The lenders at Stuyvesant Town and Peter Cooper Village are expected to begin an uncontested foreclosure action on Tuesday against the owner of Manhattan’s largest residential complex, according to bankers and real estate executives.
CWCapital, the company that is overseeing the complex on behalf of the owners of $3 billion in mortgages, plans to file the action in State Supreme Court in Manhattan, they said. The owner, a partnership of Tishman Speyer Properties and BlackRock Realty, announced last month that it would turn over the property after defaulting on a $16 million loan payment, rather than wage a battle for control.
The foreclosure action is unlikely to immediately affect the 25,000 residents of the two sister complexes overlooking the East River, between 14th and 23rd Streets. But it marks the beginning of what promises to be a lengthy process in which the lenders will take control of the 80-acre complex and run it for an unspecified period before selling it to a new owner. Still, tenants of the 110 buildings are concerned that services and maintenance could deteriorate over time.
“It is unfortunate that we find ourselves in this position,” said Daniel R. Garodnick, a city councilman and lifelong resident. He added: “Anything that moves this process toward an orderly restructuring will be in the tenants’ interest. We most certainly don’t want anyone gumming up the works.”
CWCapital did not return calls requesting comment. On behalf of mortgage holders, it will have to pay a transfer tax of an estimated $100 million when it does take possession of the property.
It often takes a year for a lender to foreclose. Real estate executives say the process could move more swiftly if the owners do not contest the action. But analysts warned that other Stuyvesant Town lenders, particularly those who gave secondary loans that might be rendered worthless by the foreclosure, could object, delaying any kind of resolution.
Last week, CWCapital said it had hired Rose Associates as an adviser. Rose managed the 11,227 apartments in the complexes for three years before its sale in late 2006. Mr. Garodnick said CWCapital and Rose had agreed to work closely with tenants.
The Stuyvesant Town foreclosure would come only weeks after a state judge ordered the foreclosure sale of Riverton Houses, a middle-class complex in Harlem. And analysts predict that more complexes bought with enormous loans during the real estate boom will also default.
At Riverton, which like Stuyvesant Town was built by Metropolitan Life Insurance in the 1940s, the owner defaulted on a $225 million mortgage.
During the boom, the average price of a Manhattan condominium soared above $1 million, and rents rose well ahead of inflation. Private equity firms and other speculators sought to take advantage of the seemingly unquenchable thirst for housing.
Tishman Speyer and BlackRock bought Stuyvesant Town and Peter Cooper Village for $5.4 billion and raised another $900 million in equity to cover reserve funds for capital improvements, apartment renovations and interest payments. More than 70 percent of the apartments were rent regulated.
Although the rent roll only covered a fraction of their loan payments, the partners expected to make a profit over time by replacing rent regulated residents with tenants paying much higher market rents.
But they ran into trouble within two years as the process of converting the units to market rates proved slower than expected. Also, market rents fell sharply with the recession. And Tishman Speyer and BlackRock were forced to roll back rents when New York State’s highest court ruled last fall that the partnership had improperly deregulated the rents on 4,400 apartments. The new owner is likely to inherit liability for about $215 million in rent rebates resulting from the ruling.