On October 20th, 2015, in a leafy plaza just east of First Avenue, members of a hardline tenants association, wary and callused from years of fighting to maintain the affordability of their homes, broke character and cheered the smart-suited representatives from America’s largest landlord, who had just spent about $5.4 billion to buy the apartments they live in.
The press conference had been organized by Mayor Bill de Blasio to announce the purchase of the Stuyvesant Town-Peter Cooper Village apartment complex by the Blackstone Group, a real estate investment force which manages some $93 billion worth of hotels, office space, and residential property worldwide, with a growing portfolio of close to 100,000 rentals spread across the country.
Blackstone’s investment partner in the purchase was Ivanhoé Cambridge, the real estate arm of the Canadian pension fund manager Caisse de dépôt et Placement du Québec. Ivanhoé is a frequent Blackstone partner with similarly massive real estate holdings and an affinity for Manhattan property. Not counting their 50% stake in the Stuy Town deal, the Quebeckers have invested close to $4 billion in Manhattan property over the past 5 years, more than local real estate giants like Related and Brookfield Properties.
While it was an odd mix of crowds to catch backslapping, the celebration was not entirely without cause. Stuyvesant Town’s middle-income apartments have historically been a stronghold of truly affordable housing. But over the past decade, a succession of speculative owners had begun dismantling the complex’s long-standing rent stabilization protections.
In 2000, 99% of Stuy Town’s 11,232 apartments were provided the protections of rent stabilization, and the complex proudly housed a thriving, long-term community of middle class New York families.
By early 2015, nearly 50% of the complex’s units had been deregulated and were being rented on the open market, with two-bedroom units easily commanding $4,200 a month. Every year around 300 apartments lost their rent protections. The demographic shift within the complex was obvious.
As sales negotiations between Blackstone and Stuy Town’s current owners CW Capital began, the de Blasio administration stepped in to help negotiate an agreement that would curb that attrition and guarantee twenty years of relatively affordable rents for 5,000 of the complex’s 11,232 units.
The Blackstone purchase was a PR triumph for all parties: embattled current tenants are granted a respite; the Mayor’s office leaps 5,000 units closer to fulfilling its ambitious goal to create and preserve 120,000 units of affordable housing over ten years; and Blackstone is able to secure control of Manhattan’s largest housing complex while positioning itself as an advocate for the public good.
Mayor de Blasio called it “the mother of all preservation deals” and the New York Times' Editorial Board cooed their approval. The Guardian called the deal “a victory beyond numbers” and “proof that affordable housing can still be a municipal priority.”
Susan Steinberg, the president of Stuy Town’s Tenants Association, also endorsed the sale, saying, “I feel that we have saved our community as a middle-class enclave.”
Yet scrutiny of the deal reveals an agreement that prioritizes profitability for Blackstone, a company that, even without the $221 million in financial giveaways the City bundled into the sale, stands to make billions of dollars—hundreds of millions of dollars annually—from Stuy Town.
Buried in the deal’s Terms Sheet and curiously unmentioned during the press conference, is a further promise from the City to “support [Blackstone’s] efforts to transfer unused development rights” from Stuy Town to other “appropriate receiving areas.” A commitment that opens the door for Blackstone to access one million square feet of air rights in one of the most desirable neighborhoods in New York City, air rights that are worth untold millions.
All this financial assistance has been framed as a way for the city to incentivize the preservation of affordable housing, but in reality, the agreement will likely be used to protect fewer units than it promises to.
The deal creates no new affordable apartments, offers no assistance for the thousands of tenants already loaded with market rate leases, and suggests only the slightest consideration of Stuyvesant Town’s future affordability.
How has the city settled into such a low expectation of success in the preservation of affordable housing? How did Stuyvesant Town, which so recently stood as the paragon of affordable, middle class housing in Manhattan, fall so far? In a city that prioritizes affordable housing over every other issue, how is preserving the status quo in exchange for $221 million in taxpayer money and hundreds of millions more in development rights considered a victory?
