Isaac Kassirer was at the forefront of one of the hottest trends in commercial real estate. He borrowed from global investors by promising to gentrify apartment buildings in New York’s low-income neighborhoods and raise the rents. Mr. Kassirer fell behind on some loans before the coronavirus pandemic and now some tenants are in open rebellion.

Wall Street embraced landlords like Mr. Kassirer over the past decade. Bankers packaged up their loans and sold them to bond investors with the promise that the buildings would generate much higher income. The market for those bonds grew from about $400 million of issuance in 2012 to $22.4 billion last year, according to Trepp LLC.

Mr. Kassirer borrowed $90 million from global investors in late 2018 to upgrade nine buildings he owns in New York’s East Harlem neighborhood. Emerald promised to realize a “strategic vision to replicate the high-class Manhattan amenities.”

Transitional loans, which were popular in hot real-estate markets, did create affordable housing in some instances. Elan Gordon used transitional loans to convert two struggling hotels into 240 affordable apartments in Greenville and Bluffton, S.C. “It’s delivering new supply to an area that needs it,” said Mr. Gordon, who runs SHIR Capital, an investment firm in Austin, Texas. He is converting four more hotels in Austin into below-market rent apartments.

Today, the combination of new laws meant to preserve low-income housing and the pandemic has left many of the borrowers struggling to pay off their debt. The bond market that financed transitional loans sputtered this spring when the pandemic hit.

Hit by New York’s new rent laws, pushback from tenants and the impact of the pandemic, Mr. Kassirer’s situation is worse than for most landlords. Tenants say he let his buildings fall into disrepair, with rat and cockroach infestations, mold, broken radiators and appliances, gas shut-offs and other issues.