Hedge Fund Operator Sues Loan Servicer To Jam Foreclosure Action On $3B Mortgage Secured By 11,000-Unit NYC Apartment Complex

In New York City, The Wall Street Journal reports:

• Hedge-fund investor David Tepper has stepped into the battle over the fate of Peter Cooper Village and Stuyvesant Town, the giant New York City apartment complex involved in one of the largest commercial-real-estate failures. Earlier this week, Mr. Tepper, who runs hedge-fund firm Appaloosa Management, filed a complaint seeking to hold up the foreclosure action launched by the so-called special servicer representing investors who own the $3 billion first mortgage on the property. That mortgage was packaged into commercial mortgage-backed securities that were sold to various investors such as Mr. Tepper's firm.

• In court papers filed with a federal court in New York, Appaloosa alleges that the servicer, CW Capital, has "irreconcilable conflicts of interest" because it owns some of the junior commercial mortgage-backed security, or CMBS, debt, among other alleged conflicts.

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• Mr. Tepper, who says he owns more than $750 million of the CMBS debt, is among the largest investors in the debt. [...] Mr. Tepper's lawsuit is a sign the imbroglio over the future of Stuyvesant Town figures to become even more heated.

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• In the lawsuit, Appaloosa says CW Capital shouldn't have moved to foreclose on the complex while earning fees. The complaint says a foreclosure could cost as much as $200 million in transfer taxes, which would be paid by the investors who own the CMBS bonds. Those expenses could have been avoided had the property gone into bankruptcy, the suit says. "The key is, the servicer has to practice its fiduciary duty" to CMBS investors, Mr. Tepper said. "Why did they go into foreclosure? Why are they taking all these excess costs?"

For the story, see Tepper Enters Contest Over Apartment Complex (requires paid subscription; if no subscription, try here, then click link for the story).

See also: The New York Observer: 'Tranche Warfare' Finally Breaks Out at Stuy Town as Billionaire Hedge Funder Goes to Court:

• [Mr. Tepper's] Appaloosa said in court papers that it bought a giant $750 million of the mortgage, a substantial piece of which was junior tranches, which would be among the earliest to be wiped out if the property is sold for less than the $3 billion initial price tag on the mortgage. "CWCapital has recklessly and imprudently exposed the Appaloosa Intervenors—and other Certificateholders—to wholly avoidable losses, risks, and injuries," the filing said.

Go here for Appaloosa's Memorandum of Law on its Motion to Intervene in the Stuyvesant Town foreclosure action.