By Sabina Mollot
It was the biggest bust of the last real estate boom, but a lawyer battling over Stuyvesant Town money claimed everybody won.
“Listen, everybody connected with this property is making a lot of money,” said Greg Cross, an attorney for CWCapital.
Cross was in court earlier this month defending his client’s right to a half-billion-dollar payment for services rendered during the period when CWCapital ran the complex and serviced the debt on the original $3 billion mortgage rung up by Tishman Speyer and BlackRock Realty which was sold to investors in five securitized tranches.
In October, investment giants Blackstone and Ivanhoe Cambridge agreed to buy the East Side development for $5.3 billion and signed a deal with the city to preserve 5,000 affordable apartments.
Ahead of the sale closing, the latest in a long line of lawsuits surrounding the complicated financing deals negotiated for the property drew to an end with the plaintiffs withdrawing their complaints.
The lawsuit had been filed by funds controlled by the hedge fund, Appaloosa Management. They were bondholders for the first $3 billion mortgage. In it, they claimed CWCapital’s acceptance of $566 million in sale-related and service fees would cause the lenders irreparable harm. The suit cited figures from industry analysts that said the sale of Stuyvesant Town to Blackstone Group for $5.3 billion would result in a gain on sale proceeds on the senior loan in excess of $1.1 billion.
“The recovery of these amounts is critical to the Stuy Town CMBS (commercial mortgage backed securities) trusts,” said the investors in their lawsuit. They argued that CW would still be compensated for its services by a “special servicing fee” of $7.5 million per year for the nearly six years the company has controlled the property, and a $15 million “liquidation fee” for the sale.
On December 1, the plaintiffs filed a motion to voluntarily dismiss and discontinue the legal action, which also named Wells Fargo as a defendant.
When asked for comment later, Cross, partner in charge of Venable’s bankruptcy group, said he wasn’t authorized to discuss the suit other than to confirm that it was dismissed, and that there wasn’t a settlement.
On the same day, Supreme Court Justice Shirley Werner-Kornreich denied a preliminary injunction by the lenders after hearing arguments from the attorneys for both sides.
“I’m looking at this and the major issue here is lack of standing,” Werner-Kornreich told Appaloosa’s attorney, according to a court transcript. “I think that as a result, the likelihood of success on this, in my view, is slim.”
Werner-Kornreich also disagreed with the lenders’ argument that CW’s acceptance of the full amount of fees would cause the lenders irreparable harm.
“We’re talking about money and I don’t see the irreparable harm,” she said.
At another point, Werner-Kornreich asked why Stuyvesant Town and Peter Cooper Village saw no foreclosure sale from 2010-2014. Appaloosa attorney Thomas Redburn said this was CW’s decision although he didn’t know what the motivation for that inaction was.
“That in itself raises a lot of questions,” said Werner-Kornreich.
“Certainly raises a lot of questions for my client,” Redburn shot back.
The judge then said the property, if sold, would probably have been valued at a lot less at that point, but Redburn said he didn’t think there was a “definitive” answer to that.
It was during his chance to argue CW’s case that Cross dismissed the plaintiffs’ claims they had dragged their heels in selling the complex, explaining litigation had to first be settled, among other reasons.
“We found a way to manage the property. We had to settle a J-51 suit. It took us like three years to do that,” said Cross. He also mentioned litigation in federal court, which “took another two years. So there was no protracted delay where someone was sitting on their hands.”
He also blasted Appaloosa for its “rogue actions,” saying previously the funds had fought them in court “telling us to hold on to the property, work with the property.”
On the disputed hundreds of millions, Cross argued that CW earned it after waiting six years.
“Listen, everybody connected with this property is making a lot of money,” said Cross, “and most of them — the only person who worked for that money to earn it for them is CWCapital.”
There were several big losers on the historic deal.
Anthony La Malfa, partner, Real Estate and Hospitality Services at accounting firm BDO, noted, “The $5.3 billion sales price far exceeds the $3 billion in principal balance owed to the trusts for the first mortgage, but the original acquisition price in 2006 was $5.4 billion.
“That leaves $2.4 billion in losses for the original equity and mezzanine investors.”
Lawrence Rolnick, a lead attorney for Appaloosa, didn’t respond to a request for comment. Nor did Brian Moriarty, a spokesperson for CWCapital.
Christine Anderson, a spokesperson for the Blackstone Group, had said at the time the suit was filed that it wasn’t expected to slow down the closing of the sale, which is supposed to happen by the end of this year.