Hedge Funds

Ackman Could Lose New York Real Estate Bet

The Stuyvesant Town and Peter Cooper Village apartment complexes in New York, NY.
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Billionaire hedge fund manager Bill Ackman may find himself on the losing side of a multimillion-dollar bet on a big and storied piece of New York City real estate.

A New York State Supreme Court judge denied a request by Ackman and his partner to take the massive Peter Cooper Village and Stuyvesant Town on Manhattan's East Side into foreclosure. Ackman and his partner, Winthrop Realty Trust spent $45 million dollars to buy $300 million of deeply discounted junior debt on the 80 acre, 56 building property.

They then launched an legal fight to take it into foreclosure and emerge as a part owner of the multibillion dollar property. Their legal argument being an agreement between the creditors gave junior debt holders the ability to foreclose on the property without paying off senior creditors first.

In a ruling Thursday, State Supreme Court Judge Richard Lowe sided with the senior creditors. Judge Lowe wrote an intercreditor agreement is "unambiguous" in saying junior creditors must repay the $3.66 billion in loans and interest due senior creditors before foreclosing on the property.

Battle for Stuyvesant Town

Ackman's partnership, PSW NYC LLC, said it will appeal the ruling. If Ackman loses on appeal, he and his partners stand to lose all of their $45 million investment in the junior debt. A foreclosure led by senior creditors, which include Fannie Mae and Freddie Mac, will wipe out junior debtholders, and payve the way for the senior creditors to take over operation of the property most likely with the help of a friendly, strategic partner.

The future owners of the property could profit handsomely down the road, as laws currently preventing rents to be raised to at-market prices on the property's 11,000 units expire in 2017. Future owners could also profit if they reach an agreement with Stuyvesant Town's 25,000 tenants to agree to some kind of co-op conversion of the rental units.

This marks the latest chapter in Stuyvesant Town's rich history. Opened in 1947 as an housing project for middle income families its remained an affordable housing alternative for residents since that time.

Metropolitan Life then sold the development, which resides between 14th Street and 23rd Street on Manhattan's East Side, for a then record $5.4 billion dollars in 2006. The buyers, an investment group led by real estate giant Tishman-Speyer, defaulted on the mortgage in January, having lost a legal battle to raise rents on the property to levels that enabled it to fund its operation and cover its debt.