By Sabina Mollot
CWCapital has been sued by holders of Stuyvesant Town’s mezzanine debt who claim that the new owner cheated them out of hundreds of millions of dollars.
The lawsuit, which was first reported by Bloomberg, is being led by Centerbridge Partners, which is representing six limited liability companies who are named as plaintiffs. The suit follows a decision by CW last month to take title to Stuyvesant Town/Peter Cooper Village through a deed rather than hold a foreclosure sale that had been scheduled for June 13.
By doing this, Centerbridge accused CW of a “continuing pattern of misconduct” to keep control of the property and “reap an unjust windfall of $1 billion” that should go to lower level lenders, who’ve received nothing. The suit went on to say that CWCapital’s takeover “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.
A spokesperson for Centerbridge, Michele de Milly, said the lawsuit shouldn’t impact the tenants.
In an official statement, Centerbridge said, “We believe that Stuyvesant Town is and will continue to be a unique and extraordinarily important property, both for the City of New York and for the thousands of tenants who make it such a robust community.
“This legal matter is an inter-creditor dispute and we do not expect it to affect Stuyvesant Town or its residents. Funds affiliated with Centerbridge Partners, which have owned mezzanine loans of Stuyvesant Town and Peter Cooper Village, have been forced to commence this lawsuit because of the actions taken by CW Capital, in violation of an inter-creditor agreement.”
CWCapital, however, denied this and called the suit “without merit.”
“The assertions made in the lawsuit are utterly baseless and without merit,” spokesperson Brian Moriarty said.
Indeed, CW accuses Centerbridge of trying to turn a quick profit itself on a position it bought at a “deep discountˮ
In a statement, CW said, “The fact that the complaint centers on a deed in lieu transaction completed before the plaintiff acquired their position exposes the plaintiff’s specific intent to wrest a quick profit from ‘purchased litigation.’”
The litigation, which also names commercial-mortgage trusts set up by Wachovia Bank, may slow down a sale process.
However, it shouldn’t stop the city from its current plan of trying to work with CW to maintain affordability at the property while satisfying the bondholders.
When CW canceled the foreclosure auction, it also agreed to hold off on a sale for two months while working with the de Blasio administration along with local elected officials representing ST/PCV to come up with a plan.
According to Council Member Dan Garodnick, this litigation doesn’t change that.
“This is largely a dispute between lenders and it does not affect our strategy,” he said. “The only question is whether this has the effect of slowing things down further, which is not at all clear at this moment.”
A New York Times story on June 11 had quoted Deputy Mayor Alicia Glen as saying a plan was being explored that would keep as many as 6,000 units in ST/PCV affordable in exchange for a tax exemption.
However, as of late June, Garodnick told Real Estate Weekly there aren’t yet any numbers figured out and city officials stressed that was just one possibility.
“The numbers that have been floated were hypothetical and not based on the substance of any negotiation,” Garodnick said.
Lenders Fannie Mae and Freddie Mac have already committed to not financing a deal that would be unacceptable to the tenants or the city.