Stuytown bid set for controversy

Fri May 16, 2014 11:35am EDT
 
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By Joy Wiltermuth

NEW YORK, May 16 (IFR) - Fortress Investment Group's US$4.7bn bid for a prime piece of Manhattan real estate is being closely watched for missteps that could land the company in court.

Fortress has its eyes on the 11,000-apartment complex of Peter Cooper Village & Stuyvesant Town, which was at the center of a US$3bn default just five years ago - the biggest default so far in the commercial mortgage bond market.

But the deal looks tricky from the outset because a foreclosure of a junior lien on the property is needed via Fortress affiliate CWCapital before any new owner takes over.

Special servicer CW has overseen Stuytown (for a fee of roughly US$600,000 a month) since its default. In that role, it has so far resisted offers from others to buy the property, saying it can recoup the most value for bondholders through managing the property.

Now it could be poised to give parent company Fortress the inside track.

FAIR VALUE?

CW is expected to use a contentious clause in the original 2006 financing, called the fair value purchase option, to make a quick sale of the defaulted senior mortgage to Fortress. These clauses have fallen out of use in CMBS deal documents due to conflicts of interest.   Continued...