Judge Blocks Mezz Debt Holders on Stuy-Town

NEW YORK CITY-The partnership controlling the senior mezzanine debt on Peter Cooper Village and Stuyvesant Town suffered a setback Thursday when a Manhattan Supreme Court judge enjoined it from foreclosing on the massive apartment complex. The partnership, known as PSW NYC LLC, says it plans to appeal the preliminary injunction.

Senior lenders on the 80-acre property, represented by CWCapital Asset Management, had sought to block PSW from taking control. The senior lenders plan their own foreclosure auction early next month, and several high-profile contenders, including multifamily developer Gerald Guterman and a group led by Wilbur Ross, reportedly have expressed interest.

Judge Richard B. Lowe III ruled that PSW could not assume control of Stuy-Town unless it paid off the existing first mortgage, which now runs to more than $3.6 billion including interest and other costs. A partnership of Pershing Square Capital Management and Winthrop Realty Trust, PSW had acquired the senior mezz debt in August for approximately $45 million, or 15 cents on the dollar. Earlier this week, PSW sent Stuy-Town tenants a letter offering them as much as a 50% stake in a co-op conversion plan for the 11,227-unit complex.

“The intercreditor agreement is unambiguous,” Lowe wrote Thursday. “Its plain language obligates PSW to cure all senior loan defaults if PSW acquires the equity collateral, which includes the $3.6-billion indebtedness resulting from the default.”

In a statement, PSW says it “strongly disagrees” with Lowe’s ruling, intends to appeal the decision to the New York appellate court and will seek a court-ordered stay of the senior lenders’ foreclosure, now scheduled for Oct. 4. “If PSW is unsuccessful on appeal, or if the mortgage lender is permitted to foreclose prior to a successful appeal, the value of PSW’s investment in the mezzanine loans may be lost,” according to the statement.

Lowe wrote that “the public interest is served by maintaining stability in what PSW concedes is ‘the largest residential property in Manhattan and home to a significant portion of the city’s moderate-income housing.’” City Council Member Daniel Garodnick, a lifelong resident of the complex and a frequent spokesman for the tenants, says in a statement that residents aren’t favoring one group over another; both PSW and CWCapital have reached out to the tenants in recent weeks. “Legal challenges will come, and they will go,” Garodnick says. “What endures are the tenants themselves.”