Court Rules Against Tishman Speyer in Stuy Town Case
A: Breaking news. This is going to be a thorn in the side of the Stuy Town owners who bought the complex in 2006 for $5.4Bln. The complex..."now has a market value of about $1.99 billion, meaning New York-based Tishman and BlackRock owe more to bondholders than the apartment complex is worth, according to Steve Kuritz, senior vice president at credit rating company Realpoint LLC." Ouch!
Via Bloomberg's "Tishman’s Stuyvesant Town Rent Rise Voided by Court":
Tishman Speyer Properties LP, owner of Stuyvesant Town-Peter Cooper Village, Manhattan’s largest apartment complex, lost a tenants’ lawsuit in New York state’s highest court accusing the company of improperly raising rents.Crazy, but I really didn't think the hit was that large? I'm off to appointments most of the day and will have to sit down and digest this for a day or two before offering further ripple effect opinions from this court decision. It seems a bankruptcy filing is near to protect Tishman from creditors.
The New York Court of Appeals in Albany said today the increase in rents on about 4,350 apartments in the massive complex on Manhattan’s east side violated the law because it was built with city assistance and the building’s owners received tax breaks.
The court noted today’s ruling wasn’t unanimous, adding “the dissent predicts that our decision will cause ‘years of litigation over many novel questions to deal with the fallout from today’s decision.’
Tishman and its partner BlackRock Realty LP bought the 80- acre, 11,200-unit developments for $5.4 billion in 2006 with plans to remodel and raise the cost of rent-regulated units to market rates. A $3 billion loan to finance the acquisition was bundled with commercial mortgages and sold as bonds.
The property now has a market value of about $1.99 billion, meaning New York-based Tishman and BlackRock owe more to bondholders than the apartment complex is worth, according to Steve Kuritz, senior vice president at credit rating company Realpoint LLC. He said a default “is probably inevitable.”
A default “could be the triggering event for the collapse of the commercial real estate market,” said Stuart Saft, a partner at law firm Dewey & LeBoeuf LLP in New York who specializes in real estate. “The losses the lenders are going to take on Stuy Town could force them to call some of their other loans on commercial property.”
A $400 million reserve set up by Tishman and BlackRock to pay debt service will be depleted by December, according to RealPoint. About $24.4 million remained in the fund as of Oct. 19, Kuritz said, citing a report from the loan’s master servicer.
Posted by Insider
Thu Oct 22nd, 2009 10:33 AM
Stuart Saft, although not well known to most New Yorkers is THE go-to guy for almost every developer in town. If he sounds the alarm, then the shit has really hit the fan.
Posted by Noah
Thu Oct 22nd, 2009 12:16 PM
Not familiar with Saft but Ill take your word for it!
Posted by In Debt We Trust
Thu Oct 22nd, 2009 01:54 PM
Isn't Blackrock flush with cash? After all, they are one of the connected banking elites along w/Goldman, PIMCO, and JP Morgan w/an inside access to the Treasury and Obama Administration.
I suppose the bondholders can sue Blackrock to get access to the full funds. Oh, how I would love to be on retainer for that case.
Posted by Ana Maria
Thu Oct 22nd, 2009 03:12 PM
It will be interesting to see the fallout of this on the rental side. Will tenants actually be refunded moneys owed? What about other landlords who have done the same? The potential ripple effect on rental prices throughout the city is a big wildcard.
Posted by Susan martin
Thu Oct 22nd, 2009 04:10 PM
Ha, Ha. That is great news. Everything should be rent stabilized and we should buy the units so we have a fair landlord. Great, great....
Posted by Susan martin
Thu Oct 22nd, 2009 04:10 PM
Ha, Ha. That is great news. Everything should be rent stabilized and we should buy the units so we have a fair landlord. Great, great....
Posted by Fred
Thu Oct 22nd, 2009 07:58 PM
Tishman more than likely can't survive, between this and all of their Lehman dealings, they will spend the next 15 years in court....
Posted by In Debt We Trust
Thu Oct 22nd, 2009 08:35 PM
Fred,
Tishman owns Rockefeller Center and a lot of mid-town slightly north of the Diamond District. That is very valuable property. I wouldn't write them off prematurely.
