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Clash of the Utopias

Rob hustled back to his office and called Jerry out of a meeting. Father and son went for a walk, which turned into a six-hour soul-searching ramble through the city, ending up at 3 Guys Restaurant around midnight. They sat down and ordered tuna sandwiches. “You know how much I want to do this deal,” Jerry said to Rob, “but I also recognize you’re going to be stuck with this for a long time, and you have to make a decision, so whatever you decide is what we’re going to do.”

Rob listened and then put down his sandwich. He told his dad they couldn’t do the Hudson Yards deal. “That was a tough moment,” Jerry remembers. “I thought it was a really gutsy decision. At that moment, I decided Rob should be the guy.”

Making succession official has meant Jerry needed to recede into the shadows. “You don’t often see the two of them together,” says a city official. “That has the ability of undermining Rob, and everyone just talks to his dad.”

In July 2006, when MetLife announced it would be listing Stuy Town, the market was speeding along. A bidding war broke out among more than a dozen suitors, including the city’s real-estate moguls, the Rothschilds, and the prince of Qatar.

Early on in preparing his bid, Rob learned that Larry Fink, CEO of BlackRock, was planning his own bid. During a meeting on an unrelated deal, Rob and Fink decided to team up and bid jointly. Each brought mutually beneficial skills to the deal: BlackRock had a global network of investors to tap, and Tishman Speyer would manage the property. Early on, Fink made it clear he wanted little to do with the day-to-day running of Stuy Town. Touring the complex shortly after the deal closed, he grew agitated when an elderly lady approached and peppered them with questions about their plans for the property. “That’s exactly why God invented Tishman Speyer,” Fink quipped, according to a person present.

News that Tishman Speyer was awarded the Stuy Town deal rankled competitors. Rumors swirled that MetLife had arranged a “handshake deal” with Tishman Speyer prior to the auction. Another bidder said that Tishman Speyer made concessions at Stuy Town that no one else seemed willing to make. “We kind of saw that this was something these guys wanted to own no matter what,” a rival executive says.

Like so many of the transactions of that vintage, virtually all of Stuy Town’s debt—and risk—was packaged and sold off as bonds to investors. In what would become the Manhattan version of the subprime-mortgage crisis, the Stuy Town deal was financed with 80 percent leverage. According to people with knowledge of the deal’s structure, Tishman Speyer contributed $56 million of its own money to the $5.4 billion purchase price and didn’t use any of its other properties as collateral. “Jerry is a lover of nonrecourse debt and other people’s money. He liked deals where he could contribute sweat equity,” one real-estate investment banker says. “They have so little money in, and they make so much in management fees, they have nothing to lose when it goes under,” a former Tishman Speyer staffer said.

The financing for the Stuy Town deal was facilitated by a fast-talking Wachovia banker named Rob Verrone. During the bubble years, Verrone became a symbol of the risk-taking that helped inflate the Manhattan market, and in real-estate circles he was dubbed “Large Loan Verrone.” From his table at San Pietro, Verrone held court and pitched Wachovia’s commercial-lending division to real-estate magnates like Donald Trump and Harry Macklowe. Verrone raised more than $4 billion for Stuy Town. Another $500 million came from Merrill Lynch.

The game was really one of hot potato. Wachovia put $1 billion of the bank’s money into the Stuy Town deal, but the neat trick was that Wachovia sold the debt to investors. Hundreds of millions of dollars of Stuy Town’s equity is actually held by a Korean investment fund and CALPERS, the giant California retirement fund, among others. Wachovia also bundled Stuy Town’s $3 billion mortgage in a $7 billion bond offering. Another $1.4 billion tranche of financing, known as “mezzanine debt,” is held by investors including the real-estate firm SL Green and the government of Singapore.

But in early January 2007, Wachovia executives were nervous. The Stuy Town deal had closed, but the Wachovia bankers had yet to sell all of the $1 billion of the bank’s investment in Stuy Town to investors. Tom Wickwire, a mild-mannered banker who ran Wachovia’s real-estate division, called a meeting with Tishman Speyer to make sure everyone was onboard to sign up investors who could take the equity off Wachovia’s books. “We were concerned,” a former senior Wachovia executive said. “We held the risk.”

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