A massive rental housing development in the state of New York will be handed over to the property owners’ creditors, it was announced recently. News that the Stuyvesant Town / Peter Cooper Village complex was badly underwater and that its owners, Tishman Speyer Properties and BlackRock Realty, were having trouble paying the bills rocked both the state and national housing industries. The partnership purchased the massive complex (encompassing one hundred ten buildings and over eleven thousand apartments) for over five billion dollars back in 2004, in what might have been one of the most expensive real estate deals of its kind in the history of American housing. Tishman Speyer and BlackRock have turned the deed to the properties over to the bank, ending a frustrating and sad saga that is emblematic of the national housing crisis.
In a public statement, the property owners stated that the decision to turn over the properties came after weeks of attempts at restructuring or rearranging the ownership of the buildings. Having failed at that and not wanting to have to declare bankruptcy, they say that turning over the deed was the only viable option left. Making more money from rents was not an option due to strong rent controls in New York City and the massive downturn in the real estate market. As a result, they could not come up with the payments on their massive loans. Last month, the partnership officially defaulted on their three billion dollars in loans. Secondary lenders have been barking for the partnership to give up the property.
The sprawling Manhattan complex, which overlooks the East River and spans eighty acres of prime real estate, was built by the Metropolitan Life corporation about sixty years ago as much-needed shelter for veterans returning from World War II when the city was desperately in need of expanded housing. The (insurance) company received numerous government tax breaks and incentives in return for proving low rents to this targeted population. Over time, occupancy of the thousands of units shifted to workers looking for livable rent rates in the heart of the city. MetLife made the decision to sell the property in 2005, at the very height of the then-burgeoning real estate bubble that precipitated the contemporary crisis. Tishman Speyer and BlackRock won the bidding.
Things went downhill from there. Tishman Speyer, head of the partnership, also controls both the Chrysler Building and Rockefeller Center. So they do know just a thing or two about the management of prime real estate in the big city. But, according to reports, a workable compromise simply could not be reached. Tishman was offered a long-term contract to operate the properties as caretaker, but that plan was summarily rejected. The companies attempted everything they could to stay afloat, including the renovation and deregulation of vacant apartments with raised rents.
The lenders will now be seeking new managers for the iconic properties. The city’s tenant advocates and urban planners are tut-tutting over this unfolding story, saying that the meltdown underscores both the leach on affordable housing in the heart of NYC and the dangers of speculative real estate planning.
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