Spencer Equity in 2025: Value Rose, but Cash Is Still Trapped Inside the Collateral Stack

Getting to Know the Company

Spencer Equity is not a standard US real-estate story, and it is certainly not a standard equity story. It is a New York residential real-estate platform financed in Israel mainly through public bonds, and its economics now sit on three very different layers: a stable base of regulated and subsidized rental properties, two large Brooklyn projects still moving toward stabilization, and a layer of real-estate financing loans the group has extended. Anyone reading 2025 only through net profit is missing the core issue.

What is working right now is substantial. The company ended the year with USD 750.9 million of equity, up from USD 473.5 million a year earlier, USD 26.7 million of net profit, USD 1.80 billion of investment property at fair value, and clear commercial progress at Harrison II. The older rental base also remains important: the company holds 15 income-producing residential properties with 2,958 units, and about 40% of those units are leased under government oversight programs. In adjusted NOI terms, properties subject to governmental or municipal incentive programs already generate 73.1% of the total. That is a stabilizing base.

But the active bottleneck is no longer whether Spencer owns good assets. It is whether value can move through the structure as usable cash. Spencer is not stuck on asset quality. It is stuck on how much of that value is actually accessible at the group level. Management AFFO fell to negative USD 21.9 million, FFO fell to negative USD 75.2 million, and operating cash flow was only USD 14.7 million. At the same time, part of the value created remains locked inside trust accounts, project debt waterfalls, partner loans, and assets that are still in lease-up.

That is also why a superficial read can mislead. At first glance, investors can point to the future rate step-down on Series B and D, a USD 15 million bond buyback plan for Series Z, D, and B, strong condo sales, and higher fair values. That is only part of the picture. At the same time, Series H remained above its 77.5% LTV trigger at 77.8%, the company had to add USD 2 million at the end of 2025 and another USD 1 million in March 2026 into the Series H trust account, and in February 2026 a deed amendment was needed just to allow certain collateral sales so long as the full net proceeds were deposited into trust and used for early redemption. In other words, value exists, but it does not move freely through the structure.

This matters now at a very practical level as well. Spencer is a bond-only listed issuer. There is no common-equity trading layer here for the market to express a simple bullish or bearish view. Instead, the public read runs through several debt layers with different collateral packages and different constraints. So the near-term question is not whether the company “is worth more” than a year ago. The question is whether 2026 and 2027 will prove that this value can become NOI, debt reduction, and real financing flexibility.

Four points matter from the start:

• The balance-sheet improvement still sits above the accessible-cash layer. Fulton’s consolidation and the progress at Harrison II increased value, but they did not solve the AFFO and cash-access problem.
• The company still rests on a regulated rental base, not only on a free-market Brooklyn growth story. 73.1% of adjusted NOI comes from assets in government or municipal incentive programs.
• Condo sales are already creating value, but much of the cash still goes first to trust accounts, early redemptions, and project-level financing movements. That is the critical difference between value created and value accessible.
• The bond series are already telling three different versions of the same story. B and D get rate relief, V benefits from early redemptions tied to condo sales, and H still operates close to its collateral trigger.

The economic map for Spencer in 2025 looks like this:

That chart is the fastest screen for the story. Reported profit improved, but the company’s ability to generate cash after management’s own adjustments weakened. That does not mean the value created is fake. It means the year still did not prove a clean conversion of value into cash.

Events and Triggers

The debt layers are already diverging

The first trigger: Series H received a February 2026 deed amendment allowing the full net proceeds from sales of pledged assets to be deposited directly into the trust account and used for partial early redemption, without getting blocked by the prior transaction-level LTV gate. The Series H presentation explains why this mattered: the asset company had two signed sale agreements for commercial condo units totaling about USD 11.5 million, and it was negotiating another at about USD 5.75 million, but FX-driven LTV pressure meant those sales could not be completed without an amendment. This is not technical noise. It is direct evidence that even when cash is created, it first belongs to the secured layer.

The second trigger: On March 26, 2026 the company updated that the future annual rate on Series B and D would step down by 0.5% because net debt to net CAP stood at 67.0% and met the relevant threshold. That is a positive signal, but only a partial one. In that same update the company also stated that Series B still does not meet the net financial debt to adjusted NOI test, with the ratio at 28.0 versus a maximum of 19. In other words, the general debt layer is benefiting from a better balance-sheet profile, but not yet from enough NOI.

The third trigger: A day earlier, another layer was moving in a different direction. On February 24, 2026 the board approved a buyback plan of up to USD 15 million for Series Z, D, and B, effective from February 25, 2026 through March 31, 2027. The board’s rationale was clear: bond prices were attractive, repurchases could reduce liabilities, lower leverage, and create capital gains. That signals a degree of confidence in liquidity. It also sharpens the point that management sees opportunity in the less encumbered layers while Series H is still being managed through collateral mechanics and deed changes.

