City Concerned About Effect On Tenants From Unwinding $5.4B Purchase Of 11,000+ Unit Apartment Complexes Gone Bad

In New York City, The New York Times reports:

• Three years ago, the sale of the 110 red-brick apartment buildings at Stuyvesant Town and Peter Cooper Village in Manhattan represented the most expensive American real estate deal in history.(1) Now the buyers are running out of time and money. Jerry I. and Rob Speyer and their partner, BlackRock Realty, who paid $5.4 billion for the quiet middle-class redoubt near the East River, have seen the property lose more than half of its value, and the income from rent — down 25 percent from its peak — covers less than half of their debt payments. Real estate analysts say they expect that by December, the partnership will run out of an additional $890 million set aside for apartment renovations, landscaping and interest payments, and that the owners are at “high risk” of default on $4.4 billion in loans.(2)

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• Stuyvesant Town and Peter Cooper Village are in trouble. City officials have been monitoring the looming crisis and how it might affect a complex that has served as an oasis of affordability in Manhattan for middle-class New Yorkers. Some 6,875 of the 11,227 apartments at the complexes are rent regulated. “We are absolutely keeping an eye on it,” said Rafael E. Cestero, the city’s housing commissioner. “It’s an iconic complex.” Referring to the people who were part of the original real estate transaction, he went on, “Those folks are going to take their lumps. We are looking at how we can ensure that the rent-stabilized units and the families that live there and families that could live there in the future could be insulated from the unwinding of this deal.”(3)(4)

For the story, see Buyers of Huge Manhattan Complex Face Default Risk.

(1) The residential complex, the largest of its kind in New York City, covers approximately 80 acres, or a full 10 city blocks, between First Avenue and Avenue C, and 14th Street and 23rd Street, and consists of 110 apartment buildings comprising 11,200 units, which house at least 20,000 people.

(2) The purchase of Stuyvesant Town and Peter Cooper Village was one of the more scrutinized of its deals in recent years, the story states. The winning bid presumed the partnership could increase profits by renovating and deregulating apartments, but the owners have been unable to quickly convert apartments to market rates.

(3) “Residents are increasingly concerned that the maintenance of the buildings is slipping, even as they are getting hit with a flurry of potential charges for major capital improvements,” said Daniel R. Garodnick, a city councilman who lives in Peter Cooper Village.

(4) The underwater landlords in this story have gone to the New York Court of Appeals (the state's highest court) to appeal a recent state intermediate appellate court ruling that could result in them having to pay more than $200 million to repay the tenants in these complexes for illegal rent increases over the last four years in connection with improperly deregulating more than 3,000 apartments while receiving special property tax breaks from the city. See:

• The New York Times: Big Landlord Found to Have Wrongly Raised Rents,
• The New York Times: New York Landlords Fight as Rent Refunds Loom.
• For the court ruling, see Roberts v Tishman Speyer Props., L.P., 2009 NY Slip Op 01595 [62 AD3d 71] (March 5, 2009).