Pershing Square Capital Management and Winthrop Realty Trust sued CWCapital for $500 million claiming they were cheated when Stuyvesant Town-Peter Cooper Village was foreclosed and then sold for $5.3 billion.
According to The Real Deal, when the Stuyvesant Town was bought in 2006 by Tishman Speyer and BlackRock, they financed the $5.4 billion deal with a heavy load of debt. In 2010, they weren't able to pay their obligations, and in June the same year, a federal judge gave a go-signal for the foreclosure.
Bill Ackman's Pershing Square, a hedge fund known for its real estate business, bought the mezzanine debt in partnership with Winthrop for an undisclosed amount in August 2010. Their plan was to auction off the Stuy Town and repay the senior lenders with the sales proceeds, and then enjoy the remaining booties.
But CWCapital ruined the plans. The company won a court injunction ordering Pershing and Winthrop to pay off the $3.6 billion in outstanding senior debt before they could auction off the property. This means that instead of selling the property and using the funds to pay off the senior lenders, Pershing Square and Winthrop need to pay off the debt first.
As Pershing and Winthrop couldn't foreclose the property, they may face with the threat of seeing the stake wiped out altogether. The suit that was filed in the New York State Supreme Court on Jan. 24, alleges that they decided to sell their mezzanine stake to CWCapital in October 2010, as reported by E Peak.
After CWCapital took over the mezzanine debt, they illegally foreclosed on the equity collateral securing it (the senior borrowing equity that owns Stuy Town), and then they filed a deed in lieu of foreclosure, and took control of the entire property.
The suit claims that by doing so, CWCapital violated the Oct. 10 agreement which Pershing sold its mezzanine stake.
The suit also alleges that CWCapital "engineered an elaborate bipartite fraud" to control the entire complex, and that their ownership to the property was a "nullity."