The fourth trigger: Fulton moved at year-end 2025 from a nearly completed project into a fully consolidated asset in the financial statements. That changed the balance sheet quickly, but the near-term market will judge less the fact of consolidation and more the ability to refinance the property and fill it. As of the report date, the company was in advanced negotiations for about USD 765 million of senior financing at SOFR plus 2.85%, after a shorter bridge-style financing of about USD 555 million completed in April 2025 with a 7.75% floor. That is still not a closed solution.

The tension across the bond layers looks like this:

What matters is not any single row. Spencer’s structure no longer behaves like one balance sheet. It behaves like several gearboxes. Some parts are loosening. Other parts are still locked.

Efficiency, Profitability, and Competition

What actually drove 2025 profit

The USD 26.7 million of net profit looks better than the prior years, but earnings quality is still mixed. Rental and related revenue fell to USD 51.3 million from USD 53.8 million. What offset that was a jump in real-estate financing income to USD 7.3 million, a USD 23.2 million gain from fair-value change and realization of investment property, and the company’s share of equity-method earnings rising to USD 72.9 million.

In plain language, 2025 was not a year in which the stabilized rental base alone drove the result. Improvement came from a combination of revaluation, projects beginning to monetize, and equity-method holdings contributing more profit. That is not automatically “low quality.” But it does mean that the bottom line still sits at layers above the general debt investors and above accessible cash.

Against that, finance expense rose to USD 62.0 million and the company also recorded USD 52.6 million of FX and hedging expense. So even after USD 132.3 million of operating profit, a large part of the result was consumed on the way down the P&L. That is another reminder that this is not only an asset story. It is also a funding and currency story.

That chart matters because it breaks the surface-level image of Spencer as a free-market Brooklyn growth vehicle. The company’s core economics are still more regulated, more subsidized, and more defensive than a quick read suggests.

The newer assets still do not look like their appraised value

This is the heart of the Harrison II Rental and Fulton story. At Harrison II Rental, the company reports USD 3.0 million of revenue and USD 2.43 million of NOI for 2025, with average occupancy of 0% in residential and 37% in the commercial and community space. Yet the asset stands at USD 161 million of fair value at year-end. The attached appraisal sharpens the gap further: the rental-only portion is valued at USD 142 million, plus USD 19 million for commercial condo units already under contract, while pro forma NOI stands at USD 4.8 million. That means the value already assumes a meaningful operating move ahead.

At Fulton, the gap is even larger. The asset is carried at USD 1.038 billion, yet generated only USD 9.0 million of revenue and USD 7.29 million of NOI in 2025, with average occupancy of 34.5% in residential and 55% in commercial. To justify that valuation, the model is clearly looking at a post-stabilization world, not the actual 2025 operating state. The company has legitimate reasons to believe part of that gap will close: by the report date it had signed 486 free-market residential leases out of 770 units, and signed leases for 53,707 square feet out of 98,357 square feet of commercial space. But for now, it is still a gap.

That chart is not making the case that the valuations are wrong. It is highlighting that the valuations are already looking farther ahead than today’s cash flow. As long as actual NOI sits that far below the NOI embedded in the value framework, the market will keep focusing more on stabilization than on headline value.

Even stabilization does not come for free

Harrison II Rental shows real commercial progress. By the report date, 27 lease agreements had been signed for about 96 thousand square feet, around 64% of the commercial and community space, with aggregate first-year annual rent of about USD 4.811 million for an average term of 10 years. That is meaningful. But the apartments themselves are only expected to begin occupancy in the second half of 2026. So the commercial piece is building before the residential piece joins.

At Fulton, the same logic applies with more friction. The LA Fitness lease is impressive, but it comes with a commitment of up to USD 10 million of tenant improvements, of which about USD 5 million had already been invested by the report date, plus eight months of free rent. The grocery MOU also includes six months of free rent. The path to stabilization is therefore not just about signing tenants. It is about absorbing cash costs on the way.

Cash Flow, Debt, and Capital Structure

The right lens here is all-in cash flexibility

In Spencer’s case, the right framing is total cash flexibility after actual cash uses, not an attempt to present normalized cash generation as though it were already free. The reason is simple: the thesis here is about financing flexibility and the movement of value across debt layers.

