In a hint of what lies ahead for 2009, Fitch Ratings reports that the monies held in reserve to cover debt servicing on Stuyvesant Town/Peter Cooper Village, a massive New York multifamily property, have decreased to about $127 million from $400 million at the time the loan was securitized in 2006.

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In addition, the general reserve on the loan has been used up. Commercial mortgage-backed securitizations are typically set up with such reserves to be used for general expenses associated with the property, including debt servicing.

Even though the property is still performing, the cash flow generated by the property still needs to be supplemented by reserves to cover debt service associated with the loan. The New York rating agency estimates that the borrower has about six months of reserves left to cover the debt servicing on the securitized part of the financing.

There is a $3 billion securitized balance associated with an ‘A’ note on the property. Another $1.5 billion of mezzanine debt was taken out on the property. If the loan should default, Fitch expects that the servicer will advance the money to cover the debt servicing.

The Stuyvesant Town/Peter Cooper Village property complex consists of 56 multifamily buildings with a total of more than 11,000 units. The complex also includes 100,000 sq. ft. of retail space and 20,000 sq. ft. of office space.

The property was purchased by Tishman Speyer Properties and Blackrock Realty for more than $5 billion in 2006, when financing was readily available for commercial real estate deals.

At that time, deals such as these were based on the premise that the new landlords could make improvements to the properties and boost rents as tenants moved out of the properties. Under the New York rent-stabilization laws, rents can be boosted, often significantly, as tenants move out of rent-stabilized properties.

Commenting on the possibility of such problems coming to the fore as more properties acquired during the boom times find it difficult to keep up with debt service commitments, James Murphy, who heads up New York brokerage First Service Williams’ capital markets group, anticipates that there will be quite a bit of distress across the board, impacting various property types.

“Everybody is looking at it,” he says. “That’s why we are talking with a variety of owners and investors. We’re helping them forecast what may happen.”