Judge advances sale of NYC's Stuyvesant Town

* Judge rules Stuyvesant Town/Peter Cooper can be sold

* Councilman backs selling complex to tenants

* Hurdles include financing, pending court settlements

By Ilaina Jonas and Joan Gralla

NEW YORK, June 22 (Reuters) - The purchase of Stuyvesant Town/Peter Cooper Village in New York City by its tenants or outside investors was advanced by a federal judge's ruling giving the green light to a sale.

"It was an important step in the process," said Dan Pasquini, a spokesman for City Councilman Daniel Garodnick, on Tuesday.

Garodnick is a Democrat who wants the sprawling middle-class apartment complex -- where he lives -- on Manhattan's Lower East Side converted to condominium or cooperative apartments.

But at least one potential buyer has said that the lawsuits that attached to the property will delay the sale to tenants, outside investors, or a combination of both.

U.S. District Court Judge Alvin Hellerstein, of the Southern District in Manhattan, ruled late Monday that the two apartment properties can now be sold, four months after CWCapital, the special servicer, sought to foreclose on the 11,200 apartments in 56 buildings sprawled across 80 acres.

A special servicer oversees troubled loans that have been securitized. Some $3 billion of the debt used to finance the $5.4 billion purchase of the apartment complex by a Tishman Speyer-BlackRock Inc (BLK.N) joint venture was securitized into commercial mortgage-backed bonds.

It's up to CWCapital to decide when to sell it.

When interest and attorneys fees are factored in, the Stuyvesant Town/Peter Cooper Village bondholders are owed at least $3.67 billion, according to the judge's decision.

Insurer MetLife (MET.N) sold the apartment complex in 2006, just as the real estate market was peaking. The property now is valued at about $2 billion.

To its critics, the iconic apartment complex that was built for World War Two veterans and city workers symbolized the real estate market's excesses.

Tishman Speyer-BlackRock were criticized for trying to replace middle-class rent-regulated tenants with people who could pay higher, market-rate rents.

The joint venture lost a key state court decision on this issue, which further imperiled their investment. [ID:nN14268606]

Equity and other investors -- such as California pension fund Calpers, Government of Singapore Investment Corp, and SL Green Realty Corp (SLG.N) -- have seen their stakes wiped out.

THE EPIC CONTINUES

Still to be hashed out are the taxes and possible punitive damages for tenants stemming from the state court case and these issues will delay a sale, said Richard LeFrak, chairman of the giant property and energy company LeFrak Organization.

"StuyTown is like 'War and Peace,'" LeFrak said last week at the Reuters Global Real Estate and Infrastructure Summit. "It's going to take some time. There's not going to be instant activity here."

LeFrak said that differences between creditors and tenants will likely complicate a sale.

"I think in the end it's the government that's going to have a lot to say," he said.

"Whoever is going to buy this thing has to go to Fannie Mae FNM.N and Freddie Mac FRE.N," LeFrak said. "Let's assume you have to get a mortgage of $1.5 billion, exactly where do you get such a thing?"

The two agencies helped finance the purchase, buying some of the bonds carved out of the $3 billion mortgage, which was spread across five CMBS deals.

The case is Bank of America et al v. PCV ST Owner LP et, U.S. District Court, Southern District of New York, No. 1:10-cv-1178.

(Reporting by Ilaina Jonas and Joan Gralla; Editing by Phil Berlowitz)