ | |||
|
2027 |
||||
|
2028 |
||||
|
2029 |
||||
|
2030 |
||||
|
Thereafter |
||||
|
Total |
$ |
4. Notes Payable
The mortgages, loans and mezzanine notes payable collateralized by the properties, or the Company’s interest in the entities that own the properties and assignment of leases, are as follows:
|
Property |
Maturity |
Interest Rate |
March 31, |
December 31, |
|||||||||
|
Flatbush Gardens, Brooklyn, NY (a) |
6/1/2032 |
% |
$ | ||||||||||
|
250 Livingston Street, Brooklyn, NY (b) |
6/6/2029 |
% |
|||||||||||
|
141 Livingston Street, Brooklyn, NY (c) |
3/6/2031 |
% |
|||||||||||
|
Tribeca House, Manhattan, NY (d) |
3/6/2028 |
% |
|||||||||||
|
Aspen, Manhattan, NY (e) |
7/1/2028 |
% |
|||||||||||
|
Clover House, Brooklyn, NY (f) |
12/1/2029 |
% |
|||||||||||
|
1010 Pacific Street, Brooklyn, NY (g) |
9/30/2030 |
% |
|||||||||||
|
Dean Street, Brooklyn, NY (h) |
5/09/2027 |
SOFR + 2.65 |
% |
||||||||||
|
Dean Street, Brooklyn, NY (h) |
5/09/2027 |
SOFR + 2.65 |
% | ||||||||||
|
Total debt |
$ |
$ |
|||||||||||
|
Unamortized debt issuance costs |
( |
) |
( |
) |
|||||||||
|
Total debt, net of unamortized debt issuance costs |
$ |
$ |
|||||||||||
(a) The $
(b) The $
As of August 23, 2025, The City of New York, a municipal corporation acting through the Department of Citywide Administrative Services ("NYC”), vacated the space it occupied at 250 Livingston Street. The lease generally provided for rent payments in the amount of $
On March 18, 2025, The Company was notified by legal counsel to the servicer for the loan related to the 250 Livingston Street property that, due to the failure of our subsidiary, 250 Livingston Owner LLC, to cause all revenue generated by the 250 Livingston Street property to be deposited into the cash management account as required by the loan agreement related to the $
All amounts remaining in such cash management account after the lender’s allocations set forth in the loan agreement will be disbursed to us if the tenant cure conditions are satisfied under the loan agreement.
If the Company is unable to replace the NYC lease at comparable rents, the Company may not be able to cure the conditions listed in the loan agreement, and it could impact the Company’s available cash to fund corporate operations and pay dividends and distributions to the Company’s stockholders.
On October 6, 2025, the Company failed to make its required deposit to the cash management account to fund the interest and tax escrow deposit for September 2025. The Company received notices of nonpayment on October 20, 2025, and November 12, 2025. The loan documents state that a failure to pay interest within five days of due date is an event of default. On November 12, 2025, the Company sent a letter to Midland requesting that the loan be immediately fully transferred to Special Servicing for potential loan modifications because the Borrower does not plan to continue to support the ongoing operating and debt service shortfall related to 250 Livingston Street property. Although the Company is in the process of negotiating a Consent and Cooperation Agreement for the sale of the property, there can be no assurance that such Consent and Cooperation Agreement will be consummated.
On December 18, 2025, the Company received a letter from the Special Servicer notifying the Company that it is in default under the Note and other Loan documents by virtue of, among other things, its failure to pay all amounts when due thereunder. The notice indicated that the Lender would take all such actions as it deems appropriate to protect its interest in the Loan and to collect the debt thereunder including, without limitation, seeking foreclosure and/or reconveyance of its security under the Loan documents. In accordance with the Loan documents, the Company is subject to default interest at a rate of additional
On January 7, 2026, the Borrower received a letter from counsel for the Lender and the special servicer for the Lender, notifying the Borrower that it is in default under the Loan Agreement, the Note and other loan documents by virtue of, among other things, its failure to pay all amounts when due thereunder from October 6, 2025 through and including January 6, 2026. The letter indicated that the Lender’s counsel would assist the Lender in taking all such actions as it deems appropriate to protect its interest in the Loan and to collect the debt thereunder including, without limitation, seeking foreclosure and/or reconveyance of its security under the loan documents. The Company believes that, as of March 31, 2026, the Company owed approximately $7,176 in interest, default interest and fees.
On March 25, 2026, the Lender filed a complaint against the Borrower, the Company and the Company’s subsidiary Clipper Realty L.P. due to the Borrower’s defaults under the Note and the other Loan documents. The Plaintiff demanded, among other things, that a receiver be appointed to manage the Property and that the Property and the personal property within the Property be sold and the proceeds be applied to the satisfaction of indebtedness evidenced by the Note and other Loan documents. On April 29, 2026, the court entered an order granting the Lender's demand to appoint a temporary receiver. Pursuant to the court order, the receiver is authorized to enter into the possession of the Property, to rent or lease any part of the premises, to collect and receive all rents and fees due and unpaid in connection with the premises, and the Company must turn over to the receiver all rents collected from and after the date of the court order..
The Company is in the process of negotiating a Consent and Cooperation Agreement with the Lender for the sale of the Loan. There can be no assurance that such Consent and Cooperation Agreement will be consummated.
(c) The $
The 141 Livingston Street lease expired on December 27, 2025. The Company and City of New York are continuing to work through the finalizing of a previously agreed five-year extension of its expired lease. There can be no assurance that the negotiations will conclude with an agreement. The expired lease at 141 Livingston Street provided for $
If we are unable to finalize the agreement, we would be at risk of not being able to replace NYC as a tenant, leasing the space below the current rates, incurring costs to improve the space or offer other inducements to fill the space, all of which may have an adverse effect on our financial condition, results of operations and cash flow.
On October 28, 2024, we received notice that, as of October 7, 2024, the servicing of the mortgage notes was transferred to a special servicer (the "Special Servicer”) due to our alleged failure to make certain required payments under the loan agreement, including, but not limited to, the reserve deposit starting on July 7, 2024. The Special Servicer demanded that we pay (i) $
On November 11, 2024, the Special Servicer notified the Borrower that, due to its alleged event of default under the Loan Agreement, as a result of the failure to make the payments described above, the mortgage notes have been accelerated, and all amounts under the loan agreement were due and payable. Such amounts included, but were not limited to, $
We believe that (i) we have made timely payments under the loan agreement, (ii) the servicer and the Special Servicer have misinterpreted the terms of the loan agreement requiring monthly reserve payments beginning on July 7, 2024, (iii) we have no current obligation to make such reserve payments under the loan agreement and (iv) we should not be obligated to pay the default interest and late charges.
On December 18, 2024, we received notice from the Special Servicer that due to its allegation that we as the Guarantor did not maintain a net worth of not less than $
On January 21, 2025, we received notice from the Special Servicer alleging that certain elements of our insurance on the building at 141 Livingston Street were not in compliance with the loan agreement requirements, including, but not limited to, due to a deductible in excess of what is permitted under the terms of the loan agreement and the use of an insurance carrier with a rating agency rating below that which is permitted under the terms of the loan agreement.
On March 12, 2025, we received a letter from counsel to the successor to the special servicer reaffirming the occurrence of alleged events of default under the loan agreement described above and demanding the establishment of a restricted account, a cash management account and a debt service account. In addition, the letter demanded that tenants of 141 Livingston Street be sent notices directing them to make lease payments to the cash management account.
We believe that the Company is not required to establish the foregoing accounts or send such notices to the tenants. However, if the Company is required to establish such accounts and deliver such notices, it could impact our available cash to fund corporate operations and pay dividends and distributions to our stockholders.
