NEW YORK - New York state's top court is likely to rule next month on a Manhattan housing complex legal battle that could derail one the United States' largest real estate deals and reshape the city's residential rental market.

The fight has pitted landlords against tenants at the 11,200-apartment complex near New York City's East River.

The New York Court of Appeals will decide whether the real estate firm that purchased the $5.4 billion complex was entitled to switch rent regulated apartments to higher, free-market rates, the court's clerk said on Thursday.

A decision to uphold a lower court decision that owner Tishman Speyer Props LLC could not deregulate rents could scupper its 2006 purchase of the Stuyvesant Town and Peter Cooper Village, according to a lawyer representing tenants.

It could also impact other New York apartment complex deals conceived on forecasts for higher revenues from converting rent stabilized apartments to market rate units.

Affirming the Appellate Division's ruling...will have a catastrophic effect on the New York City real estate industry and financial community, said Jeffrey Turkel, a partner at Rosenberg & Estis, P.C. in a court brief.

Turkel is counsel for the Rent Stabilization Association of NYC Inc, a group that filed suit against Tishman Speyer when it moved to raise rents at the complex.

The property developer partnered with BlackRock Realty, an arm of money manager BlackRock Inc, to buy the apartment complex from MetLife.

The court fight centers on Tishman Speyer's and MetLife's effort to charge higher market rents on some 3,000 apartments, using a city law that lets building owners deregulate some rent-stabilized apartments once rents reach $2,000.

A victory for tenants could accelerate cash problems facing the owners and increase the potential for a default on $4.4 billion of loans, $3 billion of which was securitized into commercial mortgage backed securities (CMBS).

(Additional reporting by Jonathan Stempel)

(Reporting by Ilaina Jonas, Editing by Andrew Hay)

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