A joint venture led by Bill Ackman was able to do what the state of California, the Church of England and Tishman Speyer Properties LP were not: get back its investment in Manhattan’s Stuyvesant Town-Peter Cooper Village.
Ackman and Winthrop Realty Trust sold the junior debt they jointly held on the 80-acre (32-hectare) apartment complex to affiliates of CWCapital Asset Management LLC, which represents senior lenders to the property, Boston-based Winthrop said in a statement yesterday.
Senior lenders, who were poised to foreclose on the complex on Oct. 29, wiping out Ackman’s claim to it, instead paid his Pershing Square Capital Management LP and Winthrop the $45 million the venture invested in August. Ackman’s group was attempting to wrest control of the property with its stake.
“He’s like the Carl Icahn of the real estate world -- you pay him to go away,” Joshua Stein, principal of New York-based commercial real estate firm Joshua Stein PLLC, said of Ackman. “He can create value by merely not being there, by merely going off into the sunset.”
The agreement resolves outstanding litigation with Winthrop and Pershing Square, CWCapital said in a statement yesterday. The company, which now effectively controls the property, canceled the Oct. 29 foreclosure auction to focus on “ensuring a stable transition.” The complex is home to about 25,000 tenants.
“This gives CW complete flexibility with respect to what it does with the property,” Greg Cross, an attorney for CWCapital, said in a telephone interview. “It gives the trust complete control protective from any constituency that might want to meddle in the disposition of the property.”
A state court last month thwarted Ackman and Winthrop in their attempt to take control of the complex in a so-called mezzanine foreclosure. They had been planning an appeal that would probably have not been heard for months, Ackman said at the time.
CWCapital probably made the deal with Ackman and Winthrop to prevent a future legal threat, said Stein, who isn’t involved in the case. He compared the settlement to the “greenmail” that companies paid billionaire Icahn in the 1980s so he would sell shares and walk away from his takeover attempts.
“It eliminates whatever wrench Ackman would have been able to throw into the works,” he said. “It might have been a wrench made of plastic and held together with duct tape, but it was a wrench. There was some chance that somehow, some way, he would have been able to persuade a court that he had a claim.”
Ackman said in an interview yesterday that his venture was “outgunned” by CW’s legal team in court. He said he believed his interpretation of the loan documents was correct and that his venture was legally entitled to conduct a mezzanine foreclosure.
“We came to a resolution that was very smart for CW and contributes to the long-term stability of the property,” Ackman said. The settlement did not include payment of his venture’s legal fees, the sum of which Ackman wouldn’t disclose.
While Ackman and Winthrop sold their stake, the venture still may seek to lead a co-op conversion of the property and submit a plan for CW to consider, he said.
“We understand the asset, we know all the people, we spent a lot of time with the tenants’ association,” he said. “We may choose to put a plan in going forward.”
For now, New York-based Rose Associates Inc. is managing the apartments after being appointed by CWCapital on Oct. 22. CWCapital also hired a lawyer with expertise in New York co-op conversions, Cross said today.
“Eliminating uncertainty in this transaction, and moving us toward a clear and clean resolution, is good for the tenants -- so the settlement of this legal dispute is a welcome step,” New York City Councilman Daniel Garodnick, a resident of Peter Cooper Village, said in a statement today. “We are pleased that CW Capital can now move forward with the tenants on this restructuring.”
Cross, CW’s lawyer, said senior lenders are weighing options that range from a co-op conversion of the property to an outright sale, which may mean the East Side community between 14th and 23rd streets stays a rental property.
An investment group led by veteran New York co-op converter Gerald Guterman intends to follow up on the plan it submitted to CW last month. Under the proposal, apartments would be sold for less than comparable units in the area. A conversion, with tenant buy-in, is the only way to pay senior debt and keep the complex affordable, said Daniel Alpert, managing partner at Westwood Capital LLC, part of the Guterman group.
“As a rental, the project is worth somewhere between $1.8 billion and $2 billion on a good day,” Alpert said. “That is clearly not the way to maximize recovery for the mortgagees.”
Ownership of Stuyvesant Town has been in question since January, when a venture led by affiliates of developer Tishman Speyer and BlackRock Inc. defaulted on its $3 billion mortgage and ceded control of the property to lenders.
Tishman Speyer and BlackRock each invested $112.5 million out of total equity financing of $1.9 billion. They took out a $3 billion mortgage from Wachovia Bank and $1.4 billion of mezzanine debt. The mortgage was packaged with other commercial- property loans and sold as securities.
Other investors include the Government of Singapore Investment Corp., manager of more than $100 billion of the city- state’s foreign reserves; the Florida State Board of Administration; the California Public Employees’ Retirement System; and the Church of England.
Church of England
Calpers wrote off a $500 million stake in Stuyvesant Town and fired BlackRock as the manager of its $1 billion apartment portfolio. The Church of England wrote down an investment of about 40 million pounds ($65 million) in the property, the Guardian reported in January, citing church commissioners. Florida and BlackRock have written down their stakes to zero, spokesmen for both entities said in January.
Yesterday’s settlement gives investors in the senior mortgage more options for recouping the $3.7 billion they’re owed, Cross said. Avoiding a foreclosure keeps the original loan intact, precludes the immediate payment of property-transfer taxes, and gives senior lenders the agility to restructure the mortgage for a future buyer or co-op converter, he said.
“There’s a lot of accretive value by being able to preserve that optionality,” Cross said.
The agreement also was a “big win” for the Pershing Square and Winthrop partnership, Harris Trifon, a Deutsche Bank AG analyst in New York, wrote in a research note this morning. The venture received “effectively a free” opportunity “for a chance to control one of the most desirable commercial real estate properties in the country,” he said.
The case is Bank of America NA v. PSW NYC LLC, 10-651293, New York State Supreme Court, New York County (Manhattan).
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