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With several large NYC apartment house deals faltering, the thus-far sturdy commercial-mortgage market may be in trouble, Barron's Andrew Bary says.

The $5.4 billion purchase of Stuyvesant Town/Peter Cooper Village by Tishman Speyer and BlackRock (NYSE:BLK) was predicated upon the notion that rental income from the predominately rent-controlled housing would rise as the apartments were quickly converted to market rate apartments. But rental income is declining - covering just 35% of estimated annual interest costs of $300M on the $4.4B loan developers took. The partners cite a high rate of new leases written, low vacancy rates, a long-term outlook and a $1B equity stake that should comfort investors. Yet Tishman and BlackRock could lose their entire $1B equity stake - and more on the loans - if the market keeps faltering. Debt investors will suffer too.

Uptown, several smaller apartment deals in Harlem have either defaulted or are on the verge of defaulting, underwritten as well with high leverage and misconceptions about the pace of rent-controlled apartment conversions. The buyers made huge, initial profits. Now with much of the enormous debt on the buildings already hawked to bond investors, yields are rising sharply on these securitized loans. Delinquency rates are low, but investors could be left holding the hefty leverage bag if they rise.