Originally created through a public-private partnership between Mayor Fiorello La Guardia and the Metropolitan Life Insurance Company, Stuyvesant Town, with its sister development Peter Cooper Village, houses 30,000 residents and forms an improbably large complex of 110 red brick apartment buildings stretching for 80 acres along First Avenue between 14th and 23rd Streets.
Opened in 1947 to house returning veterans, the complex was created so that “families of moderate means might live in health, comfort and dignity in park-like communities” and symbolized a new municipal and corporate commitment to a middle class city. For decades, MetLife maintained the complex with a kind of laissez-faire benevolence that allowed Stuy Town’s unglamorous high-rises to stand as a stronghold of stable affordability.
The complex became a haven for teachers, firemen, city workers, and nurses and, although it has historically been heavily populated by Irish, Jewish and Italian families, Stuy Town has also absorbed populations of the city’s arriving immigrants: an unlikely and inspiring middle class suburb thriving on lower Manhattan’s eastern flank. It did not, however, welcome black New Yorkers, and subsequent legal battles over the development's racist policies ultimately led to the federal Fair Housing Act of 1968, which outlawed discrimination in housing rentals and sales nationwide.
Stuy Town operated as a reasonably profitable and quiet investment for MetLife—the complex reported a $112 million Net Operating Income in 2006—but the owners’ attitudes began to change in the early 2000s, when MetLife became a publicly traded company and was forced to maximize shareholder returns at the expense of tenants.
In 2000, MetLife quietly closed the waiting list for affordable units and began slowly stripping apartments of their rent protections and moving to lease them on the open market. In 2006, hoping to narrow its institutional scope and further capitalize on Manhattan’s frothy pre-crash real estate market, MetLife arranged an unprecedented $5.4 billion deal to sell the Stuy Town complex to a joint venture formed by the commercial real estate development firm Tishman Speyer and the money management group BlackRock Realty.
Rob Speyer, the lead negotiator of the deal and the heir-apparent to the eponymous real estate empire amassed by his father, Jerry, told the Post "the opportunity to buy 11,000 units in Manhattan is what you live for."
“It was,” Daniel Garodnick, a City Councilman and lifelong Peter Cooper Village resident told Gothamist, “a prescription for disaster.”
Tishman Speyer’s purchase of the complex—both in its execution and in its ideology—set the stage for Stuy Town’s current drama.
(Christian Hansen / Gothamist)
Like so many other heady pre-crash deals, the purchase was financed almost entirely by leveraging debt. Wachovia’s commercial-lending division quickly secured $4 billion in loans for the buyers. Merrill Lynch contributed another $500 million. Nearly all of that debt was securitized, turned around, and sold to secondary and tertiary investors. Tishman Speyer and BlackRock each contributed just $56 million of their own money to the deal, with neither offering up any of their other holdings as collateral.
When the deal closed in November of 2006, Stuy Town’s rental income covered a scant 40% of its new, inflated debt load. Speyer immediately doubled down on MetLife’s earlier deregulation project and set about working to replace the complex’s 8,000 remaining rent-stabilized residents with new, younger and more affluent tenants paying market rates. Tenant harassment became the driving force behind Tishman Speyer’s business model.
Two years later, still up to their armpits in debt and increasingly desperate to convert apartments into market rate earners and speed along profits, Tishman Speyer tasked three law firms and a private investigations group with ferreting out tenants it believed to be unlawfully holding on to stabilized leases. In 2009, they rained down threats of eviction and distributed nonrenewal notices around the complex like takeout menus. Residents organized to challenge the nonrenewals but, faced with intimidation and harassment, hundreds of tenants—both legal and not—vacated their apartments. Ultimately, even those aggressive tactics could not ratchet the number of market rate apartments high enough for the complex to approach profitability.
In October 2009, with the real estate market bottoming out, a decision from the New York State Court of Appeals ruled that Tishman Speyer and Metropolitan Life had wrongly deregulated 4,400 apartments and ordered that they pay compensation, the blow that killed any remaining hopes Speyer held of earning a buck off Stuy Town.
