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.
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