A New York judge said he will rule later this month on whether to stop a foreclosure sale on the Stuyvesant Town-Peter Cooper Village apartment complex sought by investors including William Ackman.
State Supreme Court Justice Richard Lowe in Manhattan heard arguments today on whether to issue a preliminary injunction blocking the planned auction by Ackman’s Pershing Square Capital Management LP and by Winthrop Realty Trust.
Trustees representing holders of the $3 billion mortgage loan on the Manhattan apartment complex are suing Pershing and Winthrop. The two sides clashed at the hearing over whether an agreement between creditor groups allows Pershing and Winthrop, which are junior debt holders, to take control of property by foreclosing on the entities that own it.
“It’s all about a race to foreclose on the collateral,” said Edward Weisfelner, a lawyer for Pershing and Winthrop. “If they foreclose before I foreclose, then I’m gone, out of the money, kicked to the curb.”
Pershing and Winthrop, which own $300 million in mezzanine debt, have their investments backed by equity interests in an entity that borrowed the $3 billion mortgage. Senior lenders are secured by the actual property, which is Manhattan largest residential enclave, with more than 11,000 apartments.
Tishman Speyer Properties LP and BlackRock Inc. bought Stuyvesant Town-Peter Cooper Village for $5.4 billion in 2006, a record New York commercial real estate deal at the time. They stopped payments on the mortgage loan in January after the development’s value sank and the owners failed to raise rents as fast as anticipated.
Greg Cross, an attorney for CWCapital Asset Management LLC, which represents the senior lenders, argued that Pershing and Winthrop must first pay the $3.66 billion owed on the mortgage before foreclosing.
“The senior lender drives the bus,” Cross said. Junior lenders, he said, “don’t reach over the seat and throw the senior lender from the bus and crash the bus.”
After the hearing, Cross said lenders are “confident in our position.” Pershing and Winthrop said in a statement that they “eagerly await” Lowe’s decision.
Lowe asked Weisfelner how the residents of Stuyvesant Town would be affected by a Pershing-Winthrop foreclosure. The firms intend to retain the current property manager, the lawyer said. Rose Associates Inc., the property’s former manager, was hired in February to advise CWCapital on the complex’s operation.
Pershing and Winthrop might put the complex into bankruptcy if they fail to negotiate a deal with the lenders, Weisfelner said.
“That’s not the worst thing in the world,” he said. “They have slews of protections in bankruptcy court.”
After the hearing, New York City Councilman Daniel Garodnick, who lives in Peter Cooper Village, said he was pleased that the judge showed concern for the residents. About 25,000 people live in the complex.
“There is a legitimate concern about continuity of service,” Garodnick said. “The judge was asking the right questions, and it was important that the interests of the tenants were central to the discussion.”
The case is Bank of America NA v. PSW NYC LLC, 10-651293, New York State Supreme Court, New York County (Manhattan).