O Stuy Town!
Eliot Brown Sept. 22, 2009, 5:11 p.m.
Three years ago this month, Stuyvesant Town was a bees’ nest of tenant activism. Rallies with bullhorns, press conferences and elected officials littered the 80-acre brick city on the East Side. The reason? MetLife was selling the longtime middle-class enclave that was Stuy Town and Peter Cooper Village, and the tenants, terrified of the pressure a new owner would face to raise rents and deregulate apartments, were pushing their own bid to buy the property themselves.
In the end, MetLife went with real estate giant Tishman Speyer and its then historic $5.4 billion offer, leaving the tenants dejected.
Now, as real estate values have plunged from their peaks—which happened to roughly coincide with the November 2006 sale—and buildings around the city are failing to fetch the rents that their quixotic, often leverage-happy buyers envisioned, another viewpoint of the Speyer victory, from the tenants’ perspective, might make more sense: as a stroke of good fortune.
“Considering that it’s being assessed as low as $2.1 billion,” said Alvin Doyle, president of the Stuyvesant Town–Peter Cooper Village Tenants Association, “yes, I’m glad we lost the bid.”
From the moment that MetLife put the 11,250-apartment, postwar complex on the block in September 2006, it was clear the contest for Stuy Town was going to be a pricey battle, as New York City real estate’s biggest names all wanted a chance at the trophy.
Now, the prospect of default looms for Tishman Speyer, and a rent-regulation case being decided by the state’s top court could leave the complex with a value of just a fraction of its sale price.
JUST AS Stuyvesant Town is now a poster child for the contagious profligacy and irrationality that swept over the industry like a virulent plague, it was, at the time of bidding, a model for the boundless optimism and impenetrable confidence investors had in the real estate market and the very future of New York. As such, the bids MetLife received all around were, by the nature of their high numbers, extremely bullish, and today would be laughable.
The tenants’ group crafted a bid they said was about $4.5 billion. It included a pledge to keep 40 percent of the apartments at below market rates—20 percent rent-regulated, and another 20 percent to be sold at controlled prices—therefore relying on the remaining 60 percent of the units, as market-rate rentals, to bring in the bulk of the money to support the deal.
A look at Tishman Speyer’s current numbers illustrates just how difficult a task it is to raise the money needed for the deal (and the landlord has been particularly aggressive in deregulating rent-stabilized apartments in order to charge market-rate rents).
Based on a report on debt associated with the property, written earlier this month by the real estate analysis firm Realpoint, Tishman Speyer was on track in the spring to bring in $302.6 million in revenues for 2009, up about $50 million from 2007, but very far off the pace needed. In order to pay off its debt, the landlords had been expecting to take in $481.7 million annually by 2011, according to the report.
Based on the current amount of money coming in, Realpoint puts the value of the complex at $2.13 billion, a number that could go even lower should rents fall or the court decision go in favor of the tenants, according to the author of the report, Steve Kuritz, a senior vice president at Realpoint.
“Worst-case, their projected income could go down below what we’re seeing now, and in that case, the value could go down,” said Mr. Kuritz.
Had the tenants indeed won, the situation would not have been so dire, in part due to the model the group was proposing. Backed by labor-pension-fund money and other investors, in a model put together by Troutman Sanders attorney Leonard Grunstein, the tenants’ bid would have seen a substantial portion of the apartments being sold as co-ops, bringing a large infusion of money early in the process and spreading any losses out among the new co-op owners.
“We would have not had the same pressure to move tenants out of rent-stabilized apartments to the market rate,” said Councilman Dan Garodnick, a Peter Cooper Village resident, who led the organization of the tenant bid. “Short-term market fluctuations would have been less significant for us,” he added, rejecting the notion that the tenants’ loss in 2006 was a hidden blessing. “The tenants would be much better off if we had won.”
IN A NEW twist, it’s now at least conceivable that the tenants—along with other former bidders—might just have another crack at Stuy Town, this time at presumably a much less inflated price. Tishman Speyer is on pace, before the end of the year, to exhaust the reserve fund that has been helping it to make debt payments, as Realpoint reported the fund had just $33 million left as of September, down from $400 million in 2007. Since June, the report said that between $7 million and $19 million has been taken out of the reserve fund each month.
In terms of the existing investors, things aren’t looking great. A Florida state pension fund recently wrote off its entire $250 million equity investment in Stuyvesant Town, presumably assuming it would never see any money back, given the many debt investors who are ahead in the queue. The first loan in line for repayment is a $3 billion mortgage now held by various bondholders, but there isn’t even enough money coming in yearly to support that, let alone pay back the rest of the $6.2 billion that was cobbled together to buy the property.
Just what shape a financial reshuffling takes—be it a sale, new investors, default, etc.—will have to wait, it seems, until after the deregulation court case is decided, interested observers say. That decision is likely coming in the next few weeks.
Rob Speyer, co-CEO of Tishman Speyer, has expressed confidence his firm will prevail in court, and has also said it intends to restructure the deal, though what role it eventually takes is unclear.
Would the tenants want another shot, opening the door for more press conferences and rallies, bullhorns and all? “If you talk to anybody, I think, at Stuyvesant Town,” said Mr. Doyle, of the tenants association, “they would be interested in pursuing that.”