Judge sends lenders’ suit back to state court

Stuyvesant Town leasing office (Photo by Sabina Mollot)

Stuyvesant Town leasing office (Photo by Sabina Mollot)

By Sabina Mollot

A federal court judge has decided that the lawsuit against CWCapital by a group of junior lenders involved in Stuyvesant Town should be handled by a state court, as the lenders had been hoping.

It was on Monday when United States District Judge Alison Nathan remanded the litigation to the New York State court where it was originally filed.

In the decision, Nathan wrote that “this case invokes no comparable federal interest, scheme or agency. Rather it is a contract dispute between private parties, turning almost entirely on construction of a private contract, and failing to present any dispositive question of federal law.”

The lawsuit was filed last summer after CWCapital took ownership of Stuyvesant Town and Peter Cooper through a deed, rather than holding a planned foreclosure sale on mezzanine debt. A group of lenders represented by Centerbridge Partners had hoped for a chance to buy a key piece of the mezzanine or junior debt and accused CW of violating an intercreditor agreement. The deed-in-lieu of auction wipes out the value of the junior debt, they’d argued, allowing CW to reap an “unearned windfall” when the property is sold.

They also accused CW of inflating the interest it was owed to calculate the total senior debt at $4.4 billion.

However, in its arguments, the lenders said that even though they believe CW’s figures are wrong, they still stand to “reap windfall profits regardless of how the interest rate is calculated on the senior loan.”

Even when using CW’s “incorrect and vastly overstated senior loan payoff amount of $4.4 billion, the value of Stuy Town is still worth hundreds of millions of dollars more,” the lenders said.

News of the court action was first reported on Tuesday by Law360, a legal news service.

Michele de Milly, a spokesperson for Centerbridge, declined to comment on the latest court action. Brian Moriarty, a spokesperson for CWCapital, didn’t respond to a request for comment.

Last month, the total amount of debt as calculated by CW reached $4.7 billion, a figure announced at a Tenants Association meeting by Council Member Dan Garodnick. He explained the amount was due to interest and fees. It’s also the amount that was reportedly being prepared as a bid by CWCapital’s parent company, Fortress. The Tenants Association has since said it is still hoping for a tenant-led condo conversion with partner Brookfield.

Following the suit being remanded, Susan Steinberg, chair of the ST-PCV Tenants Association said it basically just means more waiting around for would-be buyers.

“The decision to remand the case back to state court means that if CWCapital is waiting to settle with Centerbridge et. al. before proceeding with plans to sell, it will have a longer wait,” said Steinberg. “Ultimately, so will would-be buyers, including the tenants here. Whether the remand is a good or a bad thing for either the plaintiffs or the defendants will depend on which judge the case comes before. We will stay tuned.”

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CW asks court to toss lenders’ lawsuit

Stuyvesant Town leasing office (Photo by Sabina Mollot)

Stuyvesant Town leasing office (Photo by Sabina Mollot)

By Sabina Mollot

On Monday, CWCapital tried to get a lawsuit that had been filed by representatives of a group of junior lenders last month tossed on the grounds that it was “a story-book portrayal of events.” In this latest court action, CWCapital and co-defendant Wachovia also accused hedge fund Centerbridge Partners, who is representing the lenders, of forming “shell entities” in order to buy into junior loans two months ago, for the sole purpose of suing the owner, the website law360.com first reported.

At that time, CWCapital had taken ownership of Stuyvesant Town/Peter Cooper Village through a deed instead of holding a previously planned auction sale on some of the property’s mezzanine debt. The lenders, once unable to purchase a key piece of mezzanine debt, filed suit in which the company also accused CW of giving themselves a near $1 billion windfall while junior lenders received nothing. Centerbridge had called CWCapital’s takeover “executed on the flawed premise that the amount owed on the senior loan was greater than the value of the property.” CW represented that $4.4 billion was owed on the mortgage when the amount was really $3.45 billion, the lenders said.

But on Monday, CW and Wachovia countered that the plaintiffs were not junior lenders “at any relevant time,” Law 360 quoted the companies as saying in their brief. “Rather, plaintiffs are shell entities that acquired their junior loan positions after, and with full knowledge that, the senior lender had pursued the DIL [deed in lieu transaction], which automatically terminated the ICA (inter-creditor agreement).”

Further, CW argued, “Through this litigation, Centerbridge does not seek to recoup any alleged loss, but rather to earn more than $1 billion in profit on a highly speculative investment in litigation that it made with eyes wide open after the DIL and the termination of the ICA. New York disdains the commercialization of litigation, and its champerty statute is a full stop to what Centerbridge is trying to do here.”

