Pershing, Winthrop foreclosure on Stuy Town

Winthrop Realty Trust and William Ackman’s hedge fund have launched mezzanine foreclosure proceedings against the landmark New York multifamily complex after acquiring three mezzanine tranches for 15 cents on the dollar.

William Ackman’s Pershing Square hedge fund has joined forces with Winthrop Realty Trust to launch mezzanine foreclosure proceedings against the New York residential complex, Stuyvesant Town and Peter Cooper Village.

The firms said in a joint statement they had already started foreclosure proceedings against the 11,227-unit multifamily complex after acquiring three senior mezzanine loans for roughly 15 cents on the dollar.

The loans, with an original face value of $300 million, were purchased for $45 million. Boston-based REIT Winthrop will own a 22.5 percent stake in the loans, while Pershing Square Capital Management will retain a 77.5 percent stake.

Stuy Town, which sits on 80-acres of prime Manhattan real estate, was placed into special servicing in December after the owners – Tishman Speyer and BlackRock Realty – struggled to convert enough rent-stablised apartments to market rate units. In January, the firms missed a $16 million debt payment placing the property’s $3 billion senior mortgage in default.

We share [Stuyvesant Town] tenants' association objective to complete a non-eviction, affordable, co-op conversion of the property, which will require the restructuring of the property's first mortgage debt.

William Ackman, CEO, Pershing Square Capital Management

Ackman said in a statement today that Pershing and Winthrop planned to convert Stuy Town into co-op units “which will require the restructuring of the property's first mortgage debt”.

As the holder of the most senior mezzanine debt, Pershing and Winthrop are in prime position to take over the equity interests in Stuy Town.

Five Mile Capital Partners and Normandy Real Estate Partners acquired the Boston skyscraper, the John Hancock Building for $20.1 million, with the assumption of a $640.5 million mortgage, after snapping up discounted pieces of mezzanine debt secured against the office block and launching mezzanine foreclosure proceedings against then-owner Broadway Real Estate Partners.

The private equity mezzanine firm set up by Lubert-Adler Real Estate co-founder Ira Lubert, LEM Mezzanine, did the same thing last December when it successfully launched mezzanine foreclosure proceedings against the W Hotel – Union Square, in New York and took over owner Istithmar World’s equity interests.

That deal, however, later soured when two other mezzanine debt holders launched their own foreclosure proceedings against LEM for failure to make debt repayments, with LEM last month agreeing to sell the Manhattan hotel to US REIT Host Hotels & Resorts instead.

Stuy Town was acquired by Tishman and BlackRock for $5.4 billion in 2006 and had been expected to be sold at a public auction as a whole, or in two lots, by special servicer CWCapital Asset Management. CWCapital had launched foreclosure proceedings against Tishman and BlackRock in January, and in June won the right to foreclose on the properties by a federal district court.