Tishman Speyer Properties and BlackRock Realty Default on Stuyvesant Town and Peter Cooper Village

It’s one of those where you can’t look away. Stuyvesant Town and Peter Cooper Village were the biggest apartment complexes in Manhattan and they attracted the biggest money- their 2006 sale was for $5.4 billion and everybody wanted in.

But that was 2006. The most recent appraisal put the value of the two complexes at $1.9 billion. On January 8, Tishman Speyer Properties and BlackRock Realty defaulted on $4.4 billion in loans, walking away and handing over the keys. They aren’t the biggest losers, though- while they each stand to lose initial investments of $112 million, there is a laundry list of high profile investors who are being hung out to dry as the deal falls apart, according to yesterday’s New York Times article.

Photo Credit: dandeluca

Tishman Speyer and BlackRock have defaulted on Stuyvesant Town and Peter Cooper Village

Tishman Speyer Properties and BlackRock Realty

The plan was that Tishman Speyer and BlackRock would replace rent-regulated residents with new tenants who could pay higher market-rate rents. First, apartment tenants didn’t convert as quickly as planned, and then in 2008 rents began to drop all over New York. Their rental income did not cover the monthly debt service.

The Times says that Calpers and Calsters (two California pension funds) are losing hundreds of millions, the government of Singapore looks to lose a $575 million secondary loan and $200 million in equity, and the Church of England, SL Green of Manhattan, and Fortress Investment Groups are among other companies, banks, countries and pension funds who stand to lose large investments.

Analysts have been predicting these defaults since last year, and in the end Tishman and BlackRock defaulted on $3 billion in senior mortgages and $1.4 billion in secondary loans. Their problems don’t stop there, though- the highest New York State court ruled last fall that they had improperly deregulated and raised rent on 4,400 apartments. They had to roll back those rents, and the next owner(s) will inherit more than $200 million in rent rebates owed to tenants.

What now for Stuyvesant Town and Peter Cooper Village?

The fallout from this is already messy. Earlier this month several of the secondary lenders sent a letter threatening foreclosure because of the default, but may end up with nothing now that Tishman Speyer and BlackRock are walking away rather than moving into bankruptcy. It may fall to Fannie Mae and Freddie Mac to pick up the pieces. They recently acquired over $2 billion in securities backed in part by $3 billion in Stuyvesant Town mortgages. Fannie and Freddi Mac need to be paid first, but they are not parties to property negotiations.

One recent report from Deutsche Bank suggested that CWCapital will likely wipe out the existing mortgage and attempt to sell Stuyvesant Town and Peter Cooper Village. While the 1940’s Metropolitan Life buildings were built to keep rents low for returning WWII veterans and have long been a haven for the middle class, it is the investors who are stumbling away this time, shell-shocked with nowhere to lay their heads.

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