When canceling the mezzanine auction that had been set for June 13, CW also entered into talks with the ST-PCV Tenants Association and the de Blasio administration on a plan that would preserve affordability at around 6,000 apartments. Although the 60-day deadline on those talks has since passed, all parties have agreed that the conversation would continue.

In a mid-July meeting between Mayor de Blasio, the Tenants Association and local elected officials, de Blasio said the TA’s idea of maintaining affordability by going condo would be considered. However, the TA also said it was told by the mayor at that time that his “main thrust is affordable rentals.”

A spokesperson for CWCapital and a spokesperson for Centerbridge did not respond to a request for comment by Town & Village’s press time.

Update: In response to the court action, the Tenants Association issued the following statement.

“We are carefully monitoring this lawsuit because its outcome may affect the stability and long-term affordability of thousands of apartments people call home. Of course the elephant in the room is the multibillion-dollar debt saddled on this great community by speculators and predatory equity. We remain determined to prevent that from happening again.”

Cheating claims spark new lenders lawsuit

Stuyvesant Town leasing office (Photo by Sabina Mollot)

Stuyvesant Town leasing office (Photo by Sabina Mollot)

By Sabina Mollot
Last week, CWCapital was sued by holders of Stuyvesant Town’s mezzanine debt who claimed that the new owner cheated them out of hundreds of millions of dollars.
The lawsuit, which was first reported by Bloomberg, is being led by Centerbridge Partners, which is representing six limited liability companies who are named as plaintiffs.
The suit follows a decision by CW last month to take title to Stuyvesant Town/Peter Cooper Village through a deed rather than hold a foreclosure sale that had been scheduled for June 13.
By doing this, Centerbridge accused CW of a “continuing pattern of misconduct” to keep control of the property and “reap an unjust windfall of $1 billion” that should go to lower level lenders, who’ve received nothing.
The report went on to say the lenders, in their complaint, called CWCapital’s takeover “executed on the flawed premise that the amount owed on the senior loan was greater than the value of the property.” CW represented that $4.4 billion was owed on the mortgage when the amount was really $3.45 billion, the lenders said.
A spokesperson for Centerbridge, Michele de Milly, said the lawsuit shouldn’t impact the tenants.
In an official statement, Centerbridge said, “We believe that Stuyvesant Town is and will continue to be a unique and extraordinarily important property, both for the City of New York and for the thousands of tenants who make it such a robust community. This legal matter is an inter-creditor dispute and we do not expect it to affect Stuyvesant Town or its residents. Funds affiliated with Centerbridge Partners, which have owned mezzanine loans of Stuyvesant Town and Peter Cooper Village, have been forced to commence this lawsuit because of the actions taken by CW Capital, in violation of an inter-creditor agreement.”
CWCapital, however, denied this and called the suit “without merit.”
“The assertions made in the lawsuit are utterly baseless and without merit,” spokesperson Brian Moriarty said. “The fact that the complaint centers on a deed in lieu transaction completed before the plaintiff acquired their position exposes the plaintiff’s specific intent to wrest a quick profit from ‘purchased litigation.’ Centerbridge acquired this position at a deep discount in hopes of reaping a windfall at the expense of the bondholders we represent and residents who deserve a timely resolution that will provide certainty and a path forward for the community.”
The litigation, which also names commercial-mortgage trusts set up by Wachovia Bank, may slow down a sale process. However, it shouldn’t stop the city from its current plan of trying to work with CW to maintain affordability at the property while satisfying the bondholders.
When CW canceled the foreclosure auction it also agreed to hold off on a sale for two months while working with the de Blasio administration along with local elected officials representing ST/PCV to come up with a plan. According to Council Member Dan Garodnick, this litigation doesn’t change that.
“This is largely a dispute between lenders and it does not affect our strategy,” he said. “The only question is whether this has the effect of slowing things down further, which is not at all clear at this moment.”
A New York Times story on June 11 had quoted Deputy Mayor Alicia Glen as saying a plan was being explored that would keep as many as 6,000 units in ST/PCV affordable in exchange for a tax exemption.
However, as of late June, Garodnick told Town & Village there aren’t yet any numbers figured out and city officials stressed that was just one possibility.
“The numbers that have been floated were hypothetical and not based on the substance of any negotiation,” Garodnick said.
Lenders Fannie Mae and Freddie Mac have already committed to not financing a deal that would be unacceptable to the tenants or the city.