So he is now engaged in a lawsuit against the servicer, CW Capital, alleging it is acting in its own interest—special servicers’ contracts generally do not have incentives that are aligned with the riskier investors—and not in the best interests of the holders of the bonds.
“They can’t just willy-nilly run off and make their own judgment about this,” Kathy Patrick, an attorney for Mr. Tepper at the Texas firm Gibbs & Bruns, said of CW Capital. “It’s hundreds of millions of dollars that are wholly avoidable if the property is restructured appropriately.”
This is considered a tough fight given that the contract with CW Capital gives it broad authority over how to proceed. This, effectively, is the argument of CW Capital, saying that it is well within its rights, and the contract does not even allow Appaloosa to bring legal action unless many other investors join with it.
Regardless, Mr. Tepper has already won, to a certain extent. Throughout the sector, investors have become far more bullish on the future of CMBS than they were a year ago, particularly in the past few weeks. Anyone who bought CMBS bonds a year ago, particularly the less risky slices, would easily have seen double-digit gains (Mr. Tepper bought both risky and safe slices of the Stuyvesant Town bonds).
Mr. Tepper’s aim, of course, is transparent: He simply wants the value of Stuyvesant Town to return to at least $3 billion, the initial value of the mortgage. That way, he can realize a maximum return on his investments.
The best solution, he said, is for the tenants to buy it themselves—a plan they are pursuing—as they have the ability to pay more given that the apartments could quickly be converted to condos or co-ops.
Mr. Tepper’s advice to the tenants: Act fast, as the markets are improving.
“Nothing would make me happier than to see 11,000 new homeowners, if the first mortgage is paid,” he said. “The way things are going and the way things are improving, I hope they act fast for their sake.”