WSJ: T Minus Four Months Until Stuyvesant Town Defaults

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This morning, The Wall Street Journal reports what people have been saying for a while now: that the investment group headed by BlackRock and developers Tishman Speyer that bought Stuyvesant Town and Peter Cooper Village in 2006 for $5.4 billion is going to run out of reserve cash to meet its debt deadlines and is probably going to default. Depending on who you talk to, that'll happen in December or February. Some investors already count their investment in the project as worthless, and none of them have any plans to inject more cash into the project. That's because Tishman Speyer wasn't able to make good on profit projections (largely because they weren't able to bring nearly as many apartments as they anticipated up to market rate), and because since there is big outstanding litigation with tenants, nobody even really knows how much the property is actually worth at this point. (Though Realpoint puts it at about $2.1 billion. Yipes.)

For tenants, though, this isn't particularly a doomsday scenario. In fact, some might be heaving a sigh of relief: During bidding in 2006, tenants of the complex put together their own competing bid for $4 billion, which lost out but was still way too high, especially in light of what happened to the real-estate market just a year later. Tishman Speyer, which is widely viewed as a foe by organized tenant groups, will likely have to restructure its debt, a process that is already beginning, according to the Journal:

One indication: a "special servicer" is in the process of taking over the deal's [commercial mortgage backed securities] debt, say people familiar with the matter. Special servicers are experts in dealing with troubled loans. The transfer to the special servicer, CW Capital, could occur as soon as this month, the people said. Once that happens, the special servicer likely will try to negotiate with the partnership to restructure the debt.


Enter Fannie Mae and Freddie Mac, which own at least $1.5 billion of the highest-rated commercial mortgage-backed securities on the project. They'll probably push for a fast foreclosure. Since they'd be paid back first, investors like Calpers, the Church of England (!!), the Florida State Board of Administration, and the Government of Singapore Investment Corp will see their investments (all of over $100 million, and in the case of the last, over $500 million) wiped out entirely, or nearly so. But Tishman Speyer, who put together the whole package, of course has only minimal exposure to this damage, and will likely emerge relatively unscathed. Until the lawsuits come.

An Apartment Complex Teeters [WSJ]
Related: Read Gabriel Sherman's New York story on how Tishman Speyer got itself into this mess.