On January 8th, 2010, three short years after they were handed the keys to the development, Tishman Speyer and BlackRock Capital defaulted on $4.4 billion in loans and walked away from the complex. The owning partners had pumped $6.3 billion into their Stuyvesant Town romp but the pair somehow rolled away from the wreckage relatively unharmed. All told, BlackRock and Tishman Speyer lost just their initial combined cash investment of $112 million.
Dozens of companies, banks, countries and state pension funds each lost hundreds of millions of dollars in the blunder. Fannie Mae and Freddie Mac (and by proxy the tax paying public) ended up catching $2 billion of the debt—the majority—but everyone from the government of Singapore to the Church of England was forced to write off their investments and eat the loss when the deal blew up.
Following Tishman Speyer’s default, responsibility for the complex and its debt was transferred to CWCapital Asset Management, a “financial special servicer” essentially tasked with managing the property and shepherding it through the Chutes and Ladders of litigation necessary in untangling the interests and battered investments of the lenders still holding on to Stuy Town.
Residents had been forced into a new routine: paying rent to CW and waiting for outside parties to negotiate the ownership of their homes and deliver some news about the future of their community. All the while watching as neighbors were displaced and the apartments around them were filled with a succession of wealthier, shorter-term replacements.
“It is a terrible shame what has happened,” argues tenants activist and Tenants PAC organizer Michael Mckee, “and the response from the city has been inadequate in every way, and that’s both the Bloomberg and de Blasio administrations.”
As CWCapital and its partners tried to recoup some of their losses, Stuy Town’s value had ballooned over the past four years. The grinding expense of living in New York City accelerated the shift away from homeownership, and steadily climbing rents have helped multifamily rental properties lead the upturn of Manhattan’s wider commercial real estate market and lured new crowds of investors to the field.
In 2014, when prices for multifamily buildings were 33% higher than they were at the previous peak four years earlier, half of Stuy Town’s units were leased at or near market rate. The Times reported that the complex’s net operating income had risen to $177.5 million annually, up 34 percent from 2012 and nearly 60 percent since MetLife put the complex on the market, and expected to continue to climb again in 2015.
The complex’s growing profitability did not go unnoticed. Stuy Town’s fate has been on de Blasio’s radar for years and presents a serious challenge for his administration. During his 2013 mayoral campaign, de Blasio, then the Public Advocate, wrote in a forceful op-ed for the complex’s Town and Village newspaper that “it’s the responsibility of the city to ensure that these homes and other affordable housing are never beyond the reach of middle class New Yorkers.” Losing the complex and its 11,000 apartments to a developer looking to further convert it into a luxury district would be a major setback for de Blasio.
“The tenants and the city were rightfully concerned that this deal could have proceeded without any long-term affordability and without any real community participation,” recalled Garodnick.
As Blackstone emerged as a serious bidder, Deputy Mayor and former Goldman Sachs urban investment executive Alicia Glen, U.S. Senator Chuck Schumer, Garodnick, and other elected officials, all determined to stave off a repeat of Tishman Speyer’s 2006 recklessness and prevent a speculative buyer from turning it into a wholesale luxury complex, asserted themselves and stepped into the negotiations. The deal came together quickly and quietly during the early weeks of October.
On October 19th, after ten days of talks, Blackstone and Ivanhoé Cambridge signed a contract to buy the Stuyvesant Town complex from CWCapital for $5.4 billion. The final deed was signed December 18th, after months of paperwork. The purchase price pegs the complex’s value at roughly $471,100 per unit.
In contrast to Tishman Speyer’s debt-fueled acquisition—in which Tishman and BlackRock each contributed less than 1% of the winning bid in cash—Blackstone and Ivanhoé Cambridge contributed $1.3 billion in equity to the purchase. The remaining $2.7 billion in financing is being supplied by Wells Fargo’s multifamily division and guaranteed by Fannie Mae.
“Given how few cards the city had to play, they overall did an impressive job of trying to get something good out of a bad situation without getting their pockets picked,” explains Benjamin Dulchin, the director of the Association for Neighborhood and Housing Development, an affordable housing advocacy group.
