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Saturday, August 21, 2010

Brother, Can You Spare a Half-Million?



In the confusion over who will own Stuyvesant Town and Peter Cooper once the lawsuits are resolved, something emerged (and seems to have been missed by many) that was eye-opening for residents of the complex. In a NY Times report on August 9th concerning "billionaire hedge fund manager" William A. Ackman's "great ambitions for Stuyvesant Town," alert residents received the first real money figures for what may be in store for them should the complex turn co-op. If you thought you could buy your apartment for 100K to 200K--forget about it. You were dreaming or smoking your 60s' bong.

http://dealbook.blogs.nytimes.com/2010/08/13/ackman-lays-out-his-plan-for-stuyvesant-town/

Here are the important paragraphs:

At $3 billion, Mr. Ackman would be paying about $300 a square foot for Stuyvesant Town. That is around a third of the value of recent sales in the area. That gives Mr. Ackman a lot of room to profit — that is, if he is successful in selling a large majority of the units.

This is where it gets complicated. The co-op conversion would assign shares in a corporation to each of the apartments based on the size of the unit and its location within the complex. The tenants would have the first right to buy those shares and effectively own their apartment. The tenants, regardless of how long they have been there, would be offered a discounted insider rate to buy the shares.

Mr. Ackman has agreed on a noneviction conversion, meaning that rent-stabilized tenants cannot be thrown out for failing to buy into the corporation, while free-market tenants would be able to continue living at the property through the end of their leases.

“Even if you sell units at a significant discount to market — with market being somewhere around $800 to $900 a square foot — that should be enough to pay down the mortgage and deal with the fact that we will have units that will be losing money,” Mr. Ackman said.

About 40 percent of the rentals are free market, so that means Mr. Ackman could renovate them when they become vacant and flip them quickly at market prices. At $800 a square foot and assuming 40 percent of the rentals equals 40 percent of the complex’s square footage, Mr. Ackman could make nearly $3.5 billion.

But that is assuming those rentals stay free market. A judge has ruled that the previous owners of Stuyvesant Town improperly converted many rent-stabilized units to market rent. That means many of those units appear likely to get their rent-stabilized lease back, throwing off the whole equation.

If a large number of apartments are returned back to rent stabilization, Mr. Ackman would need the majority of Stuyvesant Town residents to buy their units for more than $300 a square foot. But while some tenants might see this as a good investment, others might not have the cash for a down payment, especially given the downturn in the economy — or their rents may be cheap enough that buying does not make sense.

With the average size of an apartment at Stuyvesant town’s being 911 square feet, according to Mr. Ackman, that would mean that if it sells at about $600 a square foot, which is well below market price, it would cost about $546,600. The buyer would need to put up nearly $110,000 cash for a 20 percent down payment. The monthly payment, with a 30-year fixed-rate mortgage at 6 percent, plus assuming $1,500 a month for maintenance and taxes, would total about $4,100 a month.

A 5 percent mortgage would bring that total monthly payment down to about $3,850, but that is still higher than market rents of about $3,000 a month for similar amount of space. (The rent-stabilized tenants pay probably half that amount.)

Based on those numbers, it looks as if tenants will be paying considerably more than their current rent to own at Stuyvesant Town, even factoring in tax savings. Many will probably choose to continue paying below-market rates (as in many cases, it would be below the maintenance costs), which will eat away at any profits made from the sale of free-market units.

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One wonders who among us will be stupid enough to pay far more for living here than we do now. Perhaps sly deals on the side with investors who will offer a million for an apartment would make things workable for tenants (if they want to move out of Manhattan), but otherwise the above plan seems like an instant failure. Besides which, would you pay over half-a-million and get into personal heavy debt to own this run-down, feces and urine laden college town--where you will probably have to pay extra maintenance fees for neighbors who choose to opt out of the plan?

Now, somehow, I don't think the city big shots will let tenants off the hook. Ackman, if he gets the property, promises a non-eviction conversion. But that's now, before reality sets in.

I sense a royal screwing up ahead.

27 comments:

Anonymous said...

If you like crappy plumbing, zero soundproofing to the extent you can hear your neighbors fart, leaky windows and black mold, then Stuytown is the place to sink your money into. I can't understand why anyone in their right mind would want to buy a unit here. Renting is ok because it is a good deal (so long as you are rent stabilized) and you can put up with the many, many, many drawbacks. But to buy? Fuggedaboutit!

Anonymous said...

I absolutely agree about the condition of these apartments. I don't want to buy my apartment. Al Doyle wants to buy his. So whose side is he on? Not mine.

Anonymous said...

If you read Dealbook article Ackman still thinmks some of the apartments are not rent stabilized and he can kick tenants out of those apartments at the end of their leaes. I guess he didn't read or understand the Roberts decision.
The best thing that can happen to him is that CW beats him in court and his losses are limited to the $45 million hre paid for the worthless mezz debt.

Anonymous said...

To the third poster: wouldn't some of those mr-back-to-rs apartments come out of rs due to luxury decontrol? Ackman may be another greedy schnorrer, but I don't think he's stupid.

