It was the most expensive real estate deal in US history. Now it’s poised to become one of the biggest flops.
At the height of the real estate bubble in 2006, an investment group led by New York City real estate firm Tishman Speyer Properties and BlackRock Realty Advisors paid US$5.4 billion for a pair of gigantic Manhattan apartment complexes known as Stuyvesant Town and Peter Cooper Village.
The price seemed outrageous to many, but the company believed it had a winning strategy: It would aggressively convert thousands of rent-regulated apartments occupied by middle-class families into luxury units that would fetch top dollar.
PHOTO: AFP
Three years later, to the glee of many New York renters, the tactic has been a bust.
Tenants fought back, conversions happened much slower than expected and a state court ruled on Thursday that about US$200 million in the company’s new rent increases were improper.
Real estate analysts say the ownership group is now just two to three months away from a likely default on the US$3 billion mortgage it used, along with a US$1.4 billion secondary loan, to buy the property.
Foreclosure looms as a strong possibility.
Even before the state Court of Appeals ruling on a lawsuit filed by the apartment complex tenants, ratings firms had estimated that the value of the 32 hectare property, home to 25,000 people, had fallen to as little as US$2 billion — far less than the outstanding loan balance.
Given the math involved, “I wouldn’t be surprised if they just want to walk on it,” said Steve Kiritz, a senior vice president at the credit ratings agency Realpoint LLC.
“The whole master plan with this project had been for Tishman to come in and ramp up the number of units that were paying market rent,” he said.
New York state’s rent regulation laws place restrictions on how much landlords can charge renters for many apartments.
Regular folks — especially those who have had home financing problems of their own — might laugh at the folly until they realize that some of their own money might be tied up in the deal.
Some of the biggest equity investors in the deal are public pension funds that manage retirement system benefits for millions of government employees.
Florida’s State Board of Administration had put US$250 million into the project. It has already written off the entire investment as a loss.
California’s two largest government pension funds, the California Public Employees’ Retirement System and the California State Teachers Retirement System (CALSTRS), invested a combined US$600 million.
CALSTRS has also already written off its US$100 million stake.
Tishman, by comparison, stands to lose much less. Its share was US$112 million, less than 2 percent of the purchase price.
A spokesman for the company declined to comment on Friday on the project’s future.
Tishman Speyer’s co-chief executive, Rob Speyer, told the New York Times in a recent interview that win or lose on the court case, “the asset is going to require a restructuring.”
“Once the court case is resolved,” he said, “we’ll speak to our debt holders as well as our fellow equity investors.”
Teams of lawyers will likely spend the next few months fighting over who gets control of the complex and which lenders are entitled to get some money back, said Dan Fasulo, a managing director of Real Capital Analytics.
How much they recover, and who is wiped out, may come down to how much appraisers decide the buildings are really worth, based on more realistic rent projections.
“I had a number, put together last week, that I thought was fair. I don’t think that number is fair anymore,” Fasulo said. “No one could give you an honest appraisal right now.”
Stuyvesant Town isn’t the only such project to run into trouble after plans to increase rents went poorly.
An investment group that purchased Riverton Houses, a big development in Harlem built around the same time as Stuyvesant Town, ran into financial problems after its bid to convert hundreds of rent-regulated units to market rates went slower than expected.
One analyst last month estimated the value of the complex at US$108 million, about half the value of the US$225 million mortgage on the property, which is currently in default.
Any debt restructuring process at Stuyvesant Town is likely to be complicated.
The mortgages that financed the deal were chopped up, repacked and sold as Commercial Mortgage Backed Securities to a variety of investors.
Fasulo said the complexity of the arrangement and the size of the property itself mean that a traditional liquidation still might not happen.
A sale, he said, “would be very disadvantageous at this time,” given the state of the real estate market.
“There would be tremendous demand,” he said, but at such a depressed price that the lenders might be better off holding on to the troubled property.
ROLLER-COASTER RIDE: More than five earthquakes ranging from magnitude 4.4 to 5.5 on the Richter scale shook eastern Taiwan in rapid succession yesterday afternoon Back-to-back weather fronts are forecast to hit Taiwan this week, resulting in rain across the nation in the coming days, the Central Weather Administration said yesterday, as it also warned residents in mountainous regions to be wary of landslides and rockfalls. As the first front approached, sporadic rainfall began in central and northern parts of Taiwan yesterday, the agency said, adding that rain is forecast to intensify in those regions today, while brief showers would also affect other parts of the nation. A second weather system is forecast to arrive on Thursday, bringing additional rain to the whole nation until Sunday, it
CONDITIONAL: The PRC imposes secret requirements that the funding it provides cannot be spent in states with diplomatic relations with Taiwan, Emma Reilly said China has been bribing UN officials to obtain “special benefits” and to block funding from countries that have diplomatic ties with Taiwan, a former UN employee told the British House of Commons on Tuesday. At a House of Commons Foreign Affairs Committee hearing into “international relations within the multilateral system,” former Office of the UN High Commissioner for Human Rights (OHCHR) employee Emma Reilly said in a written statement that “Beijing paid bribes to the two successive Presidents of the [UN] General Assembly” during the two-year negotiation of the Sustainable Development Goals. Another way China exercises influence within the UN Secretariat is
LANDSLIDES POSSIBLE: The agency advised the public to avoid visiting mountainous regions due to more expected aftershocks and rainfall from a series of weather fronts A series of earthquakes over the past few days were likely aftershocks of the April 3 earthquake in Hualien County, with further aftershocks to be expected for up to a year, the Central Weather Administration (CWA) said yesterday. Based on the nation’s experience after the quake on Sept. 21, 1999, more aftershocks are possible over the next six months to a year, the agency said. A total of 103 earthquakes of magnitude 4 on the local magnitude scale or higher hit Hualien County from 5:08pm on Monday to 10:27am yesterday, with 27 of them exceeding magnitude 5. They included two, of magnitude
Taiwan’s first drag queen to compete on the internationally acclaimed RuPaul’s Drag Race, Nymphia Wind (妮妃雅), was on Friday crowned the “Next Drag Superstar.” Dressed in a sparkling banana dress, Nymphia Wind swept onto the stage for the final, and stole the show. “Taiwan this is for you,” she said right after show host RuPaul announced her as the winner. “To those who feel like they don’t belong, just remember to live fearlessly and to live their truth,” she said on stage. One of the frontrunners for the past 15 episodes, the 28-year-old breezed through to the final after weeks of showcasing her unique