The wins for the city are not immaterial, but they are comically overshadowed when held up alongside the benefits afforded to Blackstone.
On the most basic level, Blackstone stands to see sizable gains from the rental income generated by Stuyvesant Town’s 11,232 units, more than half of which currently fetch market rates. Residential rents across the boroughs seem to stride to new records every month, with the latest Citi Habitats report putting the average in Manhattan at $3,400, up 25% from 2010 and steadily climbing.
Over just the past few years, betting that demographic shifts and stagnant incomes will continue to fortify the demand for rental apartments, Blackstone has quickly hurled itself into the top ranks of New York City’s landlords and grown its jurisdiction in the larger rental market.
The Stuyvesant Town purchase brings Blackstone’s total multifamily holdings to close to 50,000 apartment units nationally, a presence further expanded by the more than 48,000 single-family rental homes it has bought since the beginning of 2012. This feverish pace of acquisition has allowed Blackstone to come to control a comfortable share of the residential rental market—in the five boroughs and nationally.
Quite simply: A control of supply equates to a certain control of demand.
“Blackstone is not a charity,” Michael McKee, of Tenants PAC, told The Real Deal. “They would not be buying this if they didn’t think they would be making money.”
In exchange for the affordability program Blackstone will extend to 5,000 units, the city agreed to waive the standard mortgage recording taxes the firm would have otherwise paid upon assuming control the property, a loss of some $77 million dollars. That amount would have covered roughly three-quarters of the city’s planned expenditures for homelessness prevention and assistance in 2016 but still represents less than 1.5% of the $5.4 billion overall value Blackstone and Ivanhoe see in Stuyvesant Town.
That $77 million waiver comes in addition to a $144 million loan from the city’s public Housing Development Corporation; a “loan” that is deliberately structured to self-amortize and excuse Blackstone from paying a single dollar in either principal or interest, essentially functioning as an additional cash subsidy from the city.
The $143,718,750 HDC loan, outlined on page nine of the sale agreement's Terms Sheet, “will have a term of 20 years at 0% interest, with the principal amount… being forgiven annually at a rate of $7,185,937.50 per annum.”
More plainly, that rate of annual forgiveness will wind down the principle amount owed by Blackstone to nothing by the time payment is due. At 0% interest, Blackstone ends up owing exactly zero dollars and zero cents on a twenty-year, $144 million loan. Nice!
Aside from the subsidies and waived fees the city could bring to the deal, its primary point of entry into the negotiations actually came from New York Senator Charles Schumer.
According to analyses of campaign finance disclosure reports conducted by the Center for Responsive Politics, executives and employees from Blackstone have been the primary financial supporters of Senator Schumer’s re-election efforts, directing $107,800 to his campaigns from 2011 to 2016. In 2014 alone, Schumer received $45,000 from Blackstone affiliated donors, making him the #1 Blackstone-supported politician in New York State and the #4 Blackstone supported politician nationwide.
In 2014, Schumer lobbied the Federal Housing Finance Agency in Washington to ensure that Fannie Mae and Freddie Mac—the two massive, federally backed mortgage providers overseen by the FHFA—would not extend their comparatively low-risk and inexpensive financing support to a Stuy Town buyer that does not have the blessing of the tenants and the city, a valuable bargaining chip considering that bankrolling such a large purchase with riskier private market loans would mean much higher interest payments and significantly more risk exposure for the buyer.
Wiley Norvell, a spokesperson for the Mayor’s office, called Schumer’s pact with the FHFA “a significant point of leverage.”
But what is very likely the most lucrative dispensation for Blackstone included in the agreement is outlined in a two-sentence clause that went unmentioned during the mayor’s triumphant press conference announcing the deal: The city’s support of Blackstone transferring pieces of Stuy Town’s large cache of unused development rights to properties elsewhere in Manhattan.
Under the city’s zoning regulations, each lot on a block is allocated a set number of development rights, or air rights, that restrict the height of the structures built on top of it. If a building tops out below its allocated maximum vertical allowance, the owners can generally transfer or sell the unused development rights—literally the right to build higher—to an adjacent property on the same block.
