NEW YORK - Stuyvesant Town and Peter Cooper Village, a huge Manhattan apartment complex that became the largest residential deal in New York's history, could be headed for default as early as December, according to Trepp, a firm that tracks commercial mortgage securities.

As of September, PVC ST LP, the joint venture between real estate investment company Tishman Speyer and BlackRock Realty, a unit of BlackRock Inc, had $33.65 million left in its interest reserves, according to Trepp, which tracks commercial mortgage-backed securities (CMBS) issues. That's down from $400 million, which was borrowed as part of the $5.4 billion deal that closed in late 2006.

The deal captured the wider U.S. real estate market's attention when the complex's previous owner, MetLife Inc, sold the 56 apartment buildings with more than 11,232 units on 80 acres in Manhattan.

The sticker price translated into less than a 2 percent yield on the deal, and shocked real estate watchers and even some of the other bidders on the deal.

One rival, who declined to be identified, said he had bid $1 billion less. Tishman had banked on its ability to follow MetLife and convert rent-stabilized properties into higher market-rent units once the tenants left.

A new monthly report on the status of the CMBS bonds and the state of the mortgages is due within the next several days, Trepp said.

Tishman, the general partner in the deal, was bleeding $16 million in interest payments a month, which could take the deal through the end of the year, Trepp said. But a person familiar with the situation said the reserves were depleting at $9 million a month.

A major hurdle Tishman and BlackRock will have to clear is a ruling by the New York State Court of Appeals, which is expected to decide by the end of the month whether Tishman was entitled to switch rent regulated apartments to higher free-market rates.

A decision to uphold a lower court decision that Tishman could not deregulate rents could make its 2006 purchase of Stuyvesant Town and Peter Cooper Village -- located in the East Side of Manhattan -- less economically viable. It could also impact other New York apartment complex deals conceived on forecasts for higher revenue from converting rent-stabilized apartments to market rate units.

The court fight centers on the efforts of Tishman and MetLife 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 per month.

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 are CMBS.

When a securitized loan is either in default or in imminent default it is sent to a special servicer who is called to determine whether to modify, restructure or foreclose on the loan. Special servicers are assigned when a CMBS trust is formed and often hold the riskiest bonds from the pool.

CWCapital Asset management is the special servicer of four of the five pools. LNR Partners is the special servicer of the fifth trust.

A default of such size would mean that defaults in the multifamily group would exceed 10 percent. But Manus Clancy, Trepp senior managing director, said he doubts it would cause dramatic reverberations within the CMBS market.

I think it's so anticipated that unless something dramatic happens that it gets sold at a bargain basement price or a new appraisal comes out with a bargain basement price, the market will shrug this off, Clancy said.

But whether the ruling goes against or in favor of owners, Tishman will still seek to restructure the debt and add more capital, the person familiar with the deal said.

Tishman Speyer declined to comment.

(Reporting by Ilaina Jonas; Editing by Phil Berlowitz)

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