Stuy Town Lender’s Legal Headaches Multiply

MANHATTAN (CN) - After settling a similar lawsuit last year, a real estate investment firm now faces new claims of "absconding with more than one-half billion dollars" in a deal over storied New York developments Stuyvesant Town and Peter Cooper Village.

Four bondholders, led by Appaloosa Investment, filed the lawsuit Thursday against CWCapital and Wells Fargo Bank in Manhattan Supreme Court.

The litigation falls more than a year after CWCapital faced down another complaint accusing it of trying to "reap an unjust windfall" on Stuy Town, the 10,000-plus-unit complex that has been an East Village mainstay since 1946.

Though that lawsuit quietly settled, the controversy surrounding the sale continued to swirl.

Earlier this month, the Wall Street Journal quoted one bond manager as marveling over what CWCapital stood to gain on the deal.

"Comb through structured finance - there's nothing like this," Talmage LLC CEO Edward Shugrue told the paper on Nov. 3. "That's a pretty flippin' crazy amount of money."

This quotation is featured prominently in Appaloosa's complaint, which computes CWCapital's "significant and unprecedented windfall" at roughly $566 million.

CWCapital contends that it deserves that amount for default interests owed for "senior loan" it contributed to the $5.3 billion sale of Stuy Town in 2006.

Appaloosa emphasizes that its intent is not to block this nearly decade-old sale.

"On the contrary, plaintiffs desire for the sale to proceed, but CWC should not be permitted to flee with a windfall of more than one-half billion dollars in default interest purportedly owed on the senior loan that is required to be used to offset losses suffered by investors in the Stuy Town [commercial mortgage-backed securities] trusts," the complaint states.

The bondholders believe that, if CWCapital is owed default interest at all, the amount would be roughly $38.2 million.

Wells Fargo is described in the complaint as the "paying agent" and "master servicer" of the trusts in which the plaintiffs invested.

The bondholders are pursuing two counts of declaratory and injunctive relief, stating that CWCapital is not owed default interest, or is owed a far lower amount.

Their attorney Lawrence Rolnick of Lowenstein Sandler did not respond to an email and phone call seeking comment.

A CWCapital spokesman declined to comment when reached by phone.

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