On March 20, 2025, Wells Fargo Bank, National Association, as trustee for the benefit of the registered holders of certain pass-through certificates issued by trusts that are the holders of the promissory mortgage notes secured by the 141 Livingston Street property, referred to as "Plaintiff,” filed a lawsuit against the Borrower, as well as us and our Operating Partnership subsidiary, as guarantors, in the Supreme Court of the State of New York. Plaintiff demands, among other things, that (i) the 141 Livingston Street property be sold and the Plaintiff be paid the amounts due under the loan agreement, with interest thereon to the time of such payment, together with, among other items, the expenses of the sale, Plaintiff’s attorneys’ fees; (ii) Plaintiff be paid all rents and revenues of the 141 Livingston Street property as they become due and payable; (iii) a receiver be appointed to manage the 141 Livingston Street property, with power among other things to demand and recover payment from anyone who has received a distribution from 141 Borrower after any event of default; (iv) Plaintiff have such other and further relief as may be just and equitable; (v) guarantors pay to Plaintiff the amount of any losses or damages suffered or incurred by Plaintiff as the court may determine to be just and equitable and amounts owed under the guaranty. We believe that the claims set forth in this complaint are without merit and intend to vigorously defend against this lawsuit. On April 7, 2025, we filed an Affirmation in opposition to the motion of the Plaintiff for the appointment of a receiver and in support of defendants’ cross motion to dismiss the action and cancel notice of pendency with the Supreme Court of the State of New York, County of Kings. A hearing on the motions was scheduled for April 8, 2025, but it was adjourned until May 6, 2025. The Plaintiff submitted additional filings on April 29, 2025, and we submitted our replies on May 6, 2025. On May 13, 2025, the Court denied (i) the Plaintiff’s motion to appoint a receiver to manage the 141 Livingston Street property, "as Plaintiff’s likelihood of ultimately prevailing on its claims herein appears remote” and (ii) the Company’s cross motion to dismiss the lawsuit, "as Plaintiff’s contentions do raise a question of fact”. In April 2025, we and the NYC agreed to the terms of a five-year extension of the expired lease, with an option for the NYC to terminate the lease after two years with a prior six-month notice. NYC has sent the lease to us to sign. On April 22, 2025, we sent the lease to the loan special servicer for approval in accordance with the terms of the loan agreement. On May 21, 2025 the special servicer approved the lease subject to certain conditions. The Company rejected the conditions that amongst other changes required us to change the terms of the cancellation provisions in the lease and make amendments to the loan documents to be in line with the lender’s allegations in the above lawsuit. There can be no assurance that the lease will be approved or finalized. On June 11, 2025, the lender filed an appeal of the denial of the receiver. On June 23, 2025, the Lender filed an amended complaint seeking a declaratory judgment that its conditions for its consent to the lease were reasonable. On July 2, 2025, the lender filed a renewed motion for a temporary receiver. On July 11, 2025, the Company filed an answer with counterclaims, seeking among other things declaratory relief that the lenders conditions are unreasonable for the proposed lease renewal. On July 18, 2025, we filed opposition to the renewed receiver motion. On July 30, 2025, the judge heard arguments on the renewed motion for a temporary receiver. On July 31, 2025, the lender filed a motion to dismiss the Company’s counterclaims. The Company filed opposition on September 30, 2025, and the motion was scheduled for hearing on December 16, 2025. On September 30, 2025, the court denied the Plaintiff’s renewed motion for a receiver. The court ruled, however, that if the City of New York exercises its option to terminate early under the proposed lease extension, the Company will be required to pay $
On December 24, 2025, the Company entered into the Loan Modification Agreement (the “Agreement”) with Wells Fargo Bank, National Association, as trustee for the benefit of the registered holders of certain commercial mortgage pass-through certificates related to the Loan (collectively, the “Lender”), to settle the ongoing litigation between the Lender, the Borrower, the Company and the Operating Partnership. The Agreement became effective on December 30, 2025. Pursuant to the Agreement, the Company provided a $
(d) The $
(e) The $
(f) The $
(g) On August 10, 2021, the Company entered into a group of loans with AIG Asset Management (U.S.), LLC, succeeding a property acquisition loan, providing for maximum borrowings of $
On February 9, 2023, the Company refinanced this construction loan with a mortgage loan with Valley National Bank which provided for maximum borrowings of $
On September 15, 2023, the Company borrowed an additional $
On October 1, 2025, the Company entered into a Loan Agreement (the “Loan Agreement”) with Citi Real Estate Funding Inc., a New York corporation, and Morgan Stanley Bank, N.A., a national banking association, as the lenders, dated as of October 1, 2025.
The Loan Agreement provides for the $
On October 1, 2025, concurrently with entering into the Loan Agreement, the Company repaid the $
The Company incurred no fees or costs as a result of the termination of its loan with Valley the Company incurred approximately $
(h) On December 22, 2021, the Company entered into a $
On August 10, 2023, the Company refinanced its $
The Senior Loan allows maximum borrowings of $
The Mezzanine Loan allows maximum borrowings of $
On May 2, 2025, the Company entered into the Multifamily Loan and Security Agreement (the “Loan Agreement”), dated as of May 2, 2025 and the Mezzanine Multifamily Loan and Security Agreement (the “Mezzanine Loan Agreement” and together with the Loan Agreement, the “New Loan Agreements”) with MF1 Capital, a company not affiliated with the Company dated as of May 2, 2025.
The Loan Agreement provides for $
Subsequent to the loan closing the Company drew an additional $
The New Loan Agreements also contain customary representations, covenants, events of default and certain limited guarantees.
In addition, the Company purchased an interest rate cap with US Bank that caps the SOFR portion of the interest rate on the Loans at
Concurrently with entering into the New Loan Agreements, the Company repaid the $
On April 30, 2025, the Company entered into a $
On December 24, 2025, the Company issued a $
The Company has provided a limited guaranty for the mortgage notes at several of its properties. The Company’s loan agreements contain customary representations, covenants and events of default. Certain loan agreements require the Company to comply with affirmative and negative covenants, including the maintenance of debt service coverage and debt yield ratios. In the event that the Company is not compliant, certain lenders may require cash sweeps of rent until the conditions are cured. Except as described above, the Company is not in default on any of its loan agreements.
The following table summarizes principal payment requirements under the terms of the mortgage notes as of March 31, 2026:
|
2026 |
$ | |||
|
2027 |
||||
|
2028 |
||||
|
2029 |
||||
|
2030 |
||||
|
Thereafter |
||||
|
Total |
$ |
5. Rental Income under Operating Leases
The Company’s commercial properties are leased to commercial tenants under operating leases with fixed terms of varying lengths. As of March 31, 2026, the minimum future cash rents receivable (excluding tenant reimbursements for operating expenses) under non-cancelable operating leases for the commercial tenants in each of the next five years and thereafter are as follows:
|
2026 |
$ | |||
|
2027 |
||||
|
2028 |
||||
|
2029 |
||||
|
2030 |
||||
|
Thereafter |
||||
|
Total |
$ |
The Company had commercial leases with the City of New York that comprised approximately
6. Fair Value of Financial Instruments
GAAP requires the measurement of certain financial instruments at fair value on a recurring basis. In addition, GAAP requires the measure of other financial instruments and balances at fair value on a non-recurring basis (e.g., carrying value of impaired real estate and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:
|
• |
Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities; |
|
• |
Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and |
|
• |
Level 3: prices or valuation techniques where little or no market data is available that require inputs that are both significant to the fair value measurement and unobservable. |
When available, the Company utilizes quoted market prices from an independent third-party source to determine fair value and classifies such items in Level 1 or Level 2. In instances where the market for a financial instrument is not active, regardless of the availability of a nonbinding quoted market price, observable inputs might not be relevant and could require the Company to make a significant adjustment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an independent third party may rely more on models with inputs based on information available only to that independent third party. When the Company determines the market for a financial instrument owned by the Company to be illiquid or when market transactions for similar instruments do not appear orderly, the Company uses several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and establishes a fair value by assigning weights to the various valuation sources.
Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in an immediate settlement of the instrument.
The financial assets and liabilities in the consolidated balance sheets include cash and cash equivalents, restricted cash, receivables, accounts payable and accrued liabilities, security deposits and notes payable. The carrying amount of cash and cash equivalents, restricted cash, receivables, accounts payable and accrued liabilities, and security deposits reported in the consolidated balance sheets approximates fair value due to the short-term nature of these instruments. The fair value of notes payable, which are classified as Level 2, is estimated by discounting the contractual cash flows of each debt instrument to their present value using adjusted market interest rates.
The carrying amount and estimated fair value of the notes payable are as follows:
|
March 31, |
December 31, |
|||||||
|
Carrying amount (excluding unamortized debt issuance costs) |
$ | $ | ||||||
|
Estimated fair value |
$ | $ | ||||||
7. Commitments and Contingencies
Legal
On July 3, 2017, the Supreme Court of the State of New York (the “Court”) ruled in favor of 41 present or former tenants of apartment units at the Company’s buildings located at 50 Murray Street and 53 Park Place in Manhattan, New York (the Tribeca House property), who brought an action (the “Kuzmich” case) against the Company alleging that they were subject to applicable rent stabilization laws with the result that rental payments charged by the Company exceeded amounts permitted under these laws because the buildings were receiving certain tax abatements under Real Property Tax Law (“RPTL”) 421-g. The Court also awarded the plaintiffs- tenants their attorney’s fees and costs. After various court proceedings and discussions from 2018-2022, on March 4, 2022 the court issued a ruling, finalized on May 9, 2022, on the rent overcharges to which the plaintiffs are entitled. While the court ruled that the overcharges to which the plaintiffs are entitled total $
On November 18, 2019, the same law firm which filed the Kuzmich case filed a second action involving a separate group of 26 tenants (captioned Crowe et al v 50 Murray Street Acquisition LLC, Supreme Court, New York County, Index No. 161227/19), which action advances essentially the same claims as in Kuzmich. The Company’s deadline to answer or otherwise respond to the complaint in Crowe had been extended to June 30, 2020; on such date, the Company filed its answer to the complaint. Pursuant to the court’s rules, on July 16, 2020, the plaintiffs filed an amended complaint; the sole difference as compared to the initial complaint is that seven new plaintiffs-tenants were added to the caption; there were no substantive changes to the complaint’s allegations. On August 5, 2020, the Company filed its answer to the amended complaint. The case was placed on the court’s calendar and was next scheduled for a discovery conference on November 16, 2022. Counsel for the parties have been engaged in and are continuing settlement discussions. On November 16, 2022, the court held a compliance conference and ordered the plaintiffs to provide rent overcharge calculations in response to proposed calculations previously provided by the Company. On July 12, 2023, the court referred this matter to a JHO to determine the outstanding issues. A hearing before the JHO was held in September 2023. On September 19, 2024 the JHO entered two orders, (1) a June 5, 2024 Determination determining the amount of rent overcharges, if any, due to each of the plaintiffs and the lease renewal amounts, term and form of lease for the plaintiffs remaining in occupancy of four units and (2) a September 3, 2024 Determination sustaining the June 5, 2024 JHO determination which set another plaintiffs rent but reducing the overcharge amount owed to the plaintiff. On October 21, 2024, the Company filed a notice of appeal from the September 3, 2024 JHO order. In addition, on August 13, 2024 the JHO issued a Determination awarding attorneys’ fees to plaintiffs’ attorneys in the amount of $
On March 9, 2021, the same law firm which filed the Kuzmich and Crowe cases filed a third action involving another tenant (captioned Horn v 50Murray Street Acquisition LLC, Supreme Court, New York County, Index No. 152415/21), which action advances the same claims as in Kuzmich and Crowe. The Company filed its answer to the complaint on May 21, 2021. On September 19, 2024 the JHO entered a June 5, 2024 order which determined, among other things, the amount of rent overcharge, the lease renewal amount, term and form of lease for plaintiff Horn. In addition, On August 13, 2024 the JHO issued a Determination awarding attorneys’ fees to plaintiffs’ attorneys in the amount of $
As a result of the March 4 and May 9, 2022 decisions which established the probability and ability to reasonably compute amounts owed to tenants for all the cases, the Company recorded a charge for litigation settlement and other of $
Based on the JHO determinations made in 2024, the Company accrued an additional $
On October 15, 2021, Rodney Sanchez (“Plaintiff”) filed a Class and Collective Action Complaint (the “Complaint”) against and the Company and certain of its affiliates and Clipper Equity LLC (collectively, the “Defendants”) in the United States District Court for the Southern District of New York. The Plaintiff alleged that he was jointly employed by the Defendants and that the Defendants: (a) failed to pay Plaintiff and similarly situated employees overtime in violation of the Fair Labor Standards Act (“FLSA”) and New York Labor Law (“NYLL”); (b) failed to pay Plaintiff and similarly situated employees for training sessions in violation of the FLSA and NYLL; (c) failed to pay Plaintiff and similarly situated employees on a timely basis in violation of NYLL; and (d) failed to provide Plaintiff and similarly situated employees with wage statements and wage notices as required by NYLL. On February 24, 2026, the court granted both summary judgment in favor of the Plaintiffs and class certification for 22 buildings. The Company has appealed against the judgement to the Second Circuit Court of Appeals. The Company and the Plaintiff attended a mediation session on April 13, 2026. As a result of the court rulings and the discussions held during the mediation session, the Company has determined that a loss is probable and has reserved $
The Office of the Attorney General of the State of New York (“OAG”) commenced an investigation concerning the conduct of screening of tenant applicants in the building portfolio in which Clipper Equity and its principals have a management and/or ownership interest. Clipper Equity cooperated with the investigation and, in April 2022, entered into an Assurance of Discontinuance with the OAG to resolve the investigation on behalf of itself and its affiliates, the terms of which have no impact to the Company’s financial position or results of operations.
On March 20, 2025, Wells Fargo Bank, National Association, as trustee for the benefit of the registered holders of certain pass-through certificates issued by trusts that are the holders of the promissory mortgage notes secured by the 141 Livingston Street property, referred to as "Plaintiff,” filed a lawsuit against the Borrower, as well as us and our Operating Partnership subsidiary, as guarantors, in the Supreme Court of the State of New York. Plaintiff demands, among other things, that (i) the 141 Livingston Street property be sold and the Plaintiff be paid the amounts due under the loan agreement, with interest thereon to the time of such payment, together with, among other items, the expenses of the sale, Plaintiff’s attorneys’ fees; (ii) Plaintiff be paid all rents and revenues of the 141 Livingston Street property as they become due and payable; (iii) a receiver be appointed to manage the 141 Livingston Street property, with power among other things to demand and recover payment from anyone who has received a distribution from 141 Borrower after any event of default; (iv) Plaintiff have such other and further relief as may be just and equitable; (v) guarantors pay to Plaintiff the amount of any losses or damages suffered or incurred by Plaintiff as the court may determine to be just and equitable and amounts owed under the guaranty. We believe that the claims set forth in this complaint are without merit and intend to vigorously defend against this lawsuit. On April 7, 2025, we filed an Affirmation in opposition to the motion of the Plaintiff for the appointment of a receiver and in support of defendants’ cross motion to dismiss the action and cancel notice of pendency with the Supreme Court of the State of New York, County of Kings. A hearing on the motions was scheduled for April 8, 2025, but it was adjourned until May 6, 2025. The Plaintiff submitted additional filings on April 29, 2025, and we submitted our replies on May 6, 2025. On May 13, 2025, the Court denied (i) the Plaintiff’s motion to appoint a receiver to manage the 141 Livingston Street property, "as Plaintiff’s likelihood of ultimately prevailing on its claims herein appears remote” and (ii) the Company’s cross motion to dismiss the lawsuit, "as Plaintiff’s contentions do raise a question of fact”.
