Normally I don’t discuss the fate of individual transactions, but the Stuyvesant Town acquisition was such a colossally stupid deal that it merits comment.
The acquisition of the 11,000 apartment complex known as Peter Cooper Village and Stuyvesant town was a classic example of peak of cycle excess. The $5.4 billion price was the most ever paid for a residential property. The valuation, in what I am told was unprecedented for an institutional commercial real estate transaction (remember, the owner is a commercial landlord) was based on projected rentals rather than actual (and I believe actual can include step-ups in signed leases).
The really bizarre part of this deal was the aggressive increases in rentals that the buyers projected. These apartments are all in Manhattan, which has tenant-friendly housing regulations. Moreover, many of these apartments were rent-regulated, and apartments can be “decontrolled” (which also applies to rent stabilized apartments, in which rental increases are permitted, but only to the extent approved by the rent stabilization board, with the intent of letting landlords recoup increases in operating costs) only under certain circumstances. The percentage of apartments the new owners said they’d be able to bring to market rentals was wildly implausible. And then the downturn hit, and the “market” rents they anticipated didn’t pan out either.
The property has $4.4 billion of debt outstanding. The Wall Street Journal says that some experts peg the value of the property at a mere $1.8 billion.
From the Journal:
The Stuyvesant Town deal is one of several Tishman Speyer did at the top of the market that the company is trying to save….Of the $5.4 billion price tag on the Stuyvesant property, Tishman invested only $112 million of its own money, with about $56 million from Jerry Speyer and Rob Speyer, co-chief executives of the New York-based company.
Tishman has earned more than $10 million in property-management fees since the Stuyvesant Town acquisition, according to analysts at Deutsche Bank AG. Tishman decided to waive certain fees last year and managed the property for a loss….
The Tishman venture’s acquisition of Stuyvesant Town was controversial in New York. The Stuyvesant Town complex was developed by MetLife for returning World War II veterans and remained a middle-class haven even as rents in other parts of the city soared. Tishman’s plans were to raise the rents for hundreds of the units to market rates….
The Stuyvesant Town collapse comes amid mounting woes in the market for retail stores, hotels, apartments and other commercial property. Mall-giant General Growth Properties and hotel-chain Extended Stay Inc. filed for bankruptcy-court protection last year, and more commercial-property projects could fail amid an inability to repay debt because of dwindling rent rolls and still-scarce financing for all but large real-estate investment trusts.