by Gleb Lerman
While not good for cats, curiosity is important to being a good appraiser. My question revolves around the recent purchase of a $300m mezzanine loan on Peter Cooper Village Stuyvisaint Town. This piece of the capital stack was reportedly purchased for $45 million which sounds like a grain of sand relative to the value of the property. Will the foreclosure trigger $86.6m in transfer taxes in addition to their $45m note acquisition price?
Overview:
A lot has happened since i last wrote about the Feasibility of converting Peter Cooper Village/Stuyvesant Town to Condominiums. The plan of converting tenants to buyers as a means of recapializing the property is becoming more of a reality with the involvement of Pershing Square and Winthrop Realty Trust. For those that don’t know these entities formed a JV and bought a $300m piece of mezzanine debt subordinate to about $3 billion of CMBS first mortgage debt. On the surface this transaction tells us that Pershing must think that PCV/ST is worth at least $3.045B.
Plan:
As owners of the mezzanine debt Pershing filed foreclosure proceedings to convert its debt into equity. Assuming the foreclosure proceedings goes well, in other words no junior mezzanine holders shows up and offer to make Pershing whole by paying them $300m in principal, Pershing will become the owner of PCV/ST. Once owners they will file reorganization bankruptcy and ask the first lien creditors to accept a reorganization plan under which the property will be turned into co-ops and the creditors will be paid back from the sale of apartments.
Question:
According to this article in the New York Law Journal a mezzanine foreclosure triggers New York City Property transfer tax which equals 2.625% on the value of the foreclosed note and any senior debt. In this case it looks like Pershing will be responsible for an additional $86,625,000 in transfer taxes. Calculated as the (3.0b + 300m) x 2.625%.
My question is, am i understanding this correct? and if i am does that mean that most mezz piece acquisitions with a loan to own strategy have the substantial added cost of transfer tax.
