Facing Bankruptcy, Stuy Town Owners Hand Keys to Investors

Four years after buying the middle-class housing complex in what was deemed the most expensive deal in real-estate history, the owners of Stuyvesant Town/Peter Cooper Village are giving it over to their investors. Tishman Speyer and BlackRock Realty bought the 11,227 apartment development in 2006 for $5.4 billion, but since then its value has decreased to a third of that, estimates the Wall Street Journal. Facing bankruptcy, the real-estate giants see no option but to hand the keys to their investors.

Tishman Speyer and BlackRock Realty bought the complex—which is so huge it has its own newspaper—in more optimistic times, four years ago at the height of the housing bubble. Their gutsy plan was to convert the rent-regulated middle-class development into luxury units that would be sold off at a big profit. But as the seller's market for residential real-estate screeched to a halt, they had trouble keeping up with payments. Tenants protested rent hikes and a state court ruled that $200 million extra the partnership had demanded from its 25,000 occupants was unlawful. The owners were deep in the hole.

Now, after failing to make a $16 million loan payment earlier this month, Tishman Speyer and BlackRock are washing their hands of the blighted property. “We have spent the last few weeks negotiating in good faith to restructure the debt and ownership of Stuyvesant Town/Peter Cooper Village,” the partnership explained in a statement. “Over the last few days, however, it has become clear to us through this process that the only viable alternative to bankruptcy would be to transfer control and operation of the property, in an orderly manner, to the lenders and their representatives.”

Those investors—who include the California Public Employees' Retirement System, a Florida pension fund and the Church of England!—will have to decide what to do with the failing development, and they'll resort to extreme measures. One group that includes Concord Capital said it will pursue "its rights and remedies," including possibly moving to foreclose on the property within 2 to 3 months.

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By Sabrina Jaszi in News on January 25, 2010 10:37 AM

Comments [rss]

Jimbo853okg

@grifforama & Spirit of 76:

I'm a Stuy Town tenant and appreciate your concern. Yes, there's been a decline in service, but it's hardly as dire as the semi-satirical blog http://stuytownluxliving.com/ makes it out to be. I'm sure it will get a little worse, but not slum-like severe. Besides, letting things deteriorate too much is in no one's interest.

For the tenants, it’s not entirely clear what will happen. No one is getting kicked out into the street, so don't buy any media nonsense trying to scare us otherwise! The recent court rulings that gave rent reductions to market-rate tenants, and we're now all rent-stabilized. Those leases have to be honored by law.

CW Capital are smart operators. Unlike the Speyers, they have no emotional investment in Stuy Town. They don't care about planting cauliflowers and annuals, or ridiculous Oval Amenities packages. Their sole purpose is to act in the best fiduciary interest of their creditors, who have been just as screwed over as the tenants. Today's reports say they may have to hold on to the complex for 10 years to squeeze out any value.

My guess is that CW will structure this to make money on the current rent roll that they’ve taken over. Who knows? Maybe they'll wait a few years, keep it in reasonable shape, and get out when the value of the real estate rises again. If the tenants or a vulture investor like Wilbur Ross put together something to reduce creditor's pain to an acceptable level, CW is probably willing to talk about that, too. If all the players in this stay smart -- something in short supply the past four years -- it will all work out.

I know that the creditors have now effectively fired Tishman Speyer from (mis-)managing the complex. They now have to bring in a new property management team. That can be a good thing. If they’re smart, they’ll re-hire Rose Associates, the people who ran ST/PCV before MetLife sold it. They did a good job and are total professionals. Lefrak says they're interested too.

You gotta give the Speyers and BlackRock credit for incredible chutzpah. They could easily have dipped into other funds to pay the $16 million monthly debt and held their ownership stake. Instead, they tried to have it both ways. So they're out and that's great. I just hate that they'll get away with it. Little Robbie Speyer is already back to boasting about his new lease deals at Rockefeller Center. Stil, I seriously doubt that karma is finished with its payback to these greedy a--hats.

grifforama

Can someone explain what this will mean to current tenants ? I feel desperately sorry for those people living here. From what I've been reading, the place is going slowly downhill already, with maintenance taking a backseat, trash piling up etc etc....

Spirit of 76

My guess is the creditors will have to hire a local real estate management company to collect the rents and take care of the mundane matters. Nevertheless, they'll be absentee landlords.

Theodore Wirth

Sounds like a bailout is in order...

TeddyNYC

There are some substantial cracks in Mike Bloomberg's New "Luxury" York.

Bubba

Ah, life in Mike Bloomberg's New York...

Joe

This is delightful news. It's always delightful when greed takes one on the chin.

zincink

I remember reading this four years ago..my preditions were correct

Wza

http://www.youtube.com/watch?v=r2JRz8kzmZY

Torgo

So much drama and nonsense over a deal that didn't make a lick of sense in the first place. Just marveling at how much time and effort from so many people was wasted over this folly.

youngpro

who's waste of time? the owners paying a record %5.4b for it, the tenants winning a landmark case against the new owners? or the fact that the place is now bankrupt?

you don't live here, you don't know.

ihaveopinions

As a tenant, do you know what this means for people who are owed back rent? Will they still receive it? Will prices for vacant apartments go down? What are you being told?