A recent decision by a New York appellate court judge is exposing the possibility that money due to investors in commercial mortgage-backed securitizations may go toward rent damages related to the collateral used in the deals. Tenants of the massive housing developments at Stuyvesant Town and Peter Cooper Village in Manhattan will be allowed to move forward with their $215 million class-action lawsuit against the current and former owners. If the courts continue to decide in favor of the renters, the liabilities will be paid by the bond trustees. In 2006, MetLife sold Stuy Town to Tishman Speyer Properties and BlackRock Realty for $5.4 billion. The two firms hoped to update the facilities and move in a higher-end tenant base by charging higher rents. It never happened. Instead the loans began to turn delinquent causing shock waves through the commercial real estate market. CW Capital won the right to foreclose under its awarded role of special servicer for lender Bank of America (BAC). Tenants in the sprawling apartments now want compensation alleging rent control violations. According to Deutsche Bank analysts Harris Trifon and Dave Zhou, the outlook is negative for CMBS investors, who purchased bonds that used incoming rent from the apartments as collateral, though to which extent remains undetermined. If the tenants are successful, even in recovering part of their claims, they say its possible the money will come out of regular bond payments. “There are a number of unanswered questions regarding the judgment, primarily will there be a settlement for less than the $215 million claim, when will it be paid and how much of the final tally will the CMBS trusts be responsible for,” they said in a note to clients Monday. “The issue of settling for less is quite possible but due to the success the plaintiffs have had in the courts, we assume for now that full damages will be awarded and in the next few months.” Write to Jacob Gaffney. Follow him on Twitter @jacobgaffney.