In April 2025, we and the NYC agreed to the terms of a five-year extension of the current lease, with an option for the NYC to terminate the lease after two years with a prior six month notice. NYC has sent the lease to us to sign. On April 22, 2025, we sent the lease to the loan special servicer for approval in accordance with the terms of the loan agreement. On May 21, 2025 the special servicer approved the lease subject to certain conditions. We rejected the conditions that amongst other changes required us to change the terms of the cancellation provisions in the lease and make amendments to the loan documents to be in line with the lender’s allegations in the above lawsuit. There can be no assurance that the lease will be approved or finalized.
On June 11, 2025, the lender filed an appeal of the denial of the receiver. On June 23, 2025, the Lender filed an amended complaint seeking a declaratory judgment that its conditions for its consent to the lease were reasonable. On July 2, 2025, the lender filed a renewed motion for a temporary receiver. On July 11, 2025, the Company filed an answer with counterclaims, seeking among other things declaratory relief that the lenders conditions are unreasonable for the proposed lease renewal. On July 18, 2025, we filed opposition to the renewed receiver motion. On July 30, 2025, the judge heard arguments on the renewed motion for a temporary receiver. On July 31, 2025, the lender filed a motion to dismiss the Company’s counterclaims. The Company filed opposition on September 30, 2025, and the motion was scheduled for hearing on December 16, 2025.
On September 30, 2025, the court denied the Plaintiff’s renewed motion for a receiver. The court ruled, however, that if the City of New York exercises its option to terminate early under the proposed lease extension, the Company will be required to pay $
On December 24, 2025, the Company entered into the Loan Modification Agreement (the “Agreement”) with Wells Fargo Bank, National Association, as trustee for the benefit of the registered holders of certain commercial mortgage pass-through certificates related to the Loan (collectively, the “Lender”), to settle the ongoing litigation between the Lender, the Borrower, the Company and the Operating Partnership. The Agreement became effective on December 30, 2025. Pursuant to the Agreement, the Company provided a $
On March 25, 2026, Wells Fargo Bank. National Association, as trustee for the benefit of the registered holders of GS Mortgage Securities Trust 2019-GC40, commercial mortgage pass through certificates, series 2019-GC40 and the Pooled RR Interest owner (the “Lender” and the “Plaintiff”) the lender for the 250 Livingston Street (the “Property”) mortgage note (the “Note”) filed a complaint against 250 Livingston Owner LLC (the “Borrower”), the Company and the Company’s subsidiary Clipper Realty L.P. in the Kings County Supreme Court due to the Borrower’s defaults under the Note and the other Loan documents. The Plaintiff demanded, among other things, that a receiver be appointed to manage the Property and that the Property and the personal property within the Property be sold and the proceeds be applied to the satisfaction of indebtedness evidenced by the Note and other Loan documents. On April 29, 2026, the court entered an order granting the Lender's demand to appoint a temporary receiver. Pursuant to the court order, the receiver is authorized to enter into the possession of the Property, to rent or lease any part of the premises, to collect and receive all rents and fees due and unpaid in connection with the premises, and the Company must turn over to the receiver all rents collected from and after the date of the court order.
In addition to the above, the Company is subject to certain legal proceedings and claims arising in connection with its business. Management believes, based in part upon consultation with legal counsel, that the ultimate resolution of all such claims will not have a material adverse effect on the Company’s consolidated results of operations, financial position or cash flows.
Commitments
On June 29, 2023 the Company entered into the Article 11 Agreement. Under the Article 11 agreement, the Company has entered into a Housing Repair and Maintenance Letter Agreement (“HRMLA”) in which the Company has agreed to perform certain capital improvements to Flatbush Gardens over the next three years. The current estimate is that the costs of that work will be an amount of up to $
On December 24, 2025, the Company issued a $
Concentrations
The Company’s properties are located in the Boroughs of Manhattan and Brooklyn in New York City, which exposes the Company to greater economic risks than if it owned a more geographically dispersed portfolio.
The breakdown between commercial and residential revenue is as follows (unaudited):
|
Commercial |
Residential |
Total |
||||||||||
|
Three months ended March 31, 2026 |
% | % | % | |||||||||
|
Three months ended March 31, 2025 |
% |
% |
% |
|||||||||
8. Related-Party Transactions
The Company recorded office and overhead expenses pertaining to a related company in general and administrative expense of $
On October 10, 2024, the Company guaranteed an agreement between the Company's subsidiary, 250 Livingston Owner LLC, and Iron Hound Management Company LLC (“Iron Hound”), whose principal is the Company's director Roberto Verrone, to provide consulting services regarding the loan related to the 250 Livingston Street property. The initial fee paid upon the agreement is $
9. Segment Reporting
The Company is a New York City real estate investment trust that is focused on developing, redeveloping and operating properties in the commercial and residential space.
Our Chief Operating Decision Maker (“CODM”), represented by our Co-Chairman and Chief Executive Officer, reviews the results in which the revenue and Income from Operations is divided between the commercial and residential performance. This metric enables the CODM to evaluate how the business is growing, as revenue is the key driver of growth. Additionally, the CODM uses segment income (loss) to allocate resources in the annual budgeting and forecasting process. The CODM considers budget to actual variances when making decisions about allocating capital to each segment.
The Company has classified its reporting segments into commercial and residential rental properties. The commercial reporting segment includes the 141 Livingston Street property and portions of the 250 Livingston Street, Tribeca House, Dean Street and Aspen properties. The residential reporting segment includes the Flatbush Gardens property, the Clover House property, the 10 West 65th Street property, the 1010 Pacific Street property and portions of the 250 Livingston Street, Tribeca House, Dean Street and Aspen properties.
Presented below are reconciliations of the reportable segment total revenues to the consolidated revenues, the reportable segment total operating expenses to consolidate operating expenses, the reportable income from operations to the consolidated income from operations, the segment and consolidated income from operations to segment and consolidated net income(loss), the reportable segment assets to the consolidated assets, the reportable segment interest expense to the consolidated interest expense and the reportable segment capital expenditures to the consolidated capital expenditures.
|
Three months ended March 31, 2026 |
Commercial |
Residential |
Total |
|||||||||
|
Rental income |
$ | $ | $ | |||||||||
|
Total revenues |
||||||||||||
|
Property operating expenses |
||||||||||||
|
Real estate taxes and insurance |
||||||||||||
|
General and administrative |
||||||||||||
|
Depreciation and amortization |
||||||||||||
|
Total operating expenses |
||||||||||||
|
Litigation Settlement and other |
( |
) | ( |
) | ||||||||
|
Income (Loss) from operations |
$ | ( |
) | $ | $ | |||||||
|
Interest Expense |
( |
) | ( |
) | ( |
) | ||||||
|
Income (Loss) |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
|
Three months ended March 31, 2025 |
Commercial |
Residential |
Total |
|||||||||
|
Rental income |
$ | $ | $ | |||||||||
|
Total revenues |
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|
Property operating expenses |
||||||||||||
|
Real estate taxes and insurance |
||||||||||||
|
General and administrative |
||||||||||||
|
Depreciation and amortization |
||||||||||||
| Impairment of Long-Lived Assets | ||||||||||||
|
Total operating expenses |
||||||||||||
|
Income (Loss) from operations |
$ | $ | ( |
) | $ | ( |
) | |||||
|
Interest Expense, Net |
( |
) | ( |
) | ( |
) | ||||||
|
Income (Loss) |
$ | $ | ( |
) | $ | ( |
) | |||||
The Company’s total assets by segment are as follows, as of:
|
Commercial |
Residential |
Total |
||||||||||
|
March 31, 2026 |
$ | $ | $ | |||||||||
|
December 31, 2025 |
$ | $ | ||||||||||
The Company’s capital expenditures, including acquisition by segment for the three months ended March 31, 2026 and 2025, is as follows:
|
Three months ended March 31, |
Commercial |
Residential |
Total |
|||||||||
|
2026 |
$ | $ | $ | |||||||||
|
2025 |
$ | $ | ||||||||||
The Company allocates assets, expenses and capital expenditures to each reportable segment by building. For those buildings that are shared between the segment’s allocations are done based on the percentage relative square footage of the building that is used to generate revenue for the segment. All corporate costs are allocated based on the percentage of square footage of the segment.
