Moody's Watches 85 CMBS Classes after Stuy Town Ruling
Moody's Investors Service continues to monitor 85 classes of commercial mortgage-backed securities (CMBS) certificates related to the $3bn Stuyvesant Town mortgage loan after a New York court ruling on Thursday presented a negative credit event. The New York Court of Appeals ruled in a 4-to-2 opinion that the owners of the 11,200-unit Stuyvesant Town/Peter Cooper Village complex in Manhattan may need to refund up to $200m in rent overcharges to tenants, Moody's said. The ruling also limits the owners' ability to raise rates on "luxury" rent-stabilized units in the future based on market raises. "While Thursday’s ruling is a negative credit event for the owners of Stuyvesant Town, the general softening of the residential real estate rental market will continue to be the driver of significant negative credit pressure on this and other similar loans," said Daniel Rubock, a senior vice president, in the outlook report. "Last week’s court defeat is just one entry in a broad catalogue of woes." Metropolitan Life Insurance Company sold Stuy Town to a group of investors, led by Tishman Speyer and BlackRock, in 2006 for $5.4bn, according to Moody's. Parts of the mortgage loan were put into five different CMBS deals. The interest reserve is $24m, which Moody's does not expect will last through 2009. The investors intended to convert rent-stabilized units to market rents as tenants vacated, according to the ratings agency. A lawsuit regarding the de-stabilization of apartment units slowed the conversion process and weighed on existing expenses. Last week's court ruling effectively overturned guidance issued by the New York City's administrative agency in charge of rent laws that allowed decontrol of certain luxury units and the raising of their rents to market level. The ruling may force the owners to refund millions of dollars in rent wrongly charged through the conversion to market rent. "The court decision left open many loose ends, retroactivity among them," Rubock said. "There will be years of clean-up litigation ahead. But because of the larger downturn in the real estate market, this loss, though significant, will be but one factor in the looming breakdown of this loan." Write to Diana Golobay.