Bloomberg News

CWCapital Sued by Stuyvesant Town Lenders Over Takeover

July 03, 2014

Centerbridge Partners LP is leading a lawsuit against CWCapital Asset Management LLC claiming that it is being cheated out of hundreds of millions of dollars in the takeover of New York’s Stuyvesant Town-Peter Cooper Village.

CWCapital, which has managed the 11,000-unit apartment complex since 2010, was sued by junior-level lenders today over its seizure of the property last month. Centerbridge controls the six limited liability companies named as plaintiffs in the complaint filed in New York State Supreme Court in Manhattan, said two people with knowledge of the matter, who asked not to be identified because the information is private.

The six are mezzanine debt holders, whose positions behind the more senior lenders were wiped out when CWCapital took title to Manhattan’s largest apartment complex on June 3, the person said. CWCapital, which represents holders of a $3 billion defaulted senior mortgage, exercised a deed in lieu of foreclosure, canceled an auction and indicated it will put the property up for sale.

Litigation between holders of the junior and senior debt may slow progress toward a permanent owner for the complex, whose tenants have been seeking to buy and keep its apartments affordable. The future of the community has been in limbo since 2010, when Tishman Speyer Properties LP and BlackRock Inc. (BLK:US) defaulted on their mortgage in one of the most high-profile deals to collapse in the real estate crash.

‘Unjust Windfall’

CWCapital engaged in “a continuing pattern of misconduct designed” to keep control of the property and “reap an unjust windfall” of $1 billion that should go to lower-level lenders who have received nothing, according to the complaint.

Michael Goodwin, a spokesman for CWCapital, didn’t respond to a phone call requesting comment on the suit. Ross Lovern, a spokesman for New York-based Centerbridge with Kekst & Co., declined to comment.

Tishman Speyer and BlackRock purchased the complex for $5.4 billion in 2006, taking out $1.4 billion of mezzanine debt and a $3 billion senior mortgage that was carved up and packaged into bonds. The owners walked away from the property in January 2010 after plans to raise regulated rents were thwarted and the financial crisis sent property values tumbling.

Manhattan real estate prices have since rebounded. Private-equity firm Fortress Investment Group LLC (FIG:US), which owns Bethesda, Maryland-based CWCapital, had been seeking financing for a potential $4.7 billion bid on the complex, a person familiar with the matter said in May.

Amount Owed

The lenders alleged in today’s complaint that CWCapital’s takeover was “executed on the flawed premise that the amount owed on the senior loan was greater than the value of the property.” CW represented that $4.4 billion was owed on the mortgage when the amount was really $3.45 billion, the lenders said.

“Far from being underwater, had StuyTown been sold at market value, it would have fetched a price high enough that more than one billion dollars would have been left over the correct mortgage amount to repay the junior lenders whose loans remain wholly unpaid,” according to the complaint.

The plaintiffs are seeking damages that they believe to be “up to $1 billion or more,” and the appointment of a judge-monitored trust which would oversee how the future of the property is resolved.

Commercial Trusts

The suit also names commercial-mortgage trusts set up by Wachovia Bank, which San Francisco-based Wells Fargo & Co. (WFC:US) acquired in 2008. Wells Fargo isn’t a party to the suit.

Stuyvesant Town-Peter Cooper Village, located between 14th and 23rd Streets along the East River, is home to more than 30,000 residents. MetLife Inc. (MET:US) built the property in the 1940s with city assistance to house returning World War II veterans.

Annual income at the 80-acre (32-hectare) community has climbed by $54 million since Tishman Speyer and BlackRock walked away from their investment, according to Amherst Securities Group LP.

The case is PCVST Mezzco 4 LLC v. Wachovia Bank Commercial Mortgage Trust 2007-C30, 652045/2014, New York State Supreme Court, New York County (Manhattan).

To contact the reporters on this story: David M. Levitt in New York at dlevitt@bloomberg.net; Sarah Mulholland in New York at smulholland3@bloomberg.net; Christie Smythe in Brooklyn at csmythe1@bloomberg.net

To contact the editors responsible for this story: Kara Wetzel at kwetzel@bloomberg.net; Michael Hytha at mhytha@bloomberg.net David E. Rovella


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Companies Mentioned

  • BLK
    (BlackRock Inc)
    • $326.29 USD
    • 1.57
    • 0.48%
  • FIG
    (Fortress Investment Group LLC)
    • $7.36 USD
    • -0.03
    • -0.41%
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