10. Impairment of long-lived assets
On March 31, 2025 the Company determined that its long-lived asset group related to 10 West 65th Street met the qualifications for an asset held for sale by determining that the sale of 10 West 65th Street was probable in addition to the other five criteria previously met. That determination was based on indications that the Company received that it was probable that a purchaser was prepared to purchase 10 West 65th Street at a price the Company would be willing to transact.
Long-lived assets classified as held for sale are measured at the lower of its carrying amount or fair-value less costs to sell. As such, the Company recorded an impairment of the asset held for sale of $
11. Subsequent Events
Subsequent to March 31, 2026, the Board of Directors declared a first quarter dividend of $
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and results of operations together with our condensed consolidated financial statements and related notes included in Part I-Item 1 of this Form 10-Q, as well as our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those discussed in these forward-looking statements. See “Cautionary Note Concerning Forward-Looking Statements” in this Form 10-Q.
Overview of Our Company
Clipper Realty Inc. (the “Company” or “we”) is a self-administered and self-managed real estate company that acquires, owns, manages, operates and repositions multifamily residential and commercial properties in the New York metropolitan area, with a current portfolio in Manhattan and Brooklyn. Our primary focus is to own, manage and operate our portfolio and to acquire and reposition additional multifamily residential and commercial properties in the New York metropolitan area. The Company has been organized and operates in conformity with the requirements for qualification and taxation as a real estate investment trust (“REIT”) under the U.S. federal income tax law and elected to be treated as a REIT commencing with the taxable year ended December 31, 2015.
As of March 31, 2026, the Company owned:
|
• |
two neighboring residential/retail rental properties at 50 Murray Street and 53 Park Place in the Tribeca neighborhood of Manhattan; |
|
• |
one residential property complex in the East Flatbush neighborhood of Brooklyn consisting of 59 buildings; |
|
• |
two primarily commercial properties in Downtown Brooklyn (one of which includes 36 residential apartment units); |
|
• |
one residential/retail rental property at 1955 1st Avenue in Manhattan; |
|
• |
one residential rental property at 107 Columbia Heights in the Brooklyn Heights neighborhood of Brooklyn; |
|
• |
one residential rental property at 1010 Pacific Street in the Prospect Heights neighborhood of Brooklyn; and |
|
• |
one residential rental property at 953 Dean Street, in the Prospect Heights neighborhood of Brooklyn. |
On May 30, 2025, the Company completed the sale of 10 West 65th Street in Manhattan, a 6-story residential building with approximately 76,000 square feet of residential rental GLA. for gross proceeds of $45,500. The Company incurred $1,900 in closing costs and paid $800 in accrued interest at closing. At closing, the Company repaid in full its $31,200 mortgage note (the “Mortgage”) with Flagstar Bank (“Flagstar”) (see note 4 above). The Company recorded a loss on the disposal of long-lived assets of $685 in conjunction with closing of the sale in the second quarter of 2025, after previously recording a loss on impairment of long-lived assets of $33,780 in the three months ended March 31, 2025.
These properties are located in the most densely populated major city in the United States, each with immediate access to mass transportation.
The Company’s ownership interest in its initial portfolio of properties, which includes the Tribeca House, Flatbush Gardens and the two Livingston Street properties, was acquired in the formation transactions in connection with the private offering. These properties are owned by the LLC subsidiaries, which are managed by the Company through the Operating Partnership. The Operating Partnership’s interests in the LLC subsidiaries generally entitle the Operating Partnership to all cash distributions from, and the profits and losses of, the LLC subsidiaries other than the preferred distributions to the continuing investors who hold Class B LLC units in these LLC subsidiaries. The continuing investors own an aggregate amount of 26,317,396 Class B LLC units, representing 62.1% of the Company’s common stock on a fully diluted basis. Accordingly, the Operating Partnership’s interests in the LLC subsidiaries entitle the Operating Partnership to receive 37.9% of the aggregate distributions from the LLC subsidiaries. The Company, through the Operating Partnership, owns all the ownership interests in the Aspen property, the Clover House property, the 1010 Pacific Street property and the Dean Street property.
How We Derive Our Revenue
Our revenue consists primarily of rents received from our residential, commercial and, to a lesser extent, retail tenants. We have two reportable operating segments, Residential Rental Properties and Commercial Rental Properties. See Note 9, “Segment Reporting” to our condensed consolidated financial statements included in this Form 10-Q.
Trends
During the first quarter of 2026, the Company’s residential properties continued to have elevated occupancy levels and experienced growth in rental rates, as a result of a robust rental market in the New York metro area. The average rental rate per square foot at the Tribeca House property at March 31, 2026, was $89.64, up from $83.03 at March 31, 2025. At the Flatbush Gardens property, average residential rent per square foot at March 31, 2026 was $32.67, up from $30.80 at March 31, 2025. At the Clover House property, average residential rent per square foot at March 31, 2026 was $90.44, up from $86.74 at March 31, 2025.
As of March 31, 2026, the Company’s office property 250 Livingston Street was vacant as the City of New York vacated as of August 23, 2025. The Company is currently seeking new tenants to replace the City of New York. However, there is no assurance that the Company will be able to replace the City of New York as its tenant or will be able to replace it at comparable rents. Until a new tenant is located, the Company expects to lose approximately $16,000 per annum in combined rental income and property tax and common area maintenance reimbursements and the property will not be able to fund its debt service.
Additionally, our lease with the City of New York at 141 Livingston expired in December 2025, although the City of New York continues to occupy its office space and pays its rent in accordance with the terms of the expired lease. The Company and the City of New York are negotiating the terms of a five-year extension of their expired lease. There can be no assurance that the negotiations will conclude with an agreement, and the Company is at risk of not replacing the City of New York as its tenant or not being able to replace it at comparable rents. See note 4 to condensed consolidated financial statements, “- Liquidity and Capital Resources” below and Part II, Item 1A. Risk Factors.”
Throughout the first three months of 2026 and all of 2025, we continued to benefit from relatively low interest rates on our debt. Our weighted average interest rate as of March 31, 2026, was approximately 4.2% per annum.
Results of Operations
Our focus throughout 2025 and year-to-date 2026 has been to manage our properties to optimize revenues and control costs, while continuing to renovate and reposition certain properties. The discussion below highlights the specific properties contributing to the changes in the results of operations and focuses on the properties that were in operation for the full period in each comparison and excludes the results of 10 West 65th Street due to its sale on May 30, 2025, and 953 Dean Street which was put into service on August 1, 2025.
