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Tuesday, October 26, 2010

Lenders Take Over ST/PCV




http://www.nytimes.com/2010/10/27/nyregion/27stuytown.html?_r=1

Lenders formally took control of Stuyvesant Town and Peter Cooper Village on Tuesday, ending a four-year odyssey that put this affordable middle-class enclave at the center of both the biggest real estate deal in history and a major financial debacle.

CW Capital, the company representing the complexes’ senior lenders, is now expected to begin negotiations with tenants over what could be the country’s largest conversion of rental buildings to a condominium or cooperative. That could start battles among the 25,000 tenants over whether the apartments should remain affordable or be allowed to trade openly on the real estate market.

The changes occur under strikingly different circumstances than in 2006, when a partnership of Tishman Speyer Properties and BlackRock Realty bought the 80-acre property from the original owner, Metropolitan Life, for a record-breaking $5.4 billion.

The plain red brick buildings, built by Met Life more than 60 years ago for returning World War II veterans, were considered by investors to be a gem in the rough because of their Manhattan location and sturdy construction.

The buyers expected to triple their net income by 2011 by replacing longtime residents paying regulated rents with tenants paying higher market rates. But their plans fizzled after residents resisted and the partners failed to convert enough apartments to market rents. In January, they defaulted on a $16.1 million monthly mortgage payment.

The casualties from the ruptured deal spanned the globe, as analysts revised the value of the property to $1.9 billion, less than one-third of the acquisition cost. The Church of England, the government of Singapore and several publicly traded American companies lost hundreds of millions of dollars, while three public-employee pension funds in California and Florida saw their combined $850 million investment evaporate.

On Tuesday, CW Capital, which represents a multitude of investors who held the $3 billion first mortgage, effectively took control by buying out the interests of William A. Ackman, chairman of the hedge fund Pershing Square Capital, and Michael L. Ashner, chairman of Winthrop Realty Trust. The two had paid $45 million for a $300 million block of secondary loans with the hope of taking the property away from CW Capital.

Their strategy failed after CW Capital successfully blocked them in court, although Mr. Ackman and Mr. Ashner are getting back all but the legal fees they spent. By buying the men out for $45 million, CW Capital was able to avoid future litigation, but more important, it allowed them to structure the transfer in a way that avoids, or at least defers, upwards of $100 million in state and city taxes.

“This brings one chapter to a close,” said Gregory A. Cross, a lawyer for CW Capital. “We have control of the property, and we’ve resolved all the outstanding litigation. We now have maximum flexibility in dealing with the different constituencies, in particular, the tenants.”

Little will change immediately for the 25,000 residents of the sister complexes overlooking the East River; CW had already installed Rose Associates as the manager of the 11,226 apartments, garages and retail space at the complexes, replacing Tishman Speyer Properties. Rose had managed the properties for Met Life for several years before the sale.

But CW Capital has told the tenant association and real estate executives that its first priority is to try to reach a settlement over rents and overcharges for about 4,300 apartments at Stuyvesant Town and Peter Cooper Village. Last year, the New York State Court of Appeals ruled that the owners of the complexes had wrongfully deregulated and raised rents for those apartments while getting special tax breaks from the city.

More at the above link.

Friday, October 1, 2010

Condo or Co-op - The Fall of Stuyvesant Town/Peter Cooper Village as We Know It?



There have been so many things written and said about the future of Stuyvesant Town and Peter Cooper Village and the possibility of the complex being turned into tenant-owned condos or co-ops, that I thought it best to have a central clearing house post (that can be bumped up to top position when warranted) to explain and debate what is going on and what the future may hold. At the outset, I must underline that I have no background in real estate, so some of this is as confusing to me as it may be to you. But that's the purpose of this post--to seek and make clarity on an issue that affects most of the tenants here.

I say most, because there is a significant transitory student population here for whom the issue of conversion or no conversion has little or no interest. It should be stressed that this transient population benefits the owner who can easily use these student apartments for self-serving purposes, unless there exist some long-term contracts with the colleges and universities who rent out these units, which I doubt. That's why Tishman Speyer loved students and actively sought to get them into the complex. These students are a chunk of the population here that is in the "owner column," as far as what can be done with their apartments. And these students certainly have no interest in joining tenants battles against the owner. They are just here to use the grounds and the rooms and then, after a year, they are gone. Perfect for an owner who wishes to raise rents on apartments and not get into trouble with long-term tenants.

Anyway, I'll be adding pertinent material to this post in the coming week and even weeks on the fate of this complex.

To start off, let me state that I am seeing another "divide and conquer" issue arising very fast with the possibility of tenants owning their own apartments. The tenants who opt for conversion will join now the investors who will own the complex, and so for them, rent-stabilized tenants will become an annoyance and a burden. Simply put, the condo or co-op tenants will begin to start thinking of rent stabilized tenants as leeches who are, at the very least, not paying for maintenance while they are. And I believe maintenance fees for this place are going to getting higher and higher, considering how old it is and how much it has fallen into disrepair and ugliness in the last year or so. Any new improvements will also be a financial burden on the conversion tenants, who will now, along with the owner or owners of Stuy Town/PCV, be for capital improvement rent raises whereas before conversion, they would have been against. These conversion tenants will also have no interest in pro-tenant rent laws, as they would see that the best relief for them, from their own financial burden, would be to have everyone own an apartment here or pay higher market rates for one.

So, it seems very obvious to me that the conversion idea contains the seed of disunity--even hatred between the two classes established: conversion tenants (now owners of their apartments) and rent-stabilized tenants.

The fact that the ST/PCV Tenant Association is actively pursuing a condo or co-op conversion (at this point it is undecided which) means that if conversion succeeds, the Tenant Association will have difficulty in being "fair and balanced" and may not work toward keeping and strengthening tenant laws.