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Stuy Town investors continue legal battle

Bondholders ask Minnesota judge to interpret agreements

Appaloosa Management president David Tepper
Appaloosa Management president David Tepper

The city’s largest single-asset real estate transaction in nearly a decade may be a done deal, but behind the scenes the battle wages on for some $500 million in proceeds from the sale of Stuyvesant Town – Peter Cooper Village.

At the request of New Jersey-based hedge fund Appaloosa Management, a major investor in the $3 billion senior loan on Stuy Town, fund trustee U.S. Bank National Associates filed a petition in Minnesota state court asking a judge to weigh in on how the sale proceeds should be distributed.

U.S. Bank filed the petition earlier this month in its home state, after a New York supreme court judge denied Appaloosa’s request for a preliminary injunction blocking CWCapital, the special servicer on the Stuy Town loan, from cashing in on disputed funds left over from the sale.

The Appaloosa-managed funds were investors in the commercial mortgage-backed securities (CMBS) bonds that Tishman Speyer and BlackRock used to finance its $5.4 billion acquisition of Stuy Town in 2006.

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When Tishman defaulted on its loans four years later and handed over the keys to the complex, CWCapital took control on behalf of the bondholders.

The Blackstone Group and Ivanhoe Cambridge closed on the $5.3 billion purchase of the complex earlier this month. CWCapital believes that the service agreements on the loan entitled it to collect up to $566 million in additional charges, because the purchase price was far greater than the $3 billion mortgage.

U.S. Bank isn’t taking a side in the dispute. Rather, it said it is responding to a request from Appaloosa that it take “all action necessary” to enforce the service agreement on the loan, and is asking the court to decide how the proceeds from the sale should be divided.

“The Trustee is faced with competing interpretations regarding whether the disputed funds include penalty interest that the special servicer is entitled to receive as additional servicing compensation and, if so, the proper amount of the disputed funds that constitute penalty interest,” U.S. Bank’s lawyers wrote.

The court set a hearing date for Feb. 8.

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