Income Statement for the Three Months Ended March 31, 2026 and 2025 (in thousands)
|
2026 |
10 West: 65thStreet & Dean Street |
2026: Street |
2025 |
10 West: 65th Street & Dean Street |
2025: |
Increase |
% |
|||||||||||||||||||||||||
|
Revenues |
||||||||||||||||||||||||||||||||
|
Residential rental income |
$ | 31,904 | $ | 1,703 | $ | 30,201 | $ | 29,190 | $ | 1,070 | $ | 28,120 | $ | 2,081 | 7.4 | % | ||||||||||||||||
|
Commercial rental income |
6,211 | 5 | 6,206 | 10,208 | 3 | 10,205 | (3,999 | ) | (39.2 | )% | ||||||||||||||||||||||
|
Total revenues |
38,115 | 1,708 | 36,407 | 39,398 | 1,073 | 38,325 | (1,918 | ) | (5.0 | )% | ||||||||||||||||||||||
|
Operating Expenses |
||||||||||||||||||||||||||||||||
|
Property operating expenses |
10,330 | 303 | 10,027 | 10,111 | 200 | 9,911 | 116 | 1.2 | % | |||||||||||||||||||||||
|
Real estate taxes and insurance |
7,697 | 152 | 7,545 | 7,627 | 278 | 7,349 | 196 | 2.7 | % | |||||||||||||||||||||||
|
General and administrative |
4,107 | 160 | 3,947 | 3,825 | 118 | 3,707 | 240 | 6.5 | % | |||||||||||||||||||||||
|
Depreciation and amortization |
7,979 | 673 | 7,306 | 7,636 | 290 | 7,346 | (40 | ) | (0.5 | )% | ||||||||||||||||||||||
|
Impairment of Long-Lived Assets |
— | — | — | 33,780 | 33,780 | — | — | — | ||||||||||||||||||||||||
|
Total operating expenses |
30,113 | 1,288 | 28,825 | 62,979 | 34,666 | 28,313 | 512 | 1.8 | % | |||||||||||||||||||||||
|
Litigation settlement and other |
(3,600 | ) | — | (3,600 | ) | — | — | — | (3,600 | ) | 100 | % | ||||||||||||||||||||
|
Income from operations |
4,402 | 420 | 3,982 | (23,581 | ) | (33,593 | ) | 10,012 | (6,030 | )) | (60.2 | )% | ||||||||||||||||||||
|
Interest expense, net |
(15,546 | ) | (2,763 | ) | (12,783 | ) | (11,522 | ) | (558 | ) | (10,964 | ) | (1,819 | ) | (16.6 | )% | ||||||||||||||||
|
Net loss |
$ | (11,144 | ) | $ | (2,343 | ) | $ | (8,801 | ) | $ | (35,103 | ) | $ | (34,151 | ) | $ | (952 | ) | $ | (7,849 | ) | (824.5 | )% | |||||||||
Revenue. Residential rental income increased to $30,201 for the three months ended March 31, 2026, from $28,120 for the three months ended March 31, 2025, primarily due to increases in rental rates and leased occupancy at all properties in 2026 and slightly lower bad debt expense. For example, The average rental rate per square foot at the Tribeca House property at March 31, 2026, was $89.64, up from $83.03 at March 31, 2025. At the Flatbush Gardens property, average residential rent per square foot at March 31, 2026 was $32.67, up from $30.80 at March 31, 2025. At the Clover House property, average residential rent per square foot at March 31, 2026 was $90.44, up from $86.74 at March 31, 2025.
Commercial rental income decreased to $6,206 for the three months ended March 31, 2026, from $10,205 for the three months ended March 31, 2025 due to the City of New York exiting 250 Livingston on August 23, 2025.
Property operating expenses. Property operating expenses include property-level costs such as compensation costs for property-level personnel, repairs and maintenance, supplies, utilities and landscaping. Property operating expenses increased to $10,027 for the three months ended March 31, 2026, from $9,911 for the three months ended March 31, 2025, primarily due to higher repairs and maintenance and utilities expenses partially offset by lower payroll, legal costs and supplies.
Real estate taxes and insurance. Real estate taxes and insurance expenses increased to $7,545 for the three months ended March 31, 2026, from $7,349 for the three months ended March 31, 2025, primarily due to slightly increased real estate taxes across the portfolio.
General and administrative. General and administrative expenses increased to $3,947 for the three months ended March 31, 2026, from $3,707 for the three months ended March 31, 2025, primarily due to the accrual of various fees related to our default on the 250 Livingston building.
Depreciation and amortization. Depreciation and amortization expense decreased to $7,306 for the three months ended March 31, 2026, from $7,346 for the three months ended March 31, 2025.
Litigation Settlement and other. Litigation settlement and other increased to $3,600 for the three months ended March 31, 2026, from $0 for the three months ended March 31, 2025, due to the accrual of a loss reserve on the Sanchez litigation case.
Interest expense, net. Interest expense, net, increased to $12,783 for the three months ended March 31, 2026, from $10,964 for the three months ended March 31, 2025 primarily as a result of the Company accruing default interest on the 250 Livingston loan.
Net loss. As a result of the foregoing, net loss increased to $8,801 for the three months ended March 31, 2026, from $952 for the three months ended March 31, 2025.
Liquidity and Capital Resources
As of March 31, 2026, we had $1,285,799 of indebtedness, net of unamortized issuance costs, secured by our properties, $26,083 of cash and cash equivalents, and $28,568 of restricted cash. See Note 4, “Notes Payable” of our consolidated financial statements for a discussion of the Company’s property-level debt.
As a REIT, we are required to distribute at least 90% of our REIT taxable income, computed without regard to the dividends paid deduction and excluding net capital gains, to stockholders on an annual basis. We expect that these needs will be met by cash generated from operations and other sources, including proceeds from secured mortgages and unsecured indebtedness, proceeds from additional equity issuances and cash generated from the sale of property.
Short-Term and Long-Term Liquidity Needs
Our short-term liquidity needs will primarily be to fund operating expenses, recurring capital expenditures, property taxes and insurance, interest and scheduled debt principal payments, general and administrative expenses, and distributions to stockholders and unit holders. We generally expect to meet our short-term liquidity requirements through net cash provided by operations and cash on hand, and we believe we will have sufficient resources to meet our short-term liquidity requirements
Our principal long-term liquidity needs will primarily be to fund additional property acquisitions, major renovation and upgrading projects, and debt payments and retirements at maturity. We do not expect that net cash provided by operations will be sufficient to meet all of these long-term liquidity needs. We anticipate meeting our long-term liquidity requirements by using cash as an interim measure and funds from public and private equity offerings and long-term secured and unsecured debt offerings. The Company sold its property at 10 West 65th Street during the year ended December 31, 2025, and was able to net approximately $13,000 in proceeds from such sale. Additionally, the Company refinanced its existing construction loan at its Dean Street property with a maximum of $160,000 bridge loan, of which $141,750 was drawn at closing, an additional $6,250 was subsequently drawn and the Company may potentially draw additional amounts that can be used for general corporate purposes.
We believe that as a publicly traded REIT, we will have access to multiple sources of capital to fund our long-term liquidity requirements. These sources include the incurrence of additional debt and the issuance of additional equity. However, we cannot provide assurance that this will be the case. Our ability to secure additional debt will depend on a number of factors, including our cash flow from operations, our degree of leverage, the value of our unencumbered assets and borrowing restrictions that may be imposed. Our ability to access the equity capital markets will depend on a number of factors as well, including general market conditions for REITs and market perceptions about our company.
We believe that our current cash flows from operations and cash on hand, coupled with additional mortgage debt, will be sufficient to allow us to continue operations, satisfy our contractual obligations and make distributions to our stockholders and the members of our LLC subsidiaries for at least the next twelve months. However, no assurance can be given that we will be able to refinance any of our outstanding indebtedness in the future on favorable terms or at all.
Distributions
In order to qualify as a REIT for Federal income tax purposes, we must currently distribute at least 90% of our taxable income to our shareholders. On February 24, 2026, the company declared dividends and distributions on our common shares, Class B LLC units and LTIP units totaling $4,712 paid on March 19, 2026. During the three months ended March 31, 2026 and 2025, we paid dividends and distributions on our common shares, Class B LLC units and LTIP units totaling $4,712 and $4,614, respectively.
