Although the Stuy-Town loan is not in default, Fitch says cash flow generated by the 56-building property is "insufficient to service the debt." Debt service reserves are expected to be depleted by the end of December, according to the ratings agency.
In separate ratings actions taken in August and at the end of October, Fitch downgraded several classes of CMBS containing portions of the loan. The agency's Oct. 30 action occurred after the ruling by the New York State Court of Appeals that rent-stabilized apartments at Stuy-Town were illegally decontrolled.
The court's ruling "is likely to stop the conversion of rent-stabilized units to market rate units and has made the owners liable for repayments of rent overcharges for unit conversions now deemed illegal," Fitch said in October. Accordingly, Fitch lowered its estimate of the property's value to $1.8 billion, one-third of the $5.4 billion the JV paid in 2006.
In a release on Friday, Fitch said it believes there will be "many factors involved" in the workout and ultimate recovery of the loan. These include a possible modification, potential legislative changes to rent stabilization laws, commitment of the loan sponsors, the remaining seven-year term of the loan and the "low" loan per unit of $267,213. Fitch said in October it expects losses of $600 million on the loan, or of 40% of its current balance.
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