The Stuy Town complex includes one-hundred and ten buildings spread across eighty acres, and comes with more than one million square feet of unused, transferable development rights.
When pressed on what exactly city support for a transfer of development rights looks like, Norvell explains that “in this case, ‘support’ equals a willingness to study alternative locations for those air rights, to determine if any appropriate sites exist.”
Blackstone has not yet made public any plans for its new staggering cache of development privileges and there don’t currently appear to be any sites in Stuy Town’s immediate vicinity that could immediately absorb the tranche of development rights.
However, any transfer that resulted in residential use would be subject to mandatory inclusionary zoning, which means at least 25-30 percent affordable housing, and the de Blasio administration has shown itself willing to make concessions on height and density restrictions if the new developments include benefits for affordable housing.
“The air rights themselves are probably worth more than everything else,” says Thomas Angotti, a Professor of Urban Affairs and Planning at Hunter College. “It would definitely be interesting to sit down and calculate.”
It seems far-fetched to imagine that Blackstone hasn’t already begun to parse out where the privileges could be reallocated and what additional political choreography is necessary to get them there. A proposal extending Stuy Town’s 20-year affordability timeline in exchange for wider latitude in the transfer of the complex’s development rights is likely stewing in some Blackstone exec’s brain.
The tenants also have their eye on the future. “Of course the tenants would love to extend that timeline and I think that it is an issue that will be revisited in the coming years,” Susan Steinberg, the president of the Stuy Town Tenants Association told us.
It can be hard to calculate value without a clear sense of where the development rights will end up, but it is reasonably safe to assume that Blackstone stands to make hundreds of millions of dollars through nearly every imaginable outcome, and not just by using the rights to expand their own development projects, or through a straightforward sale of the rights to other developers.
Thinking more broadly, Blackstone can quite easily wring the maximum profit from this opportunity by strategically assigning and selling the rights to developments that will help to buoy the value of any nearby properties they already own. If you anticipate a rising tide, it seems wise to buy a lot of boats.
Over the next 20-odd years, as Manhattan continues to grow more densely developed and sprout higher and higher residential and commercial towers, Stuy Town’s mid-rise buildings, leafy walkways, and self-contained suburban feel, will likely stand in stark contrast to the feel of surrounding blocks.
It is not hard to imagine Stuyvesant Town in 2040, with its rent protections expired and its green, wide-open walkways and once unremarkable buildings now feeling charming in comparison, commanding incredible rents from wealthy families discontented with the behemoth glass and steel alternatives lining the surrounding avenues. What more predictable New York story is there than the once peripheral redoubts of the middle class turning, through the years, into verdant playgrounds for the ultra wealthy?
The most troubling part of the Stuy Town agreement is not that Blackstone and its partners stand to gain so much, but that the affordability protections negotiated in exchange actually do so little. The structure of the protections for affordable housing and their working definitions of affordability expose just how low our standards of success have fallen.
The loss of affordable apartments to deregulation has been a major issue for Stuyvesant Town, but to say this deal outright preserves 5,000 units of affordable housing on day one is a bit of a stretch.
Today, thanks to the protections of the state’s Rent Stabilization Law, there are just over 5,200 Stuy Town units leased at below market rates. Those 5,200 units are already “preserved” under the state law and won’t fall under the jurisdiction of Blackstone’s affordability program until their current tenants leave and the units shed their existing protections. If—for whatever reason—a rent stabilized unit becomes vacant at some point in the next twenty years, instead of offering the apartment on the open market, Blackstone must replace the outgoing tenants with new, income-qualified renters paying reduced rents.
The new agreement is less a preservation of the complex’s current affordability protections than it is a secondary safety net set up to catch up to 5,000 potential units that could be lost to deregulation during the next twenty years—exactly how many apartments that will be in practice still remains to be seen.
A press release put out by the Mayor’s Office on October 20th announcing the complex’s sale says that “without intervention, the City predicts that all but 1,500 apartments at the entire complex would be converted to luxury units within 20 years,” a prediction that—by the city’s own calculations—would put the total number of below market rate units actually preserved closer 3,500.