On that basis, USD 14.7 million of operating cash flow was not enough to fund the rest of the year’s cash uses. Investing cash flow was negative USD 41.1 million, and the company relied on USD 56.4 million of financing cash flow. That is an improvement versus 2024, but it is still not a year in which operations alone funded value creation. The company ended the year with USD 154.2 million of cash and cash equivalents versus USD 119.8 million a year earlier, yet that came with a much larger and more complicated balance sheet.

That chart shows why 2025 should not only be compared with 2024. In 2024 the company already leaned heavily on financing. In 2025 the picture is less extreme, but still far from self-funded.

Condo monetization reduced risk, but did not yet create free cash

The sharpest example of the difference between value created and accessible cash is Wallabout, the Harrison II Condo project company. In 2025 the project produced USD 152.2 million of revenue, USD 4.1 million of net profit, and USD 125.1 million of operating cash flow. On the surface, that looks like a cash machine.

But what happened in practice? During the year, related-party loans of USD 144.8 million were repaid, distributions of USD 63.7 million were made, and year-end cash was only about USD 159 thousand. That is the number that matters. The condo closings are already creating cash, but that cash is moving inside the project tower, not accumulating as free surplus at the group level.

The same friction exists in the contract structure itself. In New York condo sales, buyers typically deposit 10% of the purchase price, and those deposits are held by a trustee until delivery. The company cannot use that cash in the meantime. So even a large signed-sales pipeline is not the same thing as cash in the corporate pocket.

That chart helps explain why 2026 is not only a sales year but a conversion year. There is still plenty left to monetize, but there is also still a long road from that inventory to free cash.

Part of the capital already sits as loans, not as dry powder

At December 31, 2025 the company had USD 96.7 million of real-estate financing loans on the balance sheet. That is material because it means part of the group’s capital flexibility has already been converted into credit exposure. Fulton is a clear example: in December 2025 the company extended a USD 50 million loan to partners at 10% interest, with USD 37.5 million already recognized on the year-end balance sheet and the remaining USD 12.5 million advanced after the balance-sheet date. Even if that is a high-yielding loan, it is still capital that is not available for other needs.

The capital structure expanded faster than usable cash

At year-end 2025 Spencer had USD 883.6 million of bank debt, USD 626.6 million of bonds, and USD 750.9 million of equity. Versus 2024 that is a sharp jump, largely because of Fulton’s consolidation and the deepening project stack.

The issue is not that the balance sheet looks weak in the classic sense. Net financial debt to net CAP is 67.0%, and the company meets that test across Series B, D, H, V, and Z. The issue is that the capital structure has expanded faster than the newer assets have stabilized.

Another important point is the lack of distributable profits. Across Series B, D, H, V, and Z the company states that at year-end 2025 it had no distributable retained earnings. That does not mean there is no value. It means the path from a stronger balance sheet to real distribution capacity or truly flexible surplus has not yet been completed.

Outlook and What Comes Next

Three non-obvious points define 2026:

• This is a cash-proof year, not another revaluation year. The market has already seen that the company can lift appraised value, consolidate assets, and sign deals. It now wants to see NOI and cash closing the gap.
• Harrison II is no longer one project in economic terms. The condo piece is proving demand and monetization, while the rental piece is still building its income stream. Any read that treats them as one smooth story misses the timing mismatch.
• Fulton is the asset most capable of changing the market’s reading quickly, but also most capable of hurting it if refinancing stalls. That matters more than whether one more condo unit gets sold.
• The new Downtown Brooklyn development is a future option, but in 2026 it is mainly another capital call.

Harrison II needs to move from monetization to stabilization

At Harrison II Condo there is still meaningful project economics left. The company presents expected total project revenue of USD 365.6 million, expected cost of USD 289.8 million, and USD 43.6 million of gross profit not yet recognized. That is real remaining economic inventory.

The problem is that the next stage is not only a demand question. It is a structural question. As long as buyer deposits remain in trust, and as long as part of sales proceeds is directed to partial early redemptions or financing repayments, the revenue line alone does not answer how much free cash gets created at the group level. That is why Harrison II should be tracked not only by units sold, but by units delivered, by the balance in the Series V trust account, and by the pace of actual debt reduction.

At Harrison II Rental the direction is encouraging, but the timetable is still tight. The commercial side has advanced to 27 signed leases covering roughly 64% of the relevant space, and aggregate first-year rent already stands at USD 4.811 million. On the other hand, the residential units are only expected to begin occupancy in the second half of 2026. The first half of the year therefore still looks like an in-between period in which funding costs run ahead of full NOI.

This is a small but important chart. It shows that even within the USD 161 million value, there is already a sale-driven component. In other words, not all of the value is pure in-place rental economics.

