Taking Stuy Town

Al Doyle wants to be a homeowner.

Six months ago, the idea was a far-off concept. But since then, the mustachioed, lifelong Stuyvesant Town resident who is president of the property’s tenants association has seen the desire for a tenant-led purchase of the 11,200-apartment morph into an actual plan of action, as the idea has suddenly enlivened the city within a city on the East Side. A recent meeting on the topic drew more than 1,200 residents; more than 6,000 residents have signed a “unity pledge” expressing the intent to buy, and such chatter is as constant as the complex’s red brick facade.

“We talked about it in our board meetings-we talked about it in our general meetings,” Mr. Doyle said. “People would write letters to the editor of the Town and Village, and it seemed that everywhere we turned, almost everybody we talked to wanted to have this type of opportunity.”

And so, now five months after the owners-a partnership led by Tishman Speyer that bought the complex in a record $6.3 billion deal in 2006-defaulted on the overleveraged deal, the tenants are on a mission. They hired real estate attorneys and financial advisers, and are now formulating a co-op or condo conversion plan that would raise enough money to buy the property’s $3 billion mortgage from the debt holders. If the foreclosure goes as hoped, finishing up as soon as this fall, Mr. Doyle and the tenants could be in a position to own one of the largest properties in the city.

There’s something of an irony to this takeover bid, given that the tenants are attempting a coup founded in socialistic ideals at the very property that represents one of the more spectacular capitalist failures of the era.

Councilman Daniel Garodnick, who lives in Peter Cooper Village, is quarterbacking this long-shot effort. Four years ago, the 38-year-old onetime litigator at Paul Weiss led the push for another tenant-backed bid, when the building went up for sale. The tenants offered $4.5 billion (built on what were surely unrealistic assumptions) in a high-profile auction, one in which the bidders expected to immediately deregulate rent-stabilized apartments. Mr. Garodnick’s group lost, but in the ensuing years he carved out a role as a frequent antagonist of the winning bidders, Tishman Speyer.

Now Mr. Garodnick is trying to get out ahead of a standard auction. The main reason for a tenant-led purchase, in his view, is a great fatigue with the existing private structure, one that encourages whoever the owners are to repeat the prior pattern of deregulating apartments.

“I think people want stability,” said Mr. Garodnick. “They want to get out of this model where the property is changing hands every three to five years, and where owners have a business plan that is designed to push people out.”

At its roots, there’s a note of irony to the ambitious plan. The tenants are attempting a coup founded in socialistic ideals at the very property that represents one of the more spectacular capitalist failures of the era.

Specifically, the tenants would have to pay off the holders of the $3 billion mortgage, which was securitized in 2007-chopped up and sold in pieces to a multitude of investors. After it completes foreclosure, the firm in charge of the mortgage, the “special servicer” CW Capital, would be in a place to either sell or restructure.

The details of the tenants’ plan are being handled by Meredith Kane, a well-respected real estate attorney at Paul Weiss, and Moelis & Co., a real estate financial adviser. The two, who only get paid if they put together a successful deal, spend their days meeting with various government officials, investors, middlemen and landlords who are interested in the concept of a tenant bid, along with others who might provide the financing. Fannie Mae and Freddie Mac, for instance, are being looked at to provide part of a mortgage and have met with the tenants, according to people familiar with the meeting. They have also met with City Comptroller John Liu, a trustee of the city’s pension funds.

At a distance, the deal doesn’t seem impossible. Divide $3 billion by 11,200 apartments, and it only comes out to $268,000 for a Manhattan apartment.

But on a closer look, there is good reason for skepticism. Ask around the real estate world, and one is hard-pressed to find anyone who believes that the tenant bid, in its broad concept, can raise anywhere near enough money to satisfy the mortgage holders. (Based on the current rents, the property is likely worth about $1.9 billion, but investors eyeing long-term rent increases would presumably pay more.)

The chief problem is the multitude of goals articulated by the tenant leaders and Mr. Garodnick. For instance, they want to convert the complex from rental to ownership, and are resolute that no one can be evicted and anyone who doesn’t want to buy can keep paying their regulated rent. They also want those who do buy to pay below-market rates and be able to sell for a profit. Additionally, they desire long-term affordability restrictions, and to have Stuyvesant Town serve as a middle-class oasis in Manhattan.

But with every inclusive protection and affordability restriction comes an added cost. In a no-eviction plan, there is far less certainty of how many people will buy; those paying the least in rent would be least likely; and it’s unclear if different tenants would be allowed to pay different prices. The more uncertainty and the less market-rate sales, the less likely it is that the tenants will be able to find investors.

“It doesn’t matter with the restrictions or not-they’re not going to get to $3 billion,” said an executive who has looked closely at the property. “I don’t know who would finance it.”

And while there are sure to be requests for government help of some sort, few officials, as of yet, seem to be running toward the tenants with open arms.

“We’re creating and preserving affordable housing for half a million New Yorkers through our housing plan, and naturally we’d like for Stuyvesant Town to be a part of it,” Eric Bederman, a spokesman for the Bloomberg administration’s Department of Housing Preservation and Development, said in a statement. “But right now there remain many questions about Stuyvesant Town’s long-term ownership and financing structure. We’re keeping a close eye on how things progress.”

In the meantime, CW Capital could find it more in its interest to hold on to the property for a few years, selling it off when the economy improves. And as the large-property sales market begins to return, there is surely a long line of well-capitalized investors who have long been drawn to the property and might be willing to pay more than the current rents would support (Real estate scion Richard LeFrak, for one, has made it clear he’d like to own it someday).

Time, of course, will tell, and the tenants do have a few things working in their favor, the most notable being that they can be a defiant group with political heft if they don’t like their owner. (Tishman Speyer ran into constant resistance as it tried to take measures to boost returns from the property.)

To Mr. Garodnick, this means that no one else could put together a co-op or condo conversion bid, as they would not have the support of the tenants and would not be able to raise as much money in the current economy.

“The conversion piece of this is what distinguishes us from other bidders,” Mr. Garodnick said. “We believe that our proposal is going to be the most valuable.”


Taking Stuy Town