Friday afternoon, and for the first time since the big court ruling last week, ratings giant Fitch weighed in on Stuyvesant Town, downgrading the ratings for the $3 billion mortgage on the property (the 2006 transaction was a $6.3 billion deal, including reserve funds to pay off debt and upgrade the property).
No surprise with the outlook on the bulk of the loans: “Negative.”
The new analysis has no bombshells, but offered a broad look at how values have declined. Fitch put the current value of the 11,200-apartment complex at $1.8 billion, a number that it only expects to go down should the court rule that the owners, a partnership led by Tishman Speyer, owe back rent to tenants who were overcharged. (Tenants have argued that they are owed more than $200 million in back rent).
Last week’s crippling decision from New York’s top court ruled that Tishman Speyer and prior owner MetLife had been illegally deregulating apartments while taking a government tax break (from which they received about $24 million in benefits). Now all deregulation is sure to stop, and some units may see their rates lowered to the proper stabilized rent, depending on what the courts ultimately decide in coming months and, probably, years.
Now, default is almost an inevitability, and Fitch predicts it is likely to happen by the end of the year:
The balance of the debt service reserve as of October 2009 was $24.4 million and is likely to be sufficient to only make the November and December debt service payments. Once the reserves have been depleted, Fitch believes a default of the loan and transfer to the special servicer is likely.