By Ilaina Jonas

NEW YORK (Reuters) - Manhattan tenants who live inStuyvesant Town/Peter Cooper Village could choose to partner witha Pershing Square Capital Management venture in a deal for thevast apartment complex, unless a judge blocks the maneuver.

Under the proposal from the venture led by William AckmanPershing Square, the Tenants Association, which represents about25,000 residents, would have an ownership interest in theproperty. Tenants would not have to put in any money.

The proposal was outlined in a Sept. 12 letter from WilliamAckman and Winthrop Realty Trust CEO Michael Ashner,partners in new company called PSW NYC LLC.

In commercial real estate, new companies are often set up forthe sole purpose of owning certain properties. The names are oftenaddresses or acronyms of the property or the investors.

The Pershing/Winthrop venture is trying to foreclose on theownership of PVC ST, the company that owns the vast apartmentcomplex that includes 56 buildings on 80 acres on the east side ofManhattan. The letter follows a presentation the venture made tothe tenant's association.

The tenants could veto all major decisions about the plan toconvert some of the 11,227 units into co-ops, while allowing otherapartments to remain as rent-stabilized tenants.

However, New York State Supreme Court Justice Richard Lowe hasyet to rule on whether the Pershing/Winthrop venture can forecloseon the ownership and thwart the bondholders who hold a $3 billionmortgage on the property. The mortgage is secured by the propertyand is senior to PSW's claim, which is secured by the shares inthe complex-owning company, PVC ST.

The property became a textbook case of excessive lending andspending on U.S. commercial real estate during the boom of 2005through 2007. A group led by Tishman Speyer Properties paid $5.4billion for the two apartments complexes and created PVC ST to dothe deal. The property is now valued at less than half of what theTishman Speyer group paid.

"There are many hurdles to overcome to ensure that this willactually be a good deal for the tenants, or for the City, but itis worth exploring, and we will give it a hard look," said DanielGarodnick, the New York City Council member who represents thedistrict and lives in Peter Cooper Village.

If the Pershing Winthrop group prevails in court, it would beobligated to pay off the mortgage plus about $700 million in feesand interest. As the property's new owner, it could put theproject into bankruptcy to force a restructuring plan.

CWCapital, which represents the bondholders, has argued thatas a junior creditor the Pershing/Winthrop venture missed theopportunity to take over the property when the Tishman Speyerventure defaulted on loans in January. CWCapital says that on Oct.4 it plans to auction off the property to the highest bidder.

Neither CWCapital nor the Pershing venture can proceed untilthe judge rules.

Winthrop, which is working with Pershing, owned 9 percent ofthe original $300 million junior loan. Last month, Ackman bought77.5 percent of this junior loan; Winthrop ended up with a 22.5percent ownership. The deal valued the loan at $45 million, or 15cents on the dollar.

The tenants' association has received about 40 to 50 offersfrom potential partners, many of whom have proposed allowing apercentage of tenants to own their apartments by converting theminto a co-operative ownership company, Garodnick said.

In a co-op, tenants own shares in the company that owns theirapartments. That differs from a condominium in which an owner ownsthe apartment unit itself.

(Reporting by Ilaina Jonas)