Riverton Apt in New York may avoid foreclosure

NEW YORK, Aug 27 (Reuters) - A New York City commercial property that may signal growing problems in the sector could avoid foreclosure, but Standard & Poor's doubts that the $225 million loan on the building is out of the woods, the rating agency said on Wednesday.

The loan on Riverton Apartments in Harlem comprises 3 percent of a pool of mortgages that back securities issued in 2007. S&P said many of the classes of securities remain on CreditWatch with negative implications, where they were placed on Aug. 18.

The Riverton loan amount and terms were based on aggressive projections typical of many such transactions in 2006 and 2007. This lending pattern could cause the commercial real estate market to somewhat mirror the escalating foreclosures seen in the U.S. residential housing market, investors and analysts said.

"We expect that additional pro-forma loans will likely suffer a fate similar to Riverton Apartment," Lehman analysts wrote in a note earlier this month, referring to loans that were overwhelmingly based on optimistic future cash flows.

S&P said that Stellar Management, one of the two borrowers for the Riverton Apartments, has proposed modifying the loan by putting up more capital and not reaching into two $2.5 million letters of credit controlled by the special servicer, CWCapital Asset Management LLC.

This would allow the borrowers, which also include Rockpoint Group LLC, to meet their Sept. 1 debt payment. Earlier this month the borrowers said they would not be able to meet that payment.

"Although the parties are now analyzing the proposed loan modification, other workout strategies remain possible, including foreclosure," S&P analysts said.

The borrowers bought the property in January 2006 and planned to convert the complex's 1,230 apartments, most of which are under rent-stabilization regulation, into market-rate apartments. But the conversion has stalled. (ilaina.jonas@thomsonreuters.com, editing by Richard Chang)