Implicit but not specifically stated in these projections was that the rate of deregulation could be dramatically accelerated, a necessarily abrasive effort that tenants dislike. “I think it was pretty clear that the information was projected on what it could be if you managed to get everybody out-that’s how people bought it,” said one executive familiar with the marketing of the deal in 2006. “When you look at those numbers, the only way it makes sense is if you got rid of the current tenants.”
And that was the idea of Stuy Town’s eventual buyers. In their loan documents, the Tishman Speyer-led team assumed they could deregulate more than 3,000 units in the four years following the sale, a goal that proved wildly unattainable. By June 2009, the owners were about 2,000 units short of their 2011 goal, as the prior manager for MetLife, Rose Associates, had apparently done a far more thorough job of removing obvious illegal tenants than suspected. To add insult to injury, the courts have ruled all of the former and current owner’s deregulation efforts illegal, returning all units to rent regulation. And beyond that, the complex had faced problems filling its apartments, as more units went vacant than at any time at the property in years.
Following the real estate market’s spectacular crash, Ms. Stacom apologized to some landlords for the timing of the late-boom deals now underwater.
But did she have anything to apologize for? Wasn’t she, after all, just doing her job really, really well?
Indeed, it was the world’s biggest banks and the city’s best-known landlords who clamored over each other to actually bid on the property, after a presumably careful look of their own at the finances. And it was Tishman Speyer and partner BlackRock, supported by hundreds of millions from pension funds and other investors, that actually signed the documents to receive the property.
“I think we and others underestimated the difficulties of bringing that asset from stabilized market rents to unstabilized market rents,” said Jeff Barclay, a managing director at ING Clarion Partners, which was part of the second-place, $5.3 billion bid with Apollo Real Estate Advisors. “Darcy did her job-I don’t think she oversold, I don’t think she misrepresented. Everything that a broker gives you has caveats.”
“My sense is the real culprit in all the madness that happened in the commercial real estate market was the combination of cheap, plentiful debt capital and the willingness on the part of buyers and lenders to utilize it and provide it so aggressively,” said Michael Knott, a senior analyst at Green Street Advisors. “There was no sense of risk. I also wouldn’t dismiss the impact that ‘OPM’ [other people's money] played, given the incentive for advisers to put capital to work. This is especially relevant if there is no penalty for doing bad deals in terms of future fund-raising. If Tishman raises boatloads of money in the future, which seems likely, did they really lose anything by gambling on Stuy Town?”
Perhaps not. Yet, if the boom was an orgy of real estate profligacy, with institutional investors and reputable real estate dynasties drunk on easy money, Ms. Stacom and other top brokers, in the role of Bacchus, helped the party roar.
“It’s one thing to accept that people renting illegally could be pursued,” said a real estate executive familiar with Stuy Town. “But she had such high turnover rates.”
Then again, if Ms. Stacom hadn’t served as Bacchus, someone else would gladly have filled the role.
Even amid its epic default, and the subsequent transfer to mortgage holders, many in the industry are pointing out Stuy Town’s potential. Sure, all the apartments may now be re-regulated thanks to a court decision, but that requirement is set to be lifted within the next decade, giving the complex the potential to be a market-rate community once again, if not the tonier enclave imagined in the 2006 offering book.
Which helps explain the names circling to be the next Rob Speyer. Would-be buyers who have publicly declared their interests include Richard LeFrak, Wilbur Ross and Donald Trump.