Harlem NY apartments in foreclosure difficulties

By Ilaina Jonas

NEW YORK, Feb 18 (Reuters) - The special servicer overseeing a $225 million mortgage on a group of 12 apartment buildings in Manhattan's Harlem neighborhood has filed to foreclose on the property, Fitch Ratings said.

The loan for the Riverton Apartments high-rise in Harlem was one of several aggressive loans typifying the easy lending style of the past few years in which loans were made on optimistic projections of what the property could support in the future.

CWCapital, the special servicer of the commercial mortgage-backed securities (CMBS) trust that holds the mortgage, filed for foreclosure and receivership on Feb. 3, after the loan became over 90 days delinquent, Fitch said.

Once a mortgage that is part of a CMBS pool is near or in default, it comes under the control of the special servicer whose job is to maximize the returns and send them back into the pool.

Because the property is located in New York, the process for the closure requires court action, giving the parties time to work out a deal.

The sponsors of the Riverton, Stellar Management and Rockpoint Group, assumed that they could convert 53 percent of the rent-stabilized units of the Riverton -- comprise of 1,230 units in the 13-story buildings -- to market prices two to three times higher by 2011, boosting cash flows.

But the pace of conversion has been slow, leaving the property proceeds too low to cover the mortgage and allow the borrowers to pay off a $25 million mezzanine loan.

Several properties were financed this way in the 2005 and 2006, when banks were lending liberally. This lending style was also used for Tishman Speyer's and BlackRock Realty's purchase of the Peter Cooper Village and Stuyvesant Town in downtown Manhattan. Those two lower Manhattan apartment developments, which include 56 apartment buildings, are attached to $3 billion of securitized mortgage debt. Another $1.5 billion of mezzanine debt is tied to the purchase.

On Wednesday, Fitch said the value of the Riverton in Harlem had fallen to $196 million. Additionally, Realty Finance Corp, the lender of the $25 million mezzanine loan, postponed its intended Friday foreclosure on its loan to an unspecified date, Kenneth Witkin, Realty Finance chief executive, told Reuters.

A mezzanine loan is made directly to the owners of property, and is not collateralized by the property. By foreclosing on the mezzanine, Realty Finance could opt to become the new owner of Riverton and be responsible for paying the mortgage.

Neither Witkin nor Laurence Gluck, president of Stellar Management would say why the foreclosure was postponed. But Gluck said the parties were still talking. (Reporting by Ilaina Jonas; Editing by Tim Dobbyn)