It looks like another round for David against Goliath as renters appear to have foiled the landmark $5.4 billion 2006 deal for two Manhattan apartment complexes.

It was the most expensive real estate deal in American history and now it’s poised to become one of the biggest flops, according to the Associated Press.

The two complexes, Stuyvesant Town and Peter Cooper Village, acquired by an investment group led by Tishman Speyer Properties and BlackRock Realty Advisors may now face default on a $3 billion mortgage and $1.4 billion secondary loan, which would lead to foreclosure.

But if renters thwart investors’ plans to convert the rent-controlled apartments into high-priced luxury units, David may still take a hit as it collapses. Much of the money for the acquisition was put up by public pension funds such as the California Public Employees’ Retirement System (Calpers), pooling retirement funds from many middle-class investors.

Calpers and another state pension fund, the California State Teachers’ Retirement System, invested a combined $600 million in the project. Tishman, by comparison, stands to lose only its equity stake of $112 million, less than 2 percent of the purchase price.

Tenants in the complexes’ units fought the new owners’ plans, so that conversions happened much slower than expected. Last week, a state court ruled in a tenants’ lawsuit that about $200 million in the company’s new rent increases were improper.

Even before the ruling, ratings firms had estimated that the value of the 80-acre property, housing 25,000 people, had fallen to $2 billion – well below the outstanding loan balance.

“I wouldn’t be surprised if they just want to walk on it,” an official of one credit ratings agency told the news agency.

Lawyers are likely to spend the next few months fighting over who gets control of the complex and which lenders will get some money back, one analyst told the Associated Press. How much they recover, and who is wiped out, will come down to how much appraisers decide the building is really worth, based on more realistic rent projections.

However, the mortgages that financed the deal were chopped up and repackaged as commercial mortgage-backed securities sold to investors, complicating a traditional liquidation. Given the depressed state of the market, the lenders might be better off holding on to the troubled property, the analyst said.