Manhattan, NY – Real Estate Bubble: 2 NYC Apartment Complexes Bought For Record $5.4B Turned Over To Creditors

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    Peter Cooper Village and Stuyvesant TownManhattan, NY – The financially troubled owners of two massive apartment complexes that sold for a record $5.4 billion a few years ago said Monday they’re turning them over to their creditors.

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    The joint venture ownership team led by Tishman Speyer Properties and BlackRock Realty, hurt by the real estate market collapse, couldn’t make a multimillion-dollar loan payment earlier this month for the Stuyvesant Town and Peter Cooper Village apartments in Manhattan.

    Over the last few days it became clear the only viable alternative to bankruptcy would be to transfer to lenders control and operation of the 110 buildings and 11,000 apartments overlooking the East River, partnership spokesman Bud Perrone said.

    “We make this decision as we feel a battle over the property or a contested bankruptcy proceeding is not in the long-term interest of the property, its residents, our partnership or the city,” Perrone said in an e-mailed statement.

    The group bought the complexes, which have about 25,000 tenants, in 2006 at the height of the real estate bubble in the nation’s largest residential real estate deal.

    The record purchase price seemed outrageous to many real estate analysts, but the partnership 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.

    But the tactic was a bust as the city’s housing market cooled considerably. Ratings firms estimated the value of the 80-acre area had fallen to as little as $2 billion — far less than the outstanding loan balance.

    Apartment conversions happened much slower than expected, tenants fought back and a state court ruled that about $200 million in the partnership’s new rent increases was improper.

    The group, which used a $3 billion mortgage and a $1.4 billion secondary loan to buy the properties, had been trying to restructure its debt. It couldn’t make a $16 million loan payment due Jan. 8.

    Analysts had been expecting the ownership group to default on its loan for several months.

    It hasn’t been determined when the ownership transfer of the sister properties will take place and who specifically the new owners will be, Perrone said.

    Tishman Speyer, whose other properties include Rockefeller Center and the Chrysler Building, said it wouldn’t consider a long-term management contract to continue operating the apartment complexes if it didn’t involve ownership. It said it was committed to an efficient transition of the properties’ operations and would manage them during that transition.

    The housing complexes, which are so big they have their own newspaper, were built by Metropolitan Life in the 1940s for returning World War II veterans. MetLife Inc. decided to sell them in 2005, when real estate prices were soaring.

    Tenants launched their own bid to take over the 11,227 units, three out of four of which were rent-stabilized and priced far below the market rate, before MetLife announced it had closed a deal with the partnership led by Tishman Speyer and BlackRock.


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    8 Comments
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    Yehuda
    Yehuda
    14 years ago

    Roger Lowenstein reports in the NYT of January 7: ‘Former Treasury Secretary Henry M. Paulson Jr. declared that “any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator — and one who is not honoring his obligation.”’ I would be curious if Tishman Speyer is held to the same standard of moral behavior.

    Columbus
    Columbus
    14 years ago

    The reason they went bust was that they thought they could raise everyone’s rent and make money. It was on that basis that they paid those big bucks. Big mistake. They gave it up when the courts recently ruled that which they were doing was illegal.

    Anonymous
    Anonymous
    14 years ago

    Bistritzky should bench Gomel he didnt buy the Starret buildings for over 1 billion. Its not worth half that today. Hashem saved his money so he can give more Tzedakah!

    Greedy Bastards
    Greedy Bastards
    14 years ago

    I am glad that the market is crashing the way it is, all those greedy people who tried to get rich on the poor working class by raising their rents are nothing but greedy, well, I hope the prices go down even more. There is talk out there that the commercial RE market in NYC is about to buckle, I can only imagine how it will effect the rest of the country.

    Anonymous
    Anonymous
    14 years ago

    Real estate people who take advantage of everyone and raise their rents should go go bust. New Yorkers are sick and tired of people who raise everything from the food to rent.

    Even in the so called good times people were struggling. Everything was inflated and the game is over. Nobody should feel bad for these type of people who just don’t have a heart.

    All the people who flipped homes caused the entire market to go up.

    Oil prices went down but the prices of kosher food is out of control and the companies made their packages and containers smaller but raised the prices for a third time two months ago.

    Pesach is coming up and I just don’t see how we will afford basics on our table.

    Real estate people and the distibutors are totally dishonest and have no heart in making things more affordable while making a profit.

    Anonymous
    Anonymous
    14 years ago

    Pure greed.