Bondholders in New York's infamous Stuyvesant Town-Peter Cooper Village are about to land in the middle of a debate between the community's tenants and its special servicer, CWCapital Asset Management.
The controversy is likely to serve as an example of a bond market trend that caught headlines earlier this year. It's essentially the trend of special servicers of CMBS debt being accused by agencies, such as Fitch, of using their position in the deal to charge shadow fees, according to a recent Fitch Ratings report.
Fitch claimed recently that some special servicers are charging fees for borrowers who seek loan modifications. And while the size of the fees are not as much of a concern, Fitch is worried about the philosophies behind the special servicing fees.
"Special servicers have a fiduciary duty to the trust and bondholders," Fitch wrote in that report. "Any fee charged to a borrower implicitly puts that fiduciary duty at risk." Issues with the special servicer is what the Stuy Town debate is all about.
The embattled community continues to be at odds with the special servicer in charge of servicing the property's debt. And that debate shows no signs of slowing down and involves accusations of the special servicer causing delays to increase their own fees. CWCapital consolidated authority over the apartment community by making its sister company property manager.
Tenants of the New York community are apparently fed up with CWCapital Asset Management, the special servicer of the property's debt. The tenants went as far as sending a letter to community members, indicating that they would begin communicating directly with the bond holders who own the debt because they feel CWCapital has failed to engage in a serious discussion about a proposal in which Brookfield Asset Management would buy Stuy Town. CWCapital, for example, cancelled an auction without explanation.
The Stuyvesant Town-Peter Cooper Village Tenants Association and Brookfield Asset Management reached a deal in which the asset management firm agreed it would acquire the development out of special servicing and turn the community into a property that operates on the principles of tenant ownership.
The proposal hit well over a year ago and now tenants are blaming the special servicer for no action on the deal. A local city councilman Dan Garodnick even jumped into the fray sending the servicer, CWCapital, a letter. Among the tenants accusations is that CWCapital is stalling a sale agreement to enhance its own fees. A spokesperson for CWCapital could not be immediately reached to comment on the allegations.
In response, the tenants are trying to reach the bond holders directly.
"Despite having teamed up with word-class legal and financial advisors Paul Weiss and Moelis & Company, and a highly credible capital partner, Brookfield Asset Management, and communicating in multiple ways with CWCapital, it consistently declines to engage with us," claims John Marsh, president of the Tenants Association. "This is wrong and we believe that the bondholders, Wells Fargo in its role as Master Servicer of the CMBS trusts, CWCapital’s parent company Fortress, and the relevant bond rating agencies will view this issue differently."