Commercial Loans Blog

UCC Foreclosure of a Huge Mezzanine Loan

Posted by George Blackburne on Mon, Aug 23, 2010

A Mezzanine Loan is Personal Property, Not Real Property

This is really juicy gossip. A mezzanine lender is foreclosing on a $100 million mezzanine loan that is secured by the largest apartment complex in New York City.

You will recall that a mezzanine loan is not a real estate loan. Instead, a mezzanine loan is loan that is secured by the membership interests (think shares) of a LLC (think corporation) that owns a huge real estate project. If you own all of the company and the company owns all of the property, then you own all of the property.

Why would a lender make a mezzanine loan rather than just a normal mortgage loan? The answer is speed. It can take up to 18 months to foreclose a mortgage in New York. A lender can foreclose on the membership interests of a limited liability company in just 30 days because membership interests in an LLC are just chattel (personal property), not real estate.

The law merely requires that the lender seize the membership interests without breaching the peace and that it conduct the sale in a commercially reasonable manner; i.e., in a manner in which such property is usually sold.

Today I received the fascinating email below that details an upcoming UCC (personal property) foreclosure sale. This is GOOD STUFF.

Dear George,

I am writing to inform you of the upcoming opportunity to bid at public auction on the "Peter Cooper Village/Stuyvesant Town" Mezzanine Loans 1, 2 and 3 (with a face amount of $100 million each), which are indirectly secured by the Peter Cooper Village/Stuyvesant Town property located in Manhattan, New York. The public auction will be adjourned from August 25, 2010 until September 8, 2010 at 11:00 AM (for Mezzanine 3), 12PM (for Mezzanine 2) and 1PM (for Mezzanine 1) at the offices of Brown Rudnick LLP, located at Seven Times Square, 47th Floor, New York, NY 10036.

Peter Cooper Village/Stuyvesant Town, well known as a “City within a City”, was built for MetLife in 1947 and is considered Manhattan’s largest apartment complex. The complex is comprised of 56 buildings, situated on 80 acres and includes 11,227 residential apartments. In addition to the residential component, the complex contains approximately 100,000 square feet of retail space, approximately 20,000 square feet of professional office space, and 6 parking garages with 2,260 licensed spaces totaling approximately 400,000 square feet.

For additional information regarding the public UCC foreclosure sale, please execute the attached Confidentiality and Investment Agreement. Upon the execution and return of the Confidentiality and Investment Agreement in such form, you will be given a USER ID and Password to access the CONFIDENTIAL website located at ...

Thanks,

Joe Schmoe
Lender

Topics: mezzanine loans, mezzanine loan foreclosure, UCC foreclosure