December 6, 2021

Cayman Islands firm sues CWCapital over Stuy Town profits

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By Daniel Geiger From Crain’s

Cayman Islands company claims share in $600 million that CWCapital netted from sale of Stuyvesant Town

Another investment group has launched a legal effort for a chunk of the massive profits that a real estate firm earned from the default, foreclosure and 2015 sale of the twin East Side residential complexes Stuyvesant Town and Peter Cooper Village.

Cayman Islands–based Cobalt filed a federal lawsuit in U.S. Southern District Court Dec. 1 alleging that CWCapital, a real estate servicing firm owned by the alternative-investment fund Fortress, netted more than $1 billion from fees and other charges it collected as the special servicer for a $3.4 billion portfolio of commercial mortgage securities owned by Cobalt.

According to the suit, the bulk of that money stemmed from CWCapital’s role as the special servicer for Stuyvesant Town. When the complex slipped into default in January 2010, CWCapital, acting on behalf of the bondholders who owned its $3 billion securitized mortgage, took control of the 11,200-unit property.

It turned out to be an extremely lucrative assignment. Cobalt alleges that over the six years CWCapital administered the complex, the servicer paid itself a host of fees, including a $15 million liquidation fee when Stuyvesant Town was sold in 2015 to the Blackstone Group for $5.5 billion, $46 million in special servicing fees and a whopping $615 million in penalty interest CWCapital calculated had accrued between the 2010 default and eventual sale.

The suit states that Charles Spetka, who was the president and CEO of CWCapital’s parent company, CW Financial Services, during its control of Stuyvesant Town was so elated by the lucrativeness of the special servicer assignment that he said it was “like I’d won the lottery.”

Cobalt’s suit claims that it was the owner of a controlling class of the property’s mortgage securities and thus should have shared in the $1 billion in fees and default interest reaped by CWCapital on Stuy Town and the other real estate investments tied to those securities. Cobalt claims CWCapital took the money for itself, failing in its fiduciary duty to alert Cobalt to the proceeds it was entitled to. Cobalt claims it lost $2.4 billion of the $3.4 billion it invested in the securities and also owes at least $1 billion in interest to its investors.

The suit describes Cobalt as a special-purpose entity with no employees that was created to invest in debt securities and does not disclose any of its investors. An attorney for Cobalt in the suit, Jonathan Pickhardt, who is a partner at the law firm Quinn Emanuel Urquhart & Sullivan, said he could not comment on the case and that directors at Cobalt also were not willing to comment.

The suit is at least the second aimed at recouping the huge payday CWCapital reaped from its involvement in Stuyvesant Town. A group of investment firms, including Appaloosa Management, that held a portion of the middle-class complex’s mortgage securities filed a lawsuit in November 2015 seeking to disburse $560 million of the default interest CWCapital collected on the property to the securitized mortgage’s bond holders.

IMAGE: Photo: Buck Ennis

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