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Saturday, August 21, 2010
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.
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.
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.