NEW YORK CITY-In a move that marks the first step down a potentially long road, lenders on the $3-billion Peter Cooper Village/Stuyvesant Town mortgage began foreclosure proceedings Tuesday. The filing by trustees Bank of America and US National Bank Assn. seeks federal court approval to sell the 11,227-unit complex—approval that could be a year or more in coming. That was the time span, for example, that elapsed between lenders filing suit to foreclose on $241 million in debt on Riverton Houses and a state Supreme Court judge’s order earlier this month to sell the seven-building East Harlem apartment complex at auction.

Tuesday’s filing, at US District Court in Manhattan, covers only the first mortgage on the complex, which a joint venture led by Tishman Speyer Properties and Blackrock Realty acquired for $5.4 billion in 2006. There’s also $1.4 billion in mezzanine debt, held by entities including Winthrop Realty Trust, the government of Singapore and Deutsche Genossenschafts-Hypothekenbank AG.

That mezz debt led to a 77-basis point increase in US commercial real estate CDO delinquencies to 13%, Fitch Ratings said Tuesday. Five mezz loans backed by interests in Stuy-Town become delinquent in January, after the JV went into technical default. Later that month, Stuy-Town’s owners handed over the keys to the 56-building complex, seeking to transfer the property to special servicer CWCapital via a deed-in-lieu.

“The deed-in-lieu transfer will be a prolonged process as an agreement is negotiated and any remedies available to the holders of the $1.4 billion in mezzanine debt are determined,” Fitch senior director Karen Trebach says in a statement. “Fitch will continue to model these assets at a full loss to each CDO.”

Whether that fate eventually befalls the holders of the mezz loans is far from certain. Lawrence Longua, clinical associate professor at New York University’s Schack Institute of Real Estate, told Reuters that the mezz lenders could offer to take over the senior mortgage, possibly at a discount. “Commencing a foreclosure doesn’t mean anything,” Longua was quoted as saying. “The junior lenders can always make a deal with the senior lender, but nobody is wiped out until the foreclosure process is completed.” Longua was unavailable for further comment Wednesday.

Partly with an eye toward stabilizing Stuy-Town for an eventual sale, CWCapital earlier this month hired Rose Associates as a “transition consultant” for the complex. “Both CWCapital Asset Management LLC and Tishman Speyer are fully committed to an efficient and seamless transition of property operations at Stuyvesant Town/Peter Cooper Village,” according to a joint statement. Rose Associates will work with Tishman Speyer “to create and implement a detailed transition plan,” the statement says.

As part of the creation of the plan, Rose Associates will “solicit input from residents regarding property operations,” the statement says. “Tishman Speyer has assured CWCAM that it will cooperate fully with Rose Associates, and that its current management team and dedicated staff will work diligently to ensure that the residents of Stuyvesant Town/Peter Cooper Village experience a smooth and orderly transition.”

At least one potential Stuy-Town buyer says he isn’t fazed by the foreclosure proceedings. Richard LeFrak, chairman and CEO of the LeFrak Organization, told the New York Post that he remains interested in buying the complex with Wilbur Ross. “When it’s right to do something, we’ll do something,” the Post quoted Lefrak as saying. A spokesman for Tishman Speyer tells the company has no comment on the foreclosure filing.

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