Cash Flows for the Three Months Ended March 31, 2026 and 2025 (in thousands)
|
Three Months Ended |
||||||||
|
2026 |
2025 |
|||||||
|
Operating activities |
$ | 3,568 | $ | 6,676 | ||||
|
Investing activities |
(1,925 | ) | (9,680 | ) | ||||
|
Financing activities |
(5,146 | ) | 5,543 | |||||
Cash flows provided by (used in) operating activities, investing activities and financing activities for the three months ended March 31, 2026 and 2025, were as follows:
Net cash flow provided by operating activities was $3,568 for the three months ended March 31, 2026, compared to $6,676 for the three months ended March 31, 2025, primarily due to the Company having less cash collections at our commercial rental properties as a result the 250 Livingston vacancy described above.
Net cash used by investing activities was $1,925 for the three months ended March 31, 2026, compared to $9,680 used for the three months ended March 31, 2025. The decrease was primarily due to decreased capital spending at the Dean Street development as it was completed in 2025.
Net cash used by financing activities was $5,146 for the three months ended March 31, 2026, compared to ($5,543) provided by financing activities for the three months ended March 31, 2025. Cash was used in the three months ended March 31, 2026, primarily by dividends and distributions of $4,712 and loan amortization payments of $434. Cash was provided in the three months ended March 31, 2025, by $6,371 borrowings related to the Dean Street property development, partially offset by $578 of loan amortization payments and loan issuance costs of $250
Income Taxes
No provision has been made for income taxes since all of the Company’s operations are held in pass-through entities and accordingly the income or loss of the Company is included in the individual income tax returns of the partners or members.
We elected to be treated as a REIT for U.S. federal income tax purposes, beginning with our first taxable three months ended March 31, 2015. As a REIT, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate tax rates. We believe that we are organized and operate in a manner that will enable us to qualify and be taxed as a REIT and we intend to continue to operate to satisfy the requirements for qualification as a REIT for federal income tax purposes.
Inflation
Inflation has recently become a factor in the United States economy and has increased the cost of acquiring, developing, replacing and operating properties. A substantial portion of our interest costs relating to operating properties are fixed through 2027. Leases at our residential rental properties, which comprise approximately 79% of our revenue, are short-term in nature and permit rent increases to recover increased costs, and our longer-term commercial and retail leases generally allow us to recover some increased operating costs.
Non-GAAP Financial Measures
In this Quarterly Report on Form 10-Q, we disclose and discuss funds from operations (“FFO”), adjusted funds from operations (“AFFO”), adjusted earnings before interest, income taxes, depreciation and amortization (“Adjusted EBITDA”) and net operating income (“NOI”), all of which meet the definition of “non-GAAP financial measures” set forth in Item 10(e) of Regulation S-K promulgated by the SEC.
While management and the investment community in general believe that presentation of these measures provides useful information to investors, neither FFO, AFFO, Adjusted EBITDA, nor NOI should be considered as an alternative to net income (loss) or income from operations as an indication of our performance. We believe that to understand our performance further, FFO, AFFO, Adjusted EBITDA, and NOI should be compared with our reported net income (loss) or income from operations and considered in addition to cash flows computed in accordance with GAAP, as presented in our consolidated financial statements.
Funds From Operations and Adjusted Funds From Operations
FFO is defined by the National Association of Real Estate Investment Trusts (“NAREIT”) as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property and impairment adjustments, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Our calculation of FFO is consistent with FFO as defined by NAREIT.
AFFO is defined by us as FFO excluding amortization of identifiable intangibles incurred in property acquisitions, straight-line rent adjustments to revenue from long-term leases, amortization costs incurred in originating debt, interest rate cap mark-to-market adjustments, amortization of non-cash equity compensation, acquisition and other costs, transaction pursuit costs, loss on modification/extinguishment of debt, gain on involuntary conversion, gain on termination of lease, impairment of long-lived assets, disposals of long-lived assets and certain litigation-related expenses, less recurring capital spending.
Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. In fact, real estate values have historically risen or fallen with market conditions. FFO is intended to be a standard supplemental measure of operating performance that excludes historical cost depreciation and valuation adjustments from net income. We consider FFO useful in evaluating potential property acquisitions and measuring operating performance. We further consider AFFO useful in determining funds available for payment of distributions. Neither FFO nor AFFO represent net income (loss) or cash flows from operations computed in accordance with GAAP. You should not consider FFO and AFFO to be alternatives to net income (loss) as reliable measures of our operating performance; nor should you consider FFO and AFFO to be alternatives to cash flows from operating, investing or financing activities (computed in accordance with GAAP) as measures of liquidity.
Neither FFO nor AFFO measure whether cash flow is sufficient to fund all of our cash needs, including principal amortization, capital improvements and distributions to stockholders. FFO and AFFO do not represent cash flows from operating, investing or financing activities computed in accordance with GAAP. Further, FFO and AFFO as disclosed by other REITs might not be comparable to our calculations of FFO and AFFO.
The following table sets forth a reconciliation of the Company’s FFO and AFFO for the periods presented to net loss, computed in accordance with GAAP (amounts in thousands):
|
Three Months Ended |
||||||||
|
2026 |
2025 |
|||||||
|
FFO |
||||||||
|
Net loss |
$ | (11,144 | ) | $ | (35,103 | ) | ||
|
Real estate depreciation and amortization |
7,979 | 7,636 | ||||||
|
FFO |
$ | (3,165 | ) | $ | (27,467 | ) | ||
|
AFFO |
||||||||
|
FFO |
$ | (3,165 | ) | $ | (27,467 | ) | ||
|
Amortization of real estate tax intangible |
120 | 120 | ||||||
|
Straight-line rent adjustments |
(197 | ) | 22 | |||||
|
Amortization of debt origination costs |
869 | 457 | ||||||
|
Amortization of LTIP awards |
1,086 | 1,143 | ||||||
|
Impairment of long lived assets |
— | 33,780 | ||||||
|
Litigation settlement and other |
3,600 | |||||||
|
Recurring capital spending |
(60 | ) | (35 | ) | ||||
|
AFFO |
$ | 2,253 | $ | 8,020 | ||||
Adjusted Earnings Before Interest, Income Taxes, Depreciation and Amortization
We believe that Adjusted EBITDA is a useful measure of our operating performance. We define Adjusted EBITDA as net income (loss) before allocation to non-controlling interests, plus real estate depreciation and amortization, amortization of identifiable intangibles, straight-line rent adjustments to revenue from long-term leases, amortization of non-cash equity compensation, interest expense (net), acquisition and other costs, transaction pursuit costs, loss on modification/extinguishment of debt, impairment of long-lived assets, disposals of long-lived assets and certain litigation-related expenses, less gain on involuntary conversion and gain on termination of lease.
We believe that this measure provides an operating perspective not immediately apparent from GAAP income from operations or net income (loss). We consider Adjusted EBITDA to be a meaningful financial measure of our core operating performance.
However, Adjusted EBITDA should only be used as an alternative measure of our financial performance. Further, other REITs may use different methodologies for calculating Adjusted EBITDA, and accordingly, our Adjusted EBITDA may not be comparable to that of other REITs.