Anonymous said...

as I understand it no apartment in STPCV can be deregulated until at least 2017.Also, the Dealbook article is clear in saying that Ackman believes about 40% of apartments are market rate and he can kick tenants out at end of lease. If he truly believes that then he should sue whomever gave him that advice for malpractice.

Crazy Eddie said...

However, NYS rent stabilization laws sunset on June 15, 2011.

gaynycdad said...

Why would he get more than $300 a square foot, that is our value, not the amount in the rest of the neighborhood?
He will fail as did Tishman if his expectations are ridiculous like theirs was.
www.gaynycdad.com

Anonymous said...

I hope the fight for renewal of the rs laws isn't forgotten in the co-op mania.

Stuy Town Reporter said...

That's the issue. Not taking one's eye off the renewal of RS.

Anonymous said...

I think the Tenants Association is more interested in becoming the Owners Association. As a tenant who does not want to become an owner, I feel that we I have no one in my corner, nobody is covering the backs of those of us who do not want to buy.

Anonymous said...

I wish more people would post here about the renewal of the rent stabilization laws. The TA seems to have completely lost touch with that issue. There is nothing on their website and, of course, no place for people to post anything about anything. Since the Lux Living blog closed down (for all practical purposes) there's no place for tenants who want to continue to rent to voice their concerns or rally others to the cause regarding the renewal of rent stabilization laws. It's very frustrating. I am very angry at the TA for their ownership mania because that's all they seem to care about. They used to rally support for rent laws being strengthened, but they don't seem to give a toss about that now.

Anonymous said...

I agree with the comments regarding the Tenants Association. They have allowed Tishman Speyer to turn this place into the wild wild west. Anything goes. There is no security presence and the 13th precint is totally absent from the property. Couple the horrid conditions with issues like replacing the plumbing which will cost $400 million (I heard that was the low bid to do job) and clearly the big issue is not to allow rent stabilization laws to expire over buying the property. The TA is absent on this issue and has really become an investment firm trying to buy the property. They no longer represent the majority of tenants. I for one am behind any new group that would emerge that would stand up to and replace the current Tenants Association!

Jim said...

This is not 'greed' or 'mismanagement'. This is how capitalism works. The anarchy of the 'free market' allows the wealthy to get even wealthier. The families who own TS are a multi-billionaires who stand to lose 35 million. The beaurocrats running that California pension fund likely will not even lose their jobs. As the rate of return on investments continues to decline you can bet that we'll see lots more of these processes. Now: for those of you who are sensitive to profanity please cover your eyes as I use the words that terrifies the Tenants Association as much as the owners...RENT STRIKE. So, go ahead and get all huffy about how out of line that was but you know its true.

Anonymous said...

Paper-thin walls in a project stuffed with hard-partying students and transients, not to mention ancient plumbing that spews out water that looks like puke! Yeah! I just can't wait to plonk down $600k and pay $3k+ in maintenance for a unit in such a dump! Ha ha ha! Mr. Ackman, you're an IDIOT of the same ilk as failure landlord Rob Speyer! One born every minute as the great P.T. Barnum used to say! It would be better if the Housing Authority took it over!

Edmund said...

Regarding the STPCVTA seeming to only represent the tenant as a buyer as opposed to advocating the renewal of the NYS RS laws, there is a dammed if you do, dammed if you don’t on that position. The real estate predators are circling and we need to be at the table when the litigation dies down and the property is purchased. My own opinion is that, after seeing my generation (baby boomers) vote year after year vote for Republican candidates like Giuliani, Pataki and Bloomberg (don’t fool yourself, he is true Republican no matter what he says regarding the Mosque issue or his registered party), I have become severely depressed on the future of this community and Manhattan in general. Blogs like the “Vanishing NY” and the “EV Grieve’ document how Manhattan is being gentrified whereby the old canard of Manhattan being only for the rich, their children and welfare recipients is rapidly becoming true. As per the recent news reports, the Democratic party is also now being corrupted by real estate money (NYS senate) so maybe the TA believes that organizations like Tenants and Neighbors will carry the freight for the RS laws, I don’t know.

Also, why is TS still here as the managing agent for this foreclosed property? Their policy of creating dorm apartments with 4-8 unrelated transient college and just post college tenants plus the shredding of security whereby no quality of life regulations are enforced, has made living here a truly horrible experience. I used to very involved in the TA as a volunteer but I believe we are spitting in the wind, the Roberts J-51 ruling not with standing, greed will win , say goodbye to the working/middle class in Manhattan.

I will continue to donate dues money to both the STPCVTA and Tenants and Neighbors but the wave is against us.

Anonymous said...

This whole situation is very depressing and we rent stabilized tenants who consider this our home and have lived here most, if not all, of our lives seem to have nobody in our corner. I'm finding it very hard to trust the TA or our local politicians. The transients and students probably don't care what happens because this is just a temporary flop for them. If the maintenance and service goes [further] downhill, I think a rent strike would be quite justifiable.

