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.
Authorities have detained three former Taiwan Semiconductor Manufacturing Co (TMSC, 台積電) employees on suspicion of compromising classified technology used in making 2-nanometer chips, the Taiwan High Prosecutors’ Office said yesterday. Prosecutors are holding a former TSMC engineer surnamed Chen (陳) and two recently sacked TSMC engineers, including one person surnamed Wu (吳) in detention with restricted communication, following an investigation launched on July 25, a statement said. The announcement came a day after Nikkei Asia reported on the technology theft in an exclusive story, saying TSMC had fired two workers for contravening data rules on advanced chipmaking technology. Two-nanometer wafers are the most
NEW GEAR: On top of the new Tien Kung IV air defense missiles, the military is expected to place orders for a new combat vehicle next year for delivery in 2028 Mass production of Tien Kung IV (Sky Bow IV) missiles is expected to start next year, with plans to order 122 pods, the Ministry of National Defense’s (MND) latest list of regulated military material showed. The document said that the armed forces would obtain 46 pods of the air defense missiles next year and 76 pods the year after that. The Tien Kung IV is designed to intercept cruise missiles and ballistic missiles to an altitude of 70km, compared with the 60km maximum altitude achieved by the Missile Segment Enhancement variant of PAC-3 systems. A defense source said yesterday that the number of
A bipartisan group of US representatives have introduced a draft US-Taiwan Defense Innovation Partnership bill, aimed at accelerating defense technology collaboration between Taiwan and the US in response to ongoing aggression by the Chinese Communist Party (CCP). The bill was introduced by US representatives Zach Nunn and Jill Tokuda, with US House Select Committee on the Chinese Communist Party Chairman John Moolenaar and US Representative Ashley Hinson joining as original cosponsors, a news release issued by Tokuda’s office on Thursday said. The draft bill “directs the US Department of Defense to work directly with Taiwan’s Ministry of National Defense through their respective
FLOOD RECOVERY: “Post-Typhoon Danas reconstruction special act” is expected to be approved on Thursday, the premier said, adding the flood control in affected areas would be prioritized About 200cm of rainfall fell in parts of southern Taiwan from Monday last week to 9am yesterday, the Central Weather Administration (CWA) said. Kaohsiung’s Taoyuan District (桃源) saw total rainfall of 2,205mm, while Pingtung County’s Sandimen Township (三地門) had 2,060.5mm and Tainan’s Nanhua District (南化) 1,833mm, according to CWA data. Meanwhile, Alishan (阿里山) in Chiayi County saw 1,688mm of accumulated rain and Yunlin County’s Caoling (草嶺) had 1,025mm. The Pingtung County Government said that 831 local residents have been pre-emptively evacuated from mountainous areas. A total of 576 are staying with relatives in low-lying areas, while the other 255 are in shelters. CWA forecaster
RSS