Posted by Jeff
Fri Oct 23rd, 2009 07:40 AM
This ruling will have major ripple effects throughout the New York City Multi-Family residential market. When the issue of de-regulating rents, while accepting tax subsidies first came up my partner figured it wouldn't be a big deal and that there couldn't be that many guys dumb enough to attempt this gimick. We wondered how the great and mighty Tishman could have been follish enough to play with fire this way. However, anecdotally we were told that many apartment building owners in NYC had relied on an "opinion" posted on the HPD web site (if I recall correctly) saying that this wasn't necessarily a conflict. OOPS!
Posted by James
Fri Oct 23rd, 2009 09:28 AM
Commercial Real Estate Fire Sale Auctions, COMING UP!
Posted by Fred
Fri Oct 23rd, 2009 11:04 AM
there are a number of very well known developers & managers who are teetering on the brink of insolvency simply because they went way too long with their money and other people's money. between stuy town and archstone, tishman could seriously be on the hook for a billion in liability when the lawyers get done with it all. this doesnt even begin to address the haircuts they are going to take on their US property portfolio. these empires are simply too big. zell knew to get out and begin again at the bottom of the cycle....
Posted by In Debt We Trust
Fri Oct 23rd, 2009 11:19 AM
Looking ahead to the future the bondholders are going to be fighting an uphill battle.
The GGP court case is an arguable precedent in determining future rulings of lender accessibility to SPEs (special purpose entities). The court which decided GGP also has jurisdiction over a potential Stuy Town case for bondholder access to loans.
SPEs have proven popular in recent years as funds sought to distance themselves from potential liability through the establishment of subsidiaries. In principle, lawyers typically write these things to maintain separation from the parent company(ies). This includes separate, independent officers and the holding of conventional debt mortgages (nothing too exotic). But in practice things can get complicated.
It is unclear from the article what sort of funding structure and collateral Blackrock and Tishman used. Judge Gropper ruled in favor of GGP b/c of the presence of multiple liens on company assets.
In re General Growth Properties, Inc., Bankr. S.D.N.Y. Aug. 11, 2009
I will be following developments closely.
Posted by Parasite
Fri Oct 23rd, 2009 12:42 PM
Hot off the WSJ press.. http://blogs.wsj.com/developments/2009/10/22/while-nyc-renters-rejoice-more-pain-for-tishman-and-co/
There doesn't appear to be enough rental income to support even the most senior lenders.
Got to love that karma....
Posted by Fred
Fri Oct 23rd, 2009 12:50 PM
unreal. hadn't seen the DB appraisal figure, just another mentioning of the $1.9b current value estimate. this deal is a really good marker of how over valued multifam AND for sale resi got in Manhattan. all i can say is buyer beware in this market. the real estate trolls will sweep your future earnings faster than than you can say toasted bagel with cream cheese....
Posted by Crosby
Fri Oct 23rd, 2009 01:47 PM
What does this mean for deregulated tenants in the complex? Let's say someone is paying $3000/month. Will he remain at the rent but is now rent stabilized? Will his rent be rolled back and he will be rent stabilized?
Posted by Parasite
Fri Oct 23rd, 2009 01:56 PM
@ Crosby
Check out this site for more info:-
http://www.stuytownluxliving.com/
Good luck.
Posted by Alexis Jameson
Sun Oct 25th, 2009 10:49 PM
Keep up the good work with your post - very informative!
Posted by Bart
Mon Oct 26th, 2009 03:05 PM
Talk about an investment gone sour!
I've never been over there but would it be accurate to characterize the ST/PCV as subsidized middle-class housing?
It will be fascinating to see how this plays out.
Bartmann
Posted by Parasite
Mon Oct 26th, 2009 03:54 PM
@ Bart
No, it would not be accurate to describe PCVST as subsidized middle-class housing.
The correct term is Rent Stabalized middle-class housing. However, since Tishman/MetLife had a policy of de-regulation, even the RS desription can be seen as wrong.
Since the recent Robert's ruling, the Rent Stabalized aspect of PCVST may well return. Too early to tell.
Posted by Jazzman
Mon Oct 26th, 2009 09:34 PM
StyTown is not "rent stabilized middle-class housing." I don't understand why people keep calling it that. Rent stabilization income limit deregulation is so narrow and applies to so few that it is basically meaningless. Sty Town was built as market rate housing and was such for 25 years before RS came about. Still now millionaires live there in their apartments with rents below $2,000/month. Rent stabilization is not about saving the middle class or helping the poor. It is about helping people who have lived in an apartment for a long time and that's it. The warfare it rages is much better defines as old vs young not rich vs poor.