The following table sets forth a reconciliation of Adjusted EBITDA for the periods presented to net loss, computed in accordance with GAAP (amounts in thousands):
|
Three Months Ended |
||||||||
|
2026 |
2025 |
|||||||
|
Adjusted EBITDA |
||||||||
|
Net loss |
$ | (11,144 | ) | $ | (35,103 | ) | ||
|
Real estate depreciation and amortization |
7,979 | 7,636 | ||||||
|
Amortization of real estate tax intangible |
120 | 120 | ||||||
|
Straight-line rent adjustments |
(197 | ) | 22 | |||||
|
Amortization of LTIP awards |
1,086 | 1,143 | ||||||
|
Interest expense, net |
15,546 | 11,522 | ||||||
|
Impairment of long-lives assets |
— | 33,780 | ||||||
|
Litigation settlement and other |
3,600 | — | ||||||
|
Adjusted EBITDA |
$ | 16,990 | $ | 19,120 | ||||
Net Operating Income
We believe that NOI is a useful measure of our operating performance. We define NOI as income from operations plus real estate depreciation and amortization, general and administrative expenses, acquisition and other costs, transaction pursuit costs, amortization of identifiable intangibles and straight-line rent adjustments to revenue from long-term leases, impairment of long-lived assets less gain on termination of lease. We believe that this measure is widely recognized and provides an operating perspective not immediately apparent from GAAP income from operations or net income (loss). We use NOI to evaluate our performance because NOI allows us to evaluate the operating performance of our company by measuring the core operations of property performance and capturing trends in rental housing and property operating expenses. NOI is also a widely used metric in valuation of properties.
However, NOI should only be used as an alternative measure of our financial performance. Further, other REITs may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to that of other REITs.
The following table sets forth a reconciliation of NOI for the periods presented to income from operations, computed in accordance with GAAP (amounts in thousands):
|
Three Months Ended |
||||||||
|
2026 |
2025 |
|||||||
|
NOI |
||||||||
|
Income from operations |
$ | 4,402 | $ | (23,581 | ) | |||
|
Real estate depreciation and amortization |
7,979 | 7,636 | ||||||
|
General and administrative expenses |
4,107 | 3,825 | ||||||
|
Amortization of real estate tax intangible |
120 | 120 | ||||||
|
Straight-line rent adjustments |
(197 | ) | 22 | |||||
|
Impairment of long -lived assets |
— | 33,780 | ||||||
|
Litigation settlement and other |
3,600 | — | ||||||
|
NOI |
$ | 20,011 | $ | 21,802 | ||||
Critical Accounting Policies
Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Management bases its estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that there have been no material changes to the items that we disclosed as our critical accounting policies under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the three months ended December 31, 2025.
Recent Accounting Pronouncements
See Note 2, “Significant Accounting Policies” of our condensed consolidated financial statements for a discussion of recent accounting pronouncements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our future income, cash flows and fair value relevant to our financial instruments depend upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. Based upon the nature of our operations, the principal market risk to which we are exposed is the risk related to interest rate fluctuations. Many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors that are beyond our control, contribute to interest rate risk.
A one percent change in interest rates on our $148.0 million of variable rate debt as of March 31, 2026, would impact annual net loss by approximately $1.5 million.
At March 31, 2026, the Company had one interest rate cap with US Bank that caps the SOFR portion of the interest rate on the 953 Dean Street Loans at 6%.
The fair value of the Company’s notes payable was approximately $1,285.8 million and $1,267.7 million as of March 31, 2026 and December 31, 2025, respectively
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company carried out an evaluation under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2026. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, and summarized, within the time periods specified in the SEC's rules and forms.
We continue to review and document our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 7, “Commitments and Contingencies” of our condensed consolidated financial statements for a discussion of legal proceedings.
ITEM 1A. RISK FACTORS
The risk factors disclosed in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025, set forth information relating to various risks and uncertainties that could materially adversely affect our business, financial condition, liquidity, and operating results. Such risk factors continue to be relevant to an understanding of our business, financial condition, liquidity and operating results as of March 31, 2026, and there have been no material changes to those risk factors for the three months ended March 31, 2026 except for the following updates:
Our dependency on two commercial leases with certain agencies of the City of New York (NYC), as a single government tenant in our office buildings, with one lease having terminated effective August 23, 2025, and the other lease having expired on December 27, 2025 and our inability to replace NYC as a tenant at rent rates comparable to the rates in the lease that terminated in August 2025 or to enter into a five-year extension of the lease that expired in December 2025 could cause a material adverse effect on us, including our financial condition, results of operations and cash flow.
Our rental revenue depends on entering into leases with and collecting rents from tenants. As of March 31, 2026, Kings County Court, the Human Resources Administration, and the Department of Environmental Protection, all of which are agencies of the City of New York, (i) occupied all 206,084 of rentable square feet at 141 Livingston Street, subject to hold-over rent provisions in the lease that expired on December 27, 2025 and (ii) terminated its lease and vacated all 342,496 rentable square feet of commercial space at our 250 Livingston Street effective August 23, 2025. . Our commercial leases with the City of New York comprised approximately 11% and 21% of total revenues for the three months ended March 31, 2026 and 2025, respectively. We are also subject to covenants covering these leases in our loan agreements related to our commercial office properties located at 250 Livingston Street and 141 Livingston Street. See Note 4, Notes Payable, to Condensed Consolidated Financial Statements (Unaudited) included in Part I of this Form 10-Q for information related to 141 Livingston Street property and 250 Livingston Street property.
As of February 23, 2024, The City of New York, a municipal corporation acting through the Department of Citywide Administrative Services ("NYC”), notified us of its intention to terminate its lease at 250 Livingston Street effective August 23, 2025, and they vacated the space on that date. The lease generally provided for rent payments in the amount of $15.4 million per annum.
Our subsidiary, 250 Livingston Owner LLC (“Borrower”), entered into the Loan Agreement, dated as of May 31, 2019 (the “Loan Agreement”), with Citi Real Estate Funding Inc., related to a loan in the principal amount of $125 million (the “Loan”). The Loan is evidenced by certain promissory notes (the “Notes”) and secured by our 250 Livingston Street property in Brooklyn, New York (the “Property”). We and our Operating Partnership serve as guarantors of certain obligations under the Loan.
On March 25, 2026, the Lender filed a complaint against the Borrower, the Company and the Company’s subsidiary Clipper Realty L.P. due to the Borrower’s defaults under the Notes and the other Loan documents. The Plaintiff demanded, among other things, that a receiver be appointed to manage the Property and that the Property and the personal property within the Property be sold and the proceeds be applied to the satisfaction of indebtedness evidenced by the Notes and other Loan documents. On April 29, 2026, the court entered an order granting the Lender's demand to appoint a temporary receiver. Pursuant to the court order, the receiver is authorized to enter into the possession of the Property, to rent or lease any part of the premises, to collect and receive all rents and fees due and unpaid in connection with the premises, and the Company must turn over to the receiver all rents collected from and after the date of the court order..
The Company is in the process of negotiating a Consent and Cooperation Agreement with the Lender for the sale of the Loan. There can be no assurance that such Consent and Cooperation Agreement will be consummated.
We have been unable to replace the NYC as a tenant, and, even if we enter into the Consent and Cooperation Agreement with the Lender, we may continue to be unable to replace the NYC with other commercial tenants at comparable rent rates or at all, may incur substantial costs to improve the vacated space or may have to offer significant inducements to fill the space, all of which may have an adverse effect on our financial condition, results of operations and cash flow.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
See Note 4, Notes Payable, to Condensed Consolidated Financial Statements (Unaudited) included in Part I of this Form 10-Q for information related to 141 Livingston Street property and 250 Livingston Street property.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
|
Exhibit Number |
Description |
|
*31.1 |
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer |
|
*31.2 |
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer |
|
*32.1 |
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
*32.2 |
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
**101.INS |
Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
|
**101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
|
**101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
**101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
**101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
**101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
**104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
*Filed herewith
**Submitted electronically with the report
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned.
|
CLIPPER REALTY INC. |
||
|
May 14, 2026 |
By: |
/s/ David Bistricer |
|
David Bistricer |
||
|
Co-Chairman and Chief Executive Officer |
||
|
By: |
/s/ Lawrence E. Kreider |
|
|
Lawrence E. Kreider |
||
|
Chief Financial Officer |
||