NEW YORK (Reuters) - The owners of Stuyvesant Town and Peter Cooper Village have reached a $147 million settlement to resolve claims by thousands of tenants who said they were overcharged on rent, removing the biggest hurdle to a sale of the huge Manhattan apartment complexes, attorneys for both sides said on Thursday.
About 25,000 people live in Stuyvesant Town and Peter Cooper Village, a sprawling complex of 56 high-rise brick buildings with a private park on 80 acres on Manhattan’s East Side. The complex - known for its spacious apartments - was built in two stages beginning after World War II with the intention of providing homes for returning veterans and later for middle-class residents. Last month, the property sustained tens of millions of dollars of flooding damage from Superstorm Sandy.
CWCapital Asset Management LLC, which has controlled Stuyvesant Town/Peter Cooper Village since 2010, and past owner MetLife Inc will pay $68.75 million to reimburse 21,250 tenants for past overcharges under the agreement. CWCapital also agreed to end any effort to recover $78.1 million in rent reductions it has provided since the lawsuit was filed in 2009.
The tenants had sought roughly $215 million in their lawsuit.
The settlement, which also sets rents for the 11,200-unit property through June 2020, has been approved by the New York State Division of Housing and Community Renewal.
The settlement is the most recent chapter in the saga of MetLife’s sale of the vast apartment complex to Tishman Speyer Properties L.P. and an affiliate of BlackRock Inc for a record $5.4 billion at the top of the commercial real estate market in 2007. The tenants’ lawsuit, filed two years later, and the downward spiral of the real estate market culminated in the owners defaulting on their loans in 2010.
The lawsuit was filed to fight MetLife’s - and subsequently Tishman Speyer’s - policy of converting rent-stabilized apartments to much higher market rents when a tenant vacated. Under this policy, the rents on 4,311 apartments had been raised sharply from rent-stabilized rates in vacancies since 2003.
The courts ruled that the procedure violated a city program designed to encourage landlords to improve property in exchange for tax abatements. Since landlords of tens of thousands of other apartments in New York have done the same, the formula used for the Stuyvesant Town/Peter Cooper Village settlement is likely to serve as a template for those apartments.
Tishman Speyer upgraded apartments as they became available and then raised rents to market rates from the much lower stabilized rents. MetLife, the previous owner, had done the same to a lesser degree.
New York State’s highest court, the Court of Appeals, said that the property’s current owner as well as MetLife, which also had been upgrading apartments, were responsible for damages.
The Tishman Speyer-led investors who bought the property had used $4.4 billion in debt. That included a $3 billion mortgage that was sliced up into commercial mortgage-backed securities (CMBS) held in five different trusts. CWCapital represents the holders of that debt.
When the owners defaulted on the mortgage, CWCapital, a special servicer who represents the securities holders, took control of the property.
Under the settlement agreement, the bondholders represented by CWCapital will pay $58.25 million, including about $11 million to $13 million already in escrow. Past owner MetLife will contribute $10.5 million.
A final settlement would pave the way for CWCapital to entertain offers for the properties. Those who have expressed interest in the past, including Westwood Capital LLC and the LeFrak Organization, said any bid would have to have the tenants’ backing.
But a final settlement, including class approval and the end of the appeal process, could take another 18 months, pushing back a sale to 2014, said attorney Greg Cross, a partner with the law firm of Venable LLP, who represented CWCapital.
Last year, the Tenants Association chose Brookfield Asset Management Inc as a partner to formulate a bid for the Manhattan apartment complex that would let tenants buy their units.
An offer would include a plan to enable tenants to buy their apartments or keep leasing them at rent-stabilized rates.
The case is Roberts v. Tishman Speyer Properties LP et al, New York State Supreme Court, New York County, No. 100956/2007.
Reporting by Ilaina Jonas; Editing by Jan Paschal