Deutsche Bank: Stuy Town may be destined for co-op after foreclosure sale
The Stuyvesant Town foreclosure sale is set for Monday after an appellate court ruling this week. An analyst at Deutsche Bank believes the massive apartment complex on the East Side of Manhattan will be transferred into a housing co-op — in a move that will protect investor interests. CW Capital, a special servicer for Bank of America, was cleared to carry out the foreclosure sale on the $3.66 billion first mortgage. In early August, Pershing Square Capital Management partnered with Winthrop Realty Trust, a Boston-based real estate investment trust (REIT) that specializes in mortgage investments, to purchase the senior-most mezzanine debt of Stuy Town. The debt has a face value of $300 million, which is carved into $100 million slices for each of the three mortgage pools. But the joint venture purchased it for $45 million. In 2006, MetLife sold Stuy Town to Tishman Speyer Properties and BlackRock Realty for $5.4 billion. The two firms had hoped to update the facilities and move in a higher-end tenant base by charging higher rents. Because the owner of Stuy Town is unable to decontrol units and charge market rents until 2017, the property's value as a rental would be only $1.9 billion, according to Deutsche Bank. The senior debt is roughly $267,000 per unit. At that price, reasons Deutsche, a co-op in New York City would have an easier time getting par for investors on the senior loan. Investors in the five commercial mortgage-backed securities deals effected by Stuy Town should get their money back on this foreclosure sale because there will be bidders Monday. The elimination of a such a large loan like Stuy Town from a CMBS pool should result in "substantial" price appreciation for all AJ and mezzanine bonds, according to Deutsche. But on other major defaulted properties, those investors may come up short of par. Deutsche set out to determine what other CMBS loans have the potential to be removed at or near par for investors in the near future. After taking vintages older than 2005, any properties not rated as an "A," and aggregating the loans based on property type and location, commercial mortgages on Manhattan offices rose to the top of the list. After taking out loans that are no already in special servicing, Deutsche found mortgages on offices in Manhattan, Washington, D.C., Orange County in Calif., Los Angeles, and multifamily loans in Northern Virginia to be the most likely to have positive resolutions for investors. "Certainly for a limited number of properties in select markets the potential for good outcomes exists," according to Deutsche. "The challenge is finding them." Write to Jon Prior.