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?
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.
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.
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.