“This is about hard and fast guarantees,” countered Norvell in an email last month. “We have a general understanding of the overall rate of slippage from rent regulation, but no one knows which units could potentially turn over in next twenty years. The only way to ensure they ALL remain affordable for this and future generations is lock each and every one into a preservation program.”
One accomplishment of the 5,000 unit affordability program is the way it disincentivizes Blackstone from pursuing the erasure of any existing protections—why push to deregulate a unit renting at below market rates if it will only fall under the jurisdiction of another below market rate agreement—likely a welcome assurance for current tenants with a memory of Tishman’s deregulation campaign.
The actual “affordability” of the units protected under Blackstone’s program is also quite broadly defined. Like many of the city’s housing initiatives, the Blackstone program measures the affordability of its rents against the Area Median Income (AMI), a frustratingly flawed federal formula that is calculated with income data from a wide swath of the metro area—including the wealthy suburbs of Westchester County and Long Island—resulting in a baseline median income that, when compared to the actual take home earnings of many New Yorkers, skews dramatically high.
Because of the vagaries of AMI, only a small percentage of the apartments protected under the Blackstone program will be clearly, recognizably affordable. Ten percent of the protected apartments will be reserved for families earning 80% the Area Median Income, or about $62,000 a year for a family of three. The remaining ninety percent of the protected units will be set aside for households earning no more than 165% of the Area Median Income, which factors out to about $128,000 for a family of three.
“It is an incredible deal for the developer,” says Hunter College professor Thomas Angotti. “Twenty years of affordability at 165% of AMI doesn’t begin to get at the most critical population in need of city subsidies.”
Pausing the endemic deregulation of rent-stabilized apartments for twenty short years may mean that 5,000 units can be tallied in the city’s Preserved column, but it does little to ensure the the long-term affordability of Stuyvesant Town and even less to correct the course of New York’s real estate market.
“I do not think that City Hall understands neighborhoods. The city understands quantitative goals.” Angotti says with a sigh. “They have set goals for the preservation of affordable housing and they're working to get every unit they can.”
The Mayor’s Office and the politicians involved in the deal’s negotiations have been consistent in pointing out the fate otherwise in store for Stuy Town.
"The status quo in Stuyvesant Town and Peter Cooper would have kept the community on track to lose every single one of its affordable units over time,” said Councilman Garodnick when pressed about ground gained through this deal. “We negotiated a preservation deal of 5,000 units, where the alternative was zero."
New Yorkers deserve a political imagination that looks beyond the horizon of the status quo and works to accomplish its goals in the streets, not just on paper. Calling this a victory involves a certain degree of nihilism. The existence of an affordable housing agreement in-and-of-itself is a victory only to people who see an unaffordable New York as a foregone conclusion.
The saga of Stuyvesant Town over these past fifteen years—from MetLife’s initial push for deregulation, through the shameful war years of Tishman Speyer’s tenure, and into the resigned present of diluted, straw man affordability—is as good of an example of the appetite that has pushed much of New York’s housing stock beyond any recognizably-accessible territory as I can ask for.
It represents an appetite that flourishes in a market ideology that sees housing primarily as something to be profited from with maximum efficiency and prioritizes the returns of private real estate developers over the housing of citizens.
It is an appetite that is most apparent in the city's blood-pumping housing market but that grows more and more philosophically dominant in its other organs every day. It is a way of thinking that is redefining the understanding of whom the city is for and it is wrapped so thoroughly around our political practice that we sometimes cannot see beyond it. When we let that philosophy change our definition of success we admit defeat.
“The trouble is that we don’t need more luxury housing,” explains Peter Marcuse, professor emeritus of urban planning at Columbia University. “If you make low income housing only a small proportion of the housing that you are fostering, then you are going to increase property values, you are going to increase the cost of rental units throughout the neighborhood, and you’re going to displace people.”
In a city hemorrhaging its core middle-class population at a rate like New York’s, twenty years of watered down protections on 5,000 units is not a triumph, it’s a tourniquet.
Kevin Sweeting is a person on the internet and other places also.