Posted by Parasite
Tue Oct 27th, 2009 09:20 AM
@Jazzman
You're wrong - plain and simple!
63% of the apartments at PCVST are Rent Stabilized. That figure will more than likely increase as a direct result of the Robert's ruling. Should an apartment's rent exceed $2000 and the tenant's income exceed $175,000 for 2 consecutive years, then the apt. will de-regulated.
I'll assume you're being ironic or ignorant when you state millionaires are living there.
Posted by Jazzman
Tue Oct 27th, 2009 09:30 AM
Parasite - I said millionaires live there - I didn't say everyone who lived there is a millionaire. Is your stance that no millionaires (of the 11,000 unit) is a millionaire? I didn't state that it was a home for millionaires or that it attracts millionaires I simply stated that millionaires can and do live there. I think you read too much into my words.
So, with 63% of the units stabilized that means that they all rent for less than $2K (but for a few where legal rents are above $2K and incomes are below $175K) - millionaires are allowed to stay in the below $2K units. 37% are market rate meaning millionaires can rent them as well. You're points don't prove that even one apartment is forbidden from having a millionaire live in it.
Sty Town was built as market rate housing. MetLife chose as it's business model to keep rents below market and have a very low vacancy rate and a low turnover rate. That kept it middle income (as did rent stabilization which came 25 years later). It was not built as "middle income housing."
Posted by Fred
Tue Oct 27th, 2009 09:58 AM
Parasite - Jazzman suffers from the now debunked narrative that everyone in NYC is a millionaire. It is the great underpinning for the argument of why housing is justifiably sub-par and lacks any reasonable value proposition. Land values tripled in four years leading into the bubble's peak. Construction has already taken the hit - we are waiting for the write downs on land cost basis to happen and then we can start a new cycle over again. It is very interesting that the whole sale valuation on Stuy Town is roughly $180,000 / unit because if you think about, if one were to buy the whole thing to sell (assuming you could do so), it would take ten years or more to liquidate, but you'd probably price them at $400,000 at the retail level. The larger commercial investment deals are wonderful benchmarks for how expensive equity capital has gotten. I still see folks trying to get 5% caps on walk-up rental bldgs - it makes me laugh. How do they expect you to make any money in the current environment on a 5% cap? The great NYC real estate conspiracy is all about the narrative and keeping folks guessing about real inventory and what prices are on a relative basis to other living options outside of the island.
Posted by Parasite
Tue Oct 27th, 2009 12:49 PM
@ Jazzman
Here's another figure for your anxiety.
Of all the rental buildings in NYC, 50% are Rent Stabilized.
I'm sure many of those are millionaires.
Posted by In Debt We Trust
Tue Oct 27th, 2009 11:34 PM
Parasite, Jazzman
Time for a little history lesson.
Stuy Town/Peter Cooper Village was built as affordable housing for returning World War II vets and working class people.
There is a clear racial element whose legacy lingers to this day. Back then, it was LEGAL to have covenants restricting ownership to whites only - hispanic, black, and asian applicants were routinely turned down (to satisfy these groups other buildings were built in the Bronx,
Chinatown, and upper Manhattan). Other developments scattered throughout Manhattan had similar covenants. Obviously, the buildings in ethnic neigborhoods did not enjoy the same level of benefits and funding as those reserved for whites.
Even after the civil rights movement, only token amounts of minorities were allowed within to appease minority politicians. This pattern only started to change after many co-ops were allowed to semi-privatize in the early to mid-1990s. A slew of lawsuits against co-ops also forced the door open. I know because my parents were one of the litigants in such a suit. I vividly remember growing up in a building where the other residents and doormen often mistook me for a delivery boy/hooligan simply b/c of the color of my skin.
Some - not all - of the original residents who stayed on are simply taking opportunity of the broad based "affordable housing" movement to maintain their hold on below market rents/maintenance fees in an otherwise luxury priced market. The most eggregious aspect is that many of the children of these original inhabitants have since moved on to become very wealthy or upper middle class yet continue to benefit from a program designed to help their forebears.
Posted by commercial property to let
Fri Nov 6th, 2009 02:44 AM
While residential investing tactics are well known to many property investors, many still do not know about why they should, or how to, invest in commercial real estate. If you mention real estate investment to most people you will most likely find yourself in a conversation dominated by reality TV fueled residential real estate moves.