The company servicing the debt on the giant ST/PCV apartment complex in Manhattan has been accused of dragging its feet on negotiating the sale of the development.
In December last year, tenants partnered with real estate giant Brookfield Asset Management to put together a multi-billion-dollar bid to buy the 11,000 apartments and convert them to condos or co-ops.
Nearly one year on, the Stuy Town Tenants Association claims that, although it has told special servicer, CW Capital, that it is willing to propose an offer structure that would satisfy its obligations to bondholders, instead of engaging in a serious discussion, “CW Capital continued to stall and to take advantage of its special servicing role to increase its own fees.ˮ
Now the tenants have vowed to reach out directly to the property’s bondholders in the hope of hammering out a deal.
“Despite having teamed up with word-class legal and financial advisors Paul Weiss and Moelis & Company, and a highly credible capital partner, Brookfield Asset Management, and communicating in multiple ways with CW Capital, it consistently declines to engage with us,ˮ said John Marsh, president of the Tenants Association.
“This is wrong and we believe that the bondholders, Wells Fargo in its role as Master Servicer of the CMBS trusts, CW Capital’s parent company Fortress, and the relevant bond rating agencies will view this issue differently.”
In a letter sent to CW Capital and tenants on Monday, the Stuyvesant Town-Peter Cooper Village Tenants Association told CW it was tired of hearing excuses for the delay in conversion talks since the special servicer first assumed control of the property.
At that time, CW said it shared tenants’ interest in a conversion, but has consistently postponed attempts by the Association to talk business, citing the pending results of the negotiations stemming from the Roberts v. Tishman Speyer lawsuit over illegal rent hikes at the complex. In the letter to tenants, the TA said, “This is wrong and we believe that the bondholders, Wells Fargo in its role as master servicer of the CMBS trusts, CW Capital’s parent company Fortress, and the relevant bond rating agencies will view this issue differently.”
While CW has not refused to take the TA’s phone calls, the problem, said TA board chair Susan Steinberg, is that when the Association asks about conversion, the answer is always the same: Roberts.
“As time went on, it became apparent to us that the company was using the Roberts case as a pretext for inaction,” the TA said in its letter. “CW Capital’s strategy has emerged as an opportunity to gather fees, while it ignores the desires and interests of our community and its own responsibilities.”
Specifically, the TA also took shots at CW’s recent decision to replace Rose Associates, a managing firm with years of experience in New York City real estate, with CompassRock, a CW subsidiary and a Denver-based startup.
“Using an unknown and untested year-old entity on a New York City property with a population equivalent to a small city is a peculiar management decision,” the organization wrote.
Meanwhile, Steinberg said, “The stability of this community is going down the drain. We haven’t seen essential services improve.
“The Tishman Speyers and CWCapitals see our 80 acres as prime real estate, but they don’t see the 25,000 residents that are this community.”
Council Member Dan Garodnick said the TA and Brookfield had been unable to put a hard offer on the table due to lack of information from CW Capital on factors like the rent roll and the current status on the property’s infrastructure.
Meanwhile Steinberg said the tenants’ decision to reach out to bondholders was a bid to protect the rights of residents aware of the value of the prime real estate they live on.
“We don’t want to suddenly find out that there’s an auction or sale or some surprise,” said Steinberg. “There’s lots of speculation and we know there are a lot of interested potential owners out there and they’re keeping their eyes peeled and they’re ready to jump.”
A spokesperson for CWCapital declined to. Brookfield did not respond to requests for comment by press time.
In June, investment analysts from J.P. Morgan put a $4.4 billion value on the Stuyvesant Town complex after analyzing the debt structure of the 11,200 apartment development.
Concluding that the most likely buyer of the distressed property will be the Brookfield/Tenant Association partnership, the experts warned that it could take years to unravel the web of legal and financial woes that have engulfed the development since former owners, Tishman Speyer, handed the keys back to lenders after defaulting on the $5.4 billion mortgage it took out with partner BlackRock in 2006.
“We believe the Brookfield/Tenants Association acquisition is the most likely outcome,” the JP Morgan report said. “This is primarily because, even though the revenue generated by Stuyvesant Town is still substantially below what the market can bear, the costs and the timeline of a deregulation strategy are a significant obstacle to a potential acquisition of the property as a pure rental building.
“In fact, recent legislation has made it significantly more expensive to bring legal rents for the complex up to market rates.”
The report stated that due to the ongoing “complex legal issues” being worked through, it could take at least 12-24 months for the complex could be sold.
