Hedge Fund Moves on Stuyvesant Town

A hedge fund that has acquired a significant portion of the debt on the troubled Stuyvesant Town and Peter Cooper Village complexes in Manhattan is seeking to take control of them.

The move is expected to complicate an already byzantine political and financial situation surrounding the largest apartment complexes in Manhattan and send tremors though the 25,000 tenants who are already worried about the future.

Stuyvesant Town and Peter Cooper Village were bought by a partnership of Tishman Speyer Properties and BlackRock Realty in 2006 for a record-breaking $5.4 billion. But the owners defaulted on their mortgage in January and have since agreed to turn the properties over to lenders.

Appaloosa Management, a New Jersey-based hedge fund led by David Tepper, filed papers in United State District Court on Tuesday afternoon challenging the company overseeing the two sprawling complexes overlooking the East River on behalf of lenders, saying that the company has acted “irrationally and imprudently” in pursuing a course that could cost debtholders hundreds of millions of dollars.

In its motion to intervene, Appaloosa objected to a decision by the company, CW Capital Management, to foreclose on the owners of Stuyvesant Town and Peter Cooper Villages. Arguing that a foreclosure could cost as much as $200 million in transfer taxes, Appaloosa said that CW Capital should have pushed the owners to go into bankruptcy court, thereby avoiding the necessity of paying those taxes.

Appaloosa, which has asked the court to allow it to intervene in the matter, also claims that CW Capital has “irreconcilable conflicts of interest” because it is both the “servicer” for the mortgage and an important debtholder.

Mr. Tepper, whose company has acquired control of more than $750 million of $3 billion in mortgages, said in an interview Wednesday that he wanted to CW Capital to fulfill its fiduciary interest to debtholders to maximize the value of the property. He said his company was surprised by CW Capital’s sudden decision to foreclose.

“We’re actually want them to do what they’re supposed to do,” Mr. Tepper said of CW Capital. “We’re trying to uphold our rights.”

Appaloosa made a profit of about $7 billion last year, including $2.5 billion for Mr. Tepper.

Mr. Tepper said that his interests were not at odds with those of tenants of the complexes. “We recognize the fact that at some point, there needs to be some degree of rent-controlled apartments there,” he said.

The most recent appraisal of Stuyvesant Town and Peter Cooper Village put the worth of the complexes at about $1.8 billion. But many analysts and investors say that the complexes, which contain more than 11,000 apartments, will be worth far more in the future.

The Stuyvesant Town-Peter Cooper Village Tenants Association is pursuing a restructuring plan that would allow some tenants to purchase their apartments, while ensuring that thousands of other units remain affordable under the state’s rent regulations.

Alvin Doyle, president of the association, said he was unsure whether to view Appaloosa as a friend or foe. “We would like the entire place to remain affordable,” he said, “and we would like to own it.”

But Harold Shultz, senior fellow of the Citizens Housing and Planning Council, said that the hedge fund’s desire to maximize value could be at odds with the tenants interests. A booming real estate market, he said, led speculators to saddle residential properties with enormous mortgages that ultimately could not be supported by rents.

“The big concern with these over-mortgaged buildings is that they’re resold for a price that will be sustainable,” Mr. Shultz said, “rather than over-mortgaged again.”



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