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NEW YORK CITY-Fitch Ratings says a reserve fund to cover debt service on the Stuyvesant Town/Peter Cooper Village apartment complex will run dry in six months. The debt service reserve balance on a $3-billion securitized loan has decreased to $127.7 million from $400 million, and the 11,277-unit complex’s cash flow is not expected to improve for 2009, the rating agency says.

“Although the property’s performance remains consistent, the cash flow generated from the property continues to require significant reserves to cover debt service obligations,” the rating agency states. Fitch says a general reserve balance has been “completely depleted.”

Fitch’s review, issued Thursday, follows its downgrade last October of 26 classes of bonds tied to the loan. The bonds were downgraded because the conversion of rent stabilized units to market rate was “slower than anticipated,” according to Fitch. Moody’s and Standard & Poor’s lowered their ratings on CMBS related to the loan last fall for similar reasons; S&P also cited unexpectedly high expenses to operate the complex and to convert rent-stabilized units to market rate. There is also approximately $1.5 billion in mezzanine debt on the property, says Fitch.

A spokesman for Tishman Speyer Properties, which owns the complex in a joint venture with Blackrock Realty, tells GlobeSt.com the company has no comment on the Fitch report. Tishman and Blackrock paid $5.4 billion to acquire the East Side multifamily property from MetLife in October 2006. The rationale was to convert rent-stabilized units to market rate as tenants vacated.

At that time, MetLife estimated that by the end of 2008, residents of 1,600 apartments would move out, die or have their rents reach the $2,000 threshold for deregulation, thus allowing the owners to charge market rate rents on those units. As of last September, only 1,000 units had been deregulated, 38% less than MetLife’s estimates, according to Moody’s. S&P said last fall that the 10.2-million-square-foot complex was now worth 10% less than the JV paid for it two years earlier.

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