To flip through the pages of the 2006 offering book for potential buyers of the 11,200-apartment Stuyvesant Town and Peter Cooper Village-a deal that has devolved into the largest individual property default in modern history-is to immerse oneself in an historical delusion, one that, from today’s privileged vantage point, appears as likely as Iraqi WMDs.
The book wove the strands of possible Stuy Town revenue into a real estate dreamscape, one in which the largely rent-regulated complex could become a wealthier community, complete with an elite private school, gourmet grocery shops, private spas, gated communities, Santa Cecilia granite countertops in every apartment.
“With the surge in market rental increases showing no signs of abating, there is immense upside potential, especially for stabilized units rolling to market rates,” reads the 73-page offering book, prepared by Darcy Stacom, one of the city’s top investment sales brokers.
If the failed $6.3 billion Stuyvesant Town deal-sealed in late 2006 by seller MetLife and buyers led by Tishman Speyer-is emblematic of nearly everything that went wrong with the real estate world during this most recent boom, the marketing of the historically middle-income property is emblematic of the unexamined contribution of top brokers to the era’s fantastical mind-set.
As conversations with numerous executives involved with the bidding process illustrate, the role of Ms Stacom and other advisers was essentially to pour lubricant into an ever-accelerating dealmaking machine, one that would eventually implode.
Ms. Stacom, 50, is a real estate titan in her own right, as admired for her business acumen and salesmanship as she is feared for her mercurial temper.
New York born and Greenwich raised, Ms. Stacom, who declined comment for this story, was nurtured in real estate. Both of her parents, Matthew and Claire Stacom, were Cushman & Wakefield brokers. Her father most famously consulted in the development and leasing of the Sears Tower (now the Willis Tower). When she was 14, she worked in the Cushman & Wakefield mailroom.
She began her brokerage career at Cushman & Wakefield, defecting in 2002 for archrival CB Richard Ellis. Her sister, Tara, remains at Cushman. Her husband is a broker at Jones Lang LaSalle. It wasn’t easy being a woman broker in a real estate world where men, even now, behave like extras in Mad Men. In 1996, when she was pregnant with one of her daughters, Ms. Stacom pitched a deal to a potential client, only to be asked what would happen were she to have complications during childbirth. She didn’t get the gig. In interviews, she prides herself on her eccentricities: She prefers colorful skirts to business suits, funky costume jewelry to the real stuff.
Even so, she did well for herself. Arguably, there is no more fearsome commercial broker than Ms. Stacom. In 2005 alone, she sold 195 Broadway for nearly $300 million. She sold the Verizon Building at 1095 Avenue of the Americas for $500 million. She sold One Madison Avenue for $1 billion. She sold 575 Fifth Avenue for $385 million. She sold 25 Broad Street for more than $200 million. She sold 230 Park for more than $700 million. And that’s an abbreviated list. One can only guess at the commissions she earned along the way.
Ms. Stacom also built relationships that would figure in the story to come, performing work for both MetLife and Tishman Speyer. So it likely seemed only natural to bring the two together in what she must have thought of as her career’s crowning achievement.
One industry executive spoke of a close relationship between Ms. Stacom and Tishman Speyer. “They had never bought a residential building before. They relied on her.”
Central to Ms. Stacom’s pitch for the complex was that it could be unshackled from rent stabilization (at the time, three-fourths of the apartments were rent-regulated). The offering book repeatedly refers to the complex’s future as a “market rate master community.”
Further, as the complex’s “population evolves in response to deregulation, new ownership will have a unique opportunity to put its personal stamp on Manhattan’s largest apartment complex.” Among the suggested “creative strategies”? “Use of air rights”; “Gated Communities”; “Adding doormen to further promote the notion of a high-end residential complex.”
The offering book suggested that such innovations would result in a remarkable influx of money. It projected a 2007 net operating income of $167 million; Tishman Speyer, led by co-CEOs Jerry and Rob Speyer (Rob took the lead on Stuy Town), turned out a yawning $59 million short of that, bringing in $108 million at a time when rents were still high. By 2009, the book projected $252 million; the analyst firm Realpoint has estimated revenue at just $129 million.
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.