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Hedge Fund Challenges Stuy-Town Special Servicer

NEW YORK CITY-Appaloosa Management, which controls more than 25% of the senior debt on the sprawling multifamily complex, alleges that CWCapital breached its fiduciary duty.

By Paul Bubny | Updated on February 24, 2010

NEW YORK CITY-A hedge fund controlling more than 25% of the $3-billion senior debt on Peter Cooper Village/Stuyvesant Town has filed a motion challenging CWCapital Management, alleging that the Stuy-Town special servicer violated its fiduciary duty to debtholders on the sprawling multifamily complex. A spokeswoman for CWCapital says her company declines to comment.

The motion to intervene, filed Tuesday afternoon in US District Court in Manhattan by attorneys for Chatham, NJ-based Appaloosa Management, alleges that CWCapital “recklessly and imprudently” exposed Appaloosa and other debtholders to “wholly avoidable losses, risks and injuries” by seeking to foreclose on Stuy-Town “when other less hazardous avenues were available.” According to court documents, those risks include: exposure to the rent-overcharge claims that were upheld last October by the state’s highest court; liability over CWCapital’s failure to obtain an environmental assessment of the property before filing for foreclosure; and double transfer taxes.

“A foreclosure judgment will require a double payment of New York City’s $100-million transfer tax on the property: once when title is transferred by foreclosure, and a second time, when the property is sold in the inevitably necessary workout of this loan,” according to Appaloosa’s court filing. “No prudent commercial mortgage lender would willingly assume these tax liabilities, particularly when they could be limited by other means, or avoided entirely in bankruptcy.”

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