Going, Going, Gone
Politics, ongoing litigation, and delinquencies overshadow the pending auction of Stuyvesant Town/Peter Cooper Village.
On June 21, federal district court judge Alvin Hellerstein granted a summary judgment foreclosure on the 11,227-unit Stuyvesant Town/Peter Cooper Village megacommunity. The motion for foreclosure by special servicer Needham, Mass.-based CW Capital was unopposed by the property’s joint venture ownership group of New York-based Tishman Speyer and BlackRock, which defaulted on a $300 million mortgage payment in January and requests that the property be auctioned in one or two parcels to cover the senior mortgage, litigation costs, and late fees.
While reports have surfaced that Freddie Mac might be interested in providing financing for the property, most market watchers speculate that private equity will again win out in the bid for the project. Some also believe that CW Capital—which would be, in essence, paying itself—will come to the bidding table with the upper-hand.
Regardless of where ownership of the complex ultimately settles out, industry pundits expect the fallout to continue to impact apartment finance and disposition barometers and metrics.
How tumultuous of an effect can one property have on an entire industry? In February, the apartment sector’s delinquency rate climbed to an all-time high of 8.97 percent, according to Fitch Ratings. When factoring in the delinquency of the Stuyvesant Town/Peter Cooper Village default, the rate climbed to more than 13 percent.
Further complicating the StuyTown scenario is a Manhattan State Supreme Court ruling levied on August 5 that allows a class action lawsuit against the complex’s developer and former owner MetLife to proceed. That suit seeks $215 million for improper rent overcharges as the result of alleged improper deregulation of units under rent control, similar in nature to a successful suit filed against the Tishman Speyer/BlackRock JV that led in part to the demise of that $5.4 billion deal.
“No one wants to touch these mega properties in default,” says Dan Fasulo, managing director and head of global research for New York-based Real Capital Analytics. “They have become politicized properties. The last thing you want is a senator setting up a conference in front of your building, and that is what everyone is scared to death of. On their merits, they are tremendous commercial properties that should have a line around the corner of white knights who want to recapitalize them, but politics have crept in and no one wants to touch them.”
In fact, the Stuyvesant Town ownership group announced this January that it would miss making payments on some $3 billion in senior mortgage debt after attempts to deregulate approximately 4,400 apartments that were vacant or turning between lessors was found by the New York State Supreme Court to be in conflict with J-51 tax abatements granted to the property.
“The market is speaking back that the price paid in the previous transaction of $5.4 billion was not a sustainable price based on the income stream of the property, so the market is revaluing it, and the property has a lesser value,” says Patrick Siconolfi, executive director of New York’s Community Housing Improvement Program. “I’ve heard anecdotally that value might be around $2 billion, but I couldn’t know, and we won’t know until the market tests it.”
That market test will likely come sooner rather than later. On June 21, federal judge Alvin Hellerstein granted a foreclosure motion by the Stuyvesant Town/Peter Cooper Village mortgage’s special servicer, Needham, Mass.-based CW Capital, ordering that the property be sold via auction in either one or two parcels (see “Going, Going, Gone” on page 36).
New York isn’t the only metro area feeling the pain from megacommunities. In San Francisco, the 3,221-unit Parkmerced is finding simultaneous difficulty both with jump-starting a 20-year re-greening/value-add retrofit that could add up to 7,000 additional units as well as simply making mortgage payments on the $687 million plopped down in October 2005 for the property by a joint venture between New York-based Stellar Management and Boston-based Rockpoint Group. In May, Stellar Management representatives confirmed to the San Francisco Chronicle that they had engaged an unnamed special servicer to assist with the prospect of defaulting on an estimated $500 million in combined mortgage debt coming due in October 2010. Industry blog CRE Review notes that at year-end 2009, the property was clearing $30 million in NOI at near 100 percent occupancy—not enough to cover loans underwritten to $40 million NOI.
Although the public eye remains fixated on the problems of these properties, that’s not to say that current owners of embattled megacommunities haven’t strived to make their respective deals work out. Co-Op City has resolved its contract issues and remains the first, largest, and arguably most successful apartment cooperative experiment in history, with a waiting list for units that can last more than a year. For all of the legal wrangling and capitalization issues, market observers of the unfolding Stuyvesant Town/Peter Cooper Village drama say the physical condition of the property remains top-notch. (The Tishman Speyer/BlackRock ownership group declined to comment on current occupancy levels.) And the Stellar Management/Rockpoint Group has often been recognized for bringing Parkmerced back from the brink of deterioration after original developer New York-based MetLife sold the community to Leona Helmsley in the 1970s. (The developers, owners, management groups, and special servicers involved in these three projects’ past, present, and future declined to comment for this article.)
