Investors sue CWCapital, Wells Fargo over Stuy Town sale

CMBS bondholders want share of alleged $566M “windfall”
By Konrad Putzier | November 12, 2015 01:50PM

Four investors in Stuyvesant Town Peter Cooper Village are suing CWCapital and Wells Fargo, looking to prevent CWC from reaping an alleged “windfall” of more than $560 million from the complex’ $5.3 billion sale to the Blackstone Group and Ivanhoe Cambridge.

The plaintiffs, Appaloosa Investment L.P.I, Palomino Fund Ltd., Thoroughbred Fund L.P., and Thoroughbred Master Ltd, are investors in CBMS bonds that financed Tishman Speyer’s and BlackRock’s acquisition of the complex in 2006 from MetLife Insurance Company. When Tishman Speyer defaulted on its loans in 2010, special servicer CWCapital took control of the property on behalf of its lenders, including the four plaintiffs. CWCapital, controlled by Fortress Investment Group, agreed to sell Stuyvesant Town to Blackstone and Ivanhoe Cambridge last month.

According to the lawsuit, CWCapital reportedly believes it can collect up to $566 million on top of its special servicing fees, largely due to a contractual clause that it claims entitles it to 3 percent of the property’s in-default debt because the sales price is much greater than the $3 billion mortgage.

The four plaintiffs are suing to prevent CWCapital from receiving that money, arguing it should go to the investors instead. “Under the relevant contracts, those specific funds are required to be deposited into segregated accounts and used to offset losses suffered by Plaintiffs and other investors in the commercial mortgage backed securities (“CMBS”) trusts that hold the senior loan secured by the real estate,” the complaint reads.

Wells Fargo is named as a defendant because it is the master servicer and paying agent of the CMBS trust the four plaintiffs invested in. In other words, it is responsible for making sure the bondholders get their money.

The complaint alleges that CWCapital may look to immediately distribute the $566 million to its owner, fund manager Fortress Investment Group, making the money difficult to recover. “Thus, it is imperative that CWC be prevented from absconding with the more than one-half billion dollars in purported default interest,” the complaint reads. Fortress paid around $300 million for CWCapital in 2010.

Last year, several Stuy Town lenders sued CWCapital for “misconduct,” accusing it of trying to keep control of the property and “reaping an unjust windfall” of $1 billion through a proposed sale. That suit was settled in early September, paving the way for the sale of the property.

Wells Fargo and CWCapital declined to comment.