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NEW YORK CITY-As GlobeSt.com reported in August, the beleaguered Peter Cooper Village and Stuyvesant Town, owned by a venture of Tishman Speyer, is nearing default, as early as January, but according to the Wall Street Journal it may already have a special servicer lined up to take over its CMBS debt. The 80-acre, 56-building apartment complex in the lower east side of Manhattan was purchased from Metlife in 2006 for $5.6 billion and is now estimated to be worth less than half that.

Along with that come legal troubles, as well. An appeals court ruled that Stuy-Town and Peter Cooper’s landlord raised rents and deregulated apartments after getting special tax breaks. News reports speculated that a decision against them could cost landlord Tishman Speyer as well as former landlord Metropolitan Life more than $200 million in restitution.

The court had also imposed a “moratorium on conversion” which has reduced capital expenditures. However, the use of debt service reserves has increased because the court also requires the borrower to seperately escrow the difference between stabilized and market rents on former stabilized units. The State Supreme Court will hear an appeal on the case this month.

With things as dire as they are now, however, a legal victory would only be a moral one for Tishman, which still will likely default, which is why a special servicer may be looking to take over the CMBS debt associated with the property.

Senior director of Fitch Ratings Adam Fox says in a statement that “based on current performance and uncertainty surrounding ongoing litigation, we do not expect property performance to improve sufficiently to service the securitized portion of the $4.5-billion debt before reserves are depleted.”

According to Fitch, in addition to securitized debt, there’s $1.5 billion of mezzanine debt held outside the trust. For the year ended 2008 ,the servicer reported debt service coverage ratio on the mortgage was 0.69 times as compared to the year ended 2007 DSCR of 0.55x.

To read the full Journal article, click here.

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