UPDATE 2-Lender's agent forecloses on Stuyvesant Town

Tue Feb 16, 2010 8:40pm EST

(Adds expert comment, mezzanine lenders and bond holders)

By Ilaina Jonas

NEW YORK Feb 16 (Reuters) - The trustees for the holders of securitized senior mortgages on Stuyvesant Town/Peter Cooper Village in Manhattan have moved to foreclose after the owner of the apartment complex failed to make the monthly installments on the $3 billion loan.

Acting on behalf of CWCapital, the special servicer of the loans that underlay commercial mortgage backed securities CMBS bonds, trustees Bank of America Corp (BAC.N) and U.S. Bank National Association filed in Manhattan federal court on Tuesday to foreclose on the property. A special servicer steps in when the loans underlying a CMBS trust is in default or in imminent default.

The suit names among others PCV ST, the owner of the property that was created by a joint venture between Tishman Speyer Properties and BlackRock Realty Advisors, and led by Tishman.

The foreclosure marks the significant milestone in what had been one of the biggest and brashest deals during the height of the U.S. commercial real estate boom of the past decade.

The buyers paid $5.4 billion in 2006 for the 56 apartment buildings located on the east side of Manhattan. Originally built by the forerunner of insurance company MetLife, the 11,200 units were designed for middle class tenants. About 25,000 people live there.

Tishman had planned to renovate apartments as they became available, bringing the rent-stabilized units up to market rents. Longer term, they planned to sell some units or build new ones as condominiums.

But the with the collapse of the real estate market and a court decision that ruled the apartments were illegally brought out of rent stabilization, the value of the property tumbled. Some real estate experts have said the complexes are now valued roughly at $2 billion.

Tishman Speyer declined to comment.

The senior mortgages are the only loans secured by the property. Fannie Mae FNM.N and Freddie Mac FRE.N hold the most senior parts of the CMBS bonds.

The $1.4 billion in mezzanine debt is secured by an equity stake in PV ST.

The mezzanine holders include Winthrop Realty Trust (FUR.N) with $300 million, Government of Singapore Investment Corp with $575 million, Hartford Financial Services Group Inc (HIG.N) with $100 million, Deutsche Genossenschafts-Hypothekenbank AG with $100 million and Gramercy Capital Corp GKK.N/SL Green Realty Corp (SLG.N) with the most junior slice at $200 million, according to Real Capital Analytics.

The mezzanine lenders can make an offer to take over the senior mortgage or offer to take it over at a discount, said work-out specialist and New York University Schack Institute of Real Estate clinical associate professor Lawrence Longua.

"Commencing a foreclosure doesn't mean anything," he said. "The junior lenders can always make a deal with the senior lender, but nobody is wiped out until the foreclosure processes is completed."

According to the complaint, the owner failed to pay the monthly installment from Jan. 8 through the current date. On Jan. 8, the trustees notified Tishman that PVC ST was in default of payment.

On Jan. 28, they told Tishman the notes were immediately due or the lenders would exercise their right to foreclose.

(Reporting by Ilaina Jonas)

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