CWCapital, Ackman Settle Stuy-Town Dispute

NEW YORK CITY-Although PSW NYC LLC, a joint venture of William Ackman’s Pershing Square Capital Management and Winthrop Realty Trust, didn’t take control of Peter Cooper Village/Stuyvesant Town as originally intended, it has walked away with its money intact. In separate announcements late Tuesday, CWCapital Asset Management and PSW said a CWCAM affiliate had bought the junior debt previously controlled by PSW. The affiliate paid $45 million, the same amount that PSW had put toward acquiring $300 million of mezzanine debt at a discount, thus settling any remaining litigation between the two sides.

CWCAM also announced that it had cancelled the frequently postponed foreclosure sale on the 11,227-unit apartment complex; the auction was to have taken place this Friday. Instead, CWCAM says in a statement that it will focus on “ensuring a stable transition of the property and maximizing recovery of the $3.7 billion owed to the trust which it represents.”

To that end, CWCAM last Friday appointed Rose Associates as property manager for Stuy-Town. Rose had been working since last February as a transition consultant for PCV/ST LLP, the group which bought the sprawling rental complex for $5.4 billion in 2006 and defaulted on $3 billion in debt at the beginning of this year. Prior to selling Stuy-Town, original owner MetLife had also hired Rose as a consultant.

“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,” says Daniel Garodnick, a Stuy-Town resident, New York City Council member and frequent spokesman for the complex’s tenants associations, in a statement. “We are pleased that CW Capital can now move forward with the tenants on this restructuring.”

Buying out PSW gives CWCAM and the senior lenders on Stuy-Town “the utmost optionality,” Mitchell Hochberg, principal with Madden Real Estate Ventures, tells GlobeSt.com. Those options include foreclosure at a later date—which would entail paying transfer taxes that have been estimated at $100 million—seeking a buyer, restructuring the debt or hammering out a co-op conversion of the complex.

The conversion plan seems the more likely route at this point, given that as a rental property the complex is likely worth less than $2 billion. “A conversion will probably work only if it’s done in conjunction with the existing residents,” says Hochberg, who is not involved with the deal. “The question then becomes, can you sit down and cut a deal with the existing residents that’s attractive to them and would cost them nothing more than they’re currently paying to live in a rental?”

At the same time, a conversion plan would leave in place some of the debt on the property, which is allowable under the co-op format. The debt would then be serviced by the tenants’ monthly maintenance payments. Hochberg says that for the lenders, the goal of a conversion plan would be to recoup “the maximum amount of their investment” over time.

Complicating the process will be the differing priorities of Stuy-Town residents. “Anything the lenders do is going to be subject to a very protracted negotiating process with a large constituency that has divergent interests,” says Hochberg.