Three years ago this month, Stuyvesant Town was a bees’ nest of tenant activism. Rallies with bullhorns, press conferences and elected officials littered the 80-acre brick city on the East Side. The reason? MetLife was selling the longtime middle-class enclave that was Stuy Town and Peter Cooper Village, and the tenants, terrified of the pressure a new owner would face to raise rents and deregulate apartments, were pushing their own bid to buy the property themselves.
In the end, MetLife went with real estate giant Tishman Speyer and its then historic $5.4 billion offer, leaving the tenants dejected.
Now, as real estate values have plunged from their peaks—which happened to roughly coincide with the November 2006 sale—and buildings around the city are failing to fetch the rents that their quixotic, often leverage-happy buyers envisioned, another viewpoint of the Speyer victory, from the tenants’ perspective, might make more sense: as a stroke of good fortune.
“Considering that it’s being assessed as low as $2.1 billion,” said Alvin Doyle, president of the Stuyvesant Town–Peter Cooper Village Tenants Association, “yes, I’m glad we lost the bid.”
From the moment that MetLife put the 11,250-apartment, postwar complex on the block in September 2006, it was clear the contest for Stuy Town was going to be a pricey battle, as New York City real estate’s biggest names all wanted a chance at the trophy.
Now, the prospect of default looms for Tishman Speyer, and a rent-regulation case being decided by the state’s top court could leave the complex with a value of just a fraction of its sale price.
JUST AS Stuyvesant Town is now a poster child for the contagious profligacy and irrationality that swept over the industry like a virulent plague, it was, at the time of bidding, a model for the boundless optimism and impenetrable confidence investors had in the real estate market and the very future of New York. As such, the bids MetLife received all around were, by the nature of their high numbers, extremely bullish, and today would be laughable.
The tenants’ group crafted a bid they said was about $4.5 billion. It included a pledge to keep 40 percent of the apartments at below market rates—20 percent rent-regulated, and another 20 percent to be sold at controlled prices—therefore relying on the remaining 60 percent of the units, as market-rate rentals, to bring in the bulk of the money to support the deal.
A look at Tishman Speyer’s current numbers illustrates just how difficult a task it is to raise the money needed for the deal (and the landlord has been particularly aggressive in deregulating rent-stabilized apartments in order to charge market-rate rents).
Based on a report on debt associated with the property, written earlier this month by the real estate analysis firm Realpoint, Tishman Speyer was on track in the spring to bring in $302.6 million in revenues for 2009, up about $50 million from 2007, but very far off the pace needed. In order to pay off its debt, the landlords had been expecting to take in $481.7 million annually by 2011, according to the report.