Tishman Speyer returns massive NYC apartment complex back to creditors

Ouch.

According to today’s New York Times:

The owners of Stuyvesant Town and Peter Cooper Village, the iconic middle-class housing complexes overlooking the East River in Manhattan, have decided to turn over the properties to creditors, officials said Monday morning.

The decision by Tishman Speyer Properties and BlackRock Realty comes four years after the $5.4 billion purchase of the complexes’ 110 buildings and 11,227 apartments in what was the most expensive real estate deal of its kind in American history.

There are a lot of lessons here, as well as a couple questions. The first lessons I can think of are:

* Never use debt to make purchases (or, at least, trust your revenue / expense estimates);
* Understand that when you buy something, it may be at the top of the market, not the bottom;

Questions:

* What is the future of similar apartment complexes? These were first built post-World War II by (or for) the government. In return for promising to keep rents low (or, below market-rate), the developers were either given money from the government and/or tax breaks. The apartment complexes were different from “housing projects” in that they were geared toward the middle class – at first, returning veterans.

Thing is, after a certain point (90 years for some), the rent restrictions expired, allowing the properties’ owners to increase rents.

So, the properties were very appealing to investors. Trouble is, obviously, the rising rents would mean many people (no longer veterans, but “regular” folk) wouldn’t qualify, or would have to pay more in rent.

What’s happened here is the worst for everyone. The families that lived there can’t afford higher rents. Meanhwile, the owner, even after investing millions of dollars in upgrades, has been unable to bring in enough in higher rents to cover its loan payments.

There are many similar apartment complexes across the US. What will happen to them?

I like the idea of allowing developers to buy these properties. Doing so keeps them in private hands (my preference) and allows the properties to be given the resources needed to upgrade the apartment units, something (I expect) wasn’t done in the past.

The property owners have fulfilled the terms of their contracts. They should be able to do whatever they want with the buildings. However, the government can get involved and persuade them to continue to offer lower rents in exchange for some other perks.

Meanwhile, the NYC property sits on the books of the complex’s creditors. Bad situation.

Related posts:

1. Once and future Boston apartment king returns
2. New apartment complex proposed for 319 A Street in Fort Point Channel
3. Bulfinch Triangle parcel to bring 275 apartment units to Rose Kennedy Greenway
4. Boston apartment rentals don’t get any cheaper, unfortunately
5. California ruling on affordable housing set asides may mean trouble in Boston