Fulton is the biggest financing test

Fulton can change the 2026 reading of Spencer simply because the gap between current operation and embedded value is so large. The asset includes 1,102 residential units, about 98 thousand square feet of commercial space, and 214 parking spaces, and it stands at USD 1.038 billion of fair value. But 2025 NOI was only USD 7.29 million.

That does not automatically mean the valuation is disconnected. It means the valuation requires execution. The company already received temporary certificates of occupancy for 1,050 units in May and June 2025 and for the remaining 52 units in November, and it has already signed 486 free-market residential leases. But for the market to believe the gap will close, it will want two things at once: steady progress in occupancy and NOI, and a completed refinancing on better long-term terms.

The counterweight is just as important. The LA Fitness lease looks strong, but it carries up to USD 10 million of tenant improvements and eight months of free rent. The grocery deal in progress also includes six months of free rent. So the path to stabilization is not only about signed tenants. It is also about cash spending.

The new development stack is upside, but also capital burden

During 2025 and early 2026 Spencer acquired Downtown Brooklyn properties for about USD 128 million as the basis for a new residential development, with total expected project cost of about USD 360 million. The financing framework described there goes up to USD 320 million at SOFR plus 6.7%, with an effective rate of 10.2% at the report date, and the company is expected to fund about 85% of the required equity.

That could become attractive future value, but in the near term it is first a reminder that Spencer is choosing to add another project before the 2025 assets have fully proven stabilization. If permits slip, if financing stays expensive, or if Fulton absorbs more cash than expected, that option can behave like a burden.

That is why 2026 looks less like a harvest year and more like a proof year. The real test is not whether there is more hidden gross profit left, but whether the company can close the timing gap between value, NOI, and the group-level cash picture.

Risks

Currency risk already hit the numbers, not just the narrative

USD 52.6 million of FX and hedging expense is not a footnote. It already damaged 2025 earnings, and it also contributed to the additional USD 2 million and USD 1 million transfers into the Series H trust account at the end of 2025 and in March 2026. In other words, currency exposure is not just an earnings issue. It is also a collateral issue.

Refinancing and lease-up are still linked

At Fulton, refinancing is still under negotiation. At Harrison II Rental, commercial leasing has progressed, but the apartments are only expected to begin occupancy in the second half of 2026. When funding depends on assets that are still building NOI, even a modest operating delay can quickly become a financing problem.

Value can remain trapped

This may be the deepest risk in the whole structure. Accounting has an efficient way of showing that value rose. Credit investors have a much slower way of seeing that value in their pocket. Condo buyer deposits are held in trust, some sales proceeds go directly into collateral accounts, Series V has already benefited from early redemptions funded by sales, and the company has no distributable profits. All of that means value does not automatically flow upward.

Related-party management adds structural complexity

The company has no direct employees, and property management and operating functions are carried out through management companies controlled by the controlling shareholder. That is not automatically a flaw. But it does increase dependence on an external related-party management layer and adds distance between the public issuer and the underlying properties. The more complex the structure becomes, the harder it is for investors to track exactly where the next surplus dollar will come from.

The new development may be arriving too early

The new Downtown Brooklyn project still lacks a building permit, carries expensive funding, and had already absorbed close to USD 29.7 million of company investment by the report date. If Harrison II and Fulton do not stabilize at the required pace, that development layer can become a burden at exactly the wrong time.

Conclusions

The central story at Spencer in 2025 is a gap between value created and cash released. There is a stable regulated housing base, there is real progress at Harrison II, and there is a very large asset in Fulton that can reshape the picture over the next few years. But for now AFFO is still negative, part of the cash remains behind trust accounts and collateral mechanics, and the newer assets are not yet producing enough NOI to carry the story on their own.

Current thesis: Spencer is creating value faster than it is proving access to that value.

What has changed versus the older understanding of the company is the shift from a relatively stable regulated-rental platform into a group where Harrison II and Fulton are now large enough to drive the entire reading of the capital structure. The strongest counter-thesis is that this cautious 2025 read may prove too conservative, because the two biggest assets are precisely at the point where NOI, occupancy, and refinancing can improve quickly and make leverage look more comfortable in 2026.

What could change the market’s interpretation in the near term is a sequence of execution rather than one headline: more Harrison II sales and early redemptions, visible lease-up at Harrison II Rental, a completed refinancing at Fulton, and proof that debt is falling in the same layers where value has already been created. What would weaken the thesis is slower stabilization, continued FX pressure, or additional capital demands before the group proves that value can turn into cash.

Why does this matter? Because at Spencer the gap between paper value and accessible value is not a semantic distinction. It is exactly the line between a balance sheet that looks stronger and a capital structure that has actually become more flexible.