Anonymous said...

I heard the TA had a board meeting yesterday and were speaking with prospective buyers. I wonder if they will share anything with us. We have very little in the way of information these days, especially now that the Lux Living site is totally useless. I wish you, STR, would make this a bit more of a forum so people can share info. Please, pretty please. :-)

Stuy Town Reporter said...

The Blogger blog I use doesn't allow a forum format.

Anonymous said...

The TA is totally useless and needs to be replaced!

Anonymous said...

I'd have some respect for the TA if they had ever shown that they give a damn about the miserable quality of life we have to endure in Sty U. But they haven't. Only STR and the now-defunct Lux Living ever gave a voice to tenants about the outrageous harassment by noise, filth and neglect that has been inflicted on longterm tenants by the despicable Tishman Speyer management.

Anonymous said...

It seems Wiley Willy Ackman is slithering further and further up the ass of our less than transparent TA (to whom ownership is paramount and fuck the rent stabilization renewal issue). Wiley Willy is as slimy as a bucket full of snot. No one should trust him.

Anonymous said...

It should be remembered that in order for Tishman Speyer to implement it's Grand Plan to get all rent stabilized tenants out, TS used a two-pronged strategy: first, they tried to evict and scare out older tenants by accusing them of not living here legally, etc.; second, they filled up every available apartment with students and twenty-something transients calculating that the behavior of this kind of tenant would be sure to harass older tenants out of their homes because they would never have any peace and quiet, least of all a decent night's sleep. Security and management were told to ignore noise complaints made by rs tenants. Well, they had to abandon the first part of the plan (after driving out quite a few senior citizens who couldn't fight back) because of legal action supported by our local pols (thank you Dan); however, the second part of their plan is still in effect. The place is infested with noisy students and self-absorbed twenty-somethings who are mostly from out of town and having heard that New York is called "the city that never sleeps" they believe that New Yorkers don't want to and have no right to sleep. Anybody thinking of buying their apartment should consider if the quality of life instituted by Tishman Speyer is worth the asking price of the unit. Why would anybody want to spend several hundred thousand dollars to live in an unsoundproofed unit next to Animal House or Beavis and Butthead? I have a couple of Lady Gaga types living downstairs from me and I've forgotten what it's like to get an uninterrupted night of sleep because the "girls" come stomping home around 3 am, somewhat the worse for wear and act like it's 3 in the afternoon. That makes my quality of life, as well as the value of my unit, worth shit as far as I'm concerned. There's more than just the bricks and mortar that is crumbling away in Stuyvesant Town. The quality of life has totally been eroded.

Anonymous said...

I agree the deterioration of this community is an assault on the residents and a violation of the rent laws. No one seems to care about living in a community in which residents take care of their homes and shared spaces (hallways, laundry rooms,elevators, etc.) and have the necessary support of management in providing caretakers to maintain the interior and exterior property.

People have no respect for their neighbors, nor does it appear that they have any idea of the responsibility and civility involved in residing in an apartment building/complex. Picking up after oneself seems unheard of. Who do these "residents/transients" and visitors believe is responsible for their droppings in the hallways and the cigarette butts that they so freely discard outside the entry to the apartment building or near the playground? What about the lack of required floor coverings and the resulting noise for those below you?

I strongly support a rent strike until the powers that be/management enforces the requirements as outlined in our leases and the rent laws of the city.

I further suggest that another forum be established to truly represent those tenants whose interests will be best served by the continuation of rent stabilization laws.

I question what would happen if the rent stabilization laws sunset in 2011 - what would be the impact of the Robert's ruling then?

And lastly, is there anyone in the political arena who has the tenant's interests as their primary commitment? Or do they just give lip service to the maintaining affordable middle class housing?

Can anyone identify a representative of this community with whom a group of us can organize to push an agenda addressing these issues? Primarily affordability, and maintaining the housing stock and enforcing housing codes, etc?

A rent strike might be the only way to go.

Anonymous said...

Is this Guterman dude on drugs? How come there is such deafening silence from the TA? ESPECIALLY about the RS laws expiring in less than a year!

Anonymous said...

Anybody interested in an organization that is serious about preserving the rent stabilization laws should go to Tenants&Neighbors.org. I hope you will give this organization a little coverage, STR. Our "Tenants" Association sure as hell don't seem interested.

Anonymous said...

We do indeed need a forum where we tenants can exchange information, ideas and views (and maybe a few vents, so long as they don't get too vitriolic and/or personal ;-)). It's a shame the Lux Living blog closed down for comments, not to mention that it is pretty behind the developing new and, therefore, quite useless. Maybe STR can come up with an idea???????

Stuy Town Reporter said...

Setting up a forum and then moderating it takes a bit of time and patience. There's an opportunity there for someone, but past attempts have failed, though I think the old Tenants Association forum was the best. (Lux's blog wasn't a forum format, but some of the commentary was very valuable for tenants.) I think the Tenants Association should tackle a forum again.