Fitch Ratings downgraded another series of commercial real estate loans, driven in part by concerns that the troubled Riverton Houses apartment complex in Harlem would incur a “significant loss upon liquidation” based on a recent appraisal report.
Wells Fargo, the trustee of the Riverton loan, filed a motion last month in New York State Supreme Court for a summary judgment against developer Laurence Gluck of Stellar Management, who defaulted on a $225 million loan and was thus far unable to arrange a workout with his lenders.
Sources close to the case said a hearing is scheduled for tomorrow to determine whether to order a judgment against the developer. If such an order is issued, a referee would be appointed to determine the total amount due and what steps would be taken to place the property up for sale and collect on any personal guarantees.
Tom Fink, senior vice president at Manhattan-based commercial mortgage research firm Trepp, says that the property is deeply underwater and could ultimately be sold to a third party, either through a foreclosure auction or negotiated sale.
“The servicer has received an appraisal reduction of $52 million, which is the current estimate of how much the loan exceeds the value of the property,” Fink said. “There is an additional $1.1 million of servicer advances on top of that.”
The Riverton, a 1,230-unit apartment complex that spans 135th to 139th streets between Fifth Avenue and the Harlem River, was acquired by Stellar Management and Rockpoint Group at the height of the real estate boom in December 2006. As The Real Deal previously reported, Gluck planned to convert the seven-building complex, which was 92 percent rent stabilized, to more than half market-rate apartments, which would allow him to raise the average rent to $36.68 per square foot from $14.52.
Fitch reports that Gluck was only able to convert about 128 units, or 10 percent of the building, to market-rate units. Gluck began running into trouble before the financial markets collapsed in September 2008, and was unable to work out a deal to stave off his lenders.
Fitch reports that the loan is “current” and there is $7 million left in the building’s reserves, which should last up to six months. Fitch says that the special servicer that handles distressed loans is dual tracking the loan, meaning it could go into final foreclosure or get a final workout.
In February, court officials named Seymour Boyers, a former associate justice in the New York State Appellate Division and a former city council member, as the receiver for the Riverton. Gluck had been in negotiations with the lender about working out the loan, but up until that point was unable to do so.
Neither Gluck nor his attorney, Stephen Meister, was immediately available for comment.
Realty Finance, a Hartford, Conn.-based firm, had previously scheduled a February 2009 auction for its defaulted $25 million mezzanine loan to the developer but canceled the sale at the last minute. The sale would have allowed a new investor to buy the loan at a discount and take over the property. Crain’s New York reported that Gluck later sued Realty Finance alleging that the firm demanded a $5 million payment to stop it from blocking Gluck from handing the keys back to Wells Fargo. Gluck reportedly was trying to work out a deal to continue managing the property.
Realty Finance officials were not immediately available for comment, but in a May earnings release noted that the company, whose stock is publicly traded, recorded a loan loss reserve to cover its entire position based on the unlikelihood of a restructuring and the current state of the financial markets.