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The Biggest, Baddest Real-Estate Loan

The Speyers are not going to lose their shirts over Stuytown—they invested a comparative pittance. The buzz in the real-estate business is that the Speyers personally contributed as little as $12 million to the deal, and that Tishman Speyer as a company is only on the hook for some $56 million. The problem is that the firm’s business model depends on convincing investors to put millions into their deals. “They have a business that’s built on a reputation—this is not good for them,” the investment banker said. Historically, an investment with Tishman Speyer gained you access to Jerry Speyer’s Rolodex of financiers and politicians. As a confidante to mayors and governors, that kind of access could translate into dollars: Tishman Speyer’s annual returns have been roughly 20 percent.

Rival real-estate executives point out that much of Jerry Speyer’s empire was built on Other People’s Money and the Speyers famously put little of their own equity on the line, and oftentimes, made significant amounts of money in management fees operating properties (so that no matter how a deal fares, they earn back their initial investment). Rivals snipe that it’s a Heads-I-Win-Tails-You-Lose proposition. There’s a palpable sense of Schadenfreude among some in the business at the Speyers’ current woes. “They put in five or ten million into Stuy Town, that’s a total joke,” one executive said. “All that’s happened, they made back in management fees 100 percent in what their group put up.” Steven Rubenstein, a Tishman Speyer spokesperson, said: “Since the founding of the company in 1978, Tishman Speyer is proud to have over those 30 years produced average annual returns to investors of over 20 percent, even after the value of the Stuyvesant Town/Peter Cooper acquisition is written down to zero.” Losing this amount of money will almost certainly make raising future dollars from investors a tougher sell. Investors could demand that the Speyers put more of their own equity into deals, forcing them to take on more personal risk. Of course, like Goldman Sachs, Tishman Speyer, being at the top of the game for so long, is used to being a target of industry envy.

But protecting their legacy is clearly a reality that needs to be managed going forward. This fall, as press accounts of the Stuy Town collapse increased, Jerry sent an e-mail to a circle of his top investors stressing that problems at Stuy Town wouldn’t impact their other holdings.

For the city, the looming Stuy Town default could be a trigger that finally awakens the market to continued problems in commercial real estate.

Over the next two years, more than $1 trillion of commercial real-estate debt nationwide will mature, and many of these deals, completed during the middle of the last decade, are far underwater. “All of this debt is coming due,” a top real-estate lawyer explained. “And these are the bubble loans, and now cash flow is half of where it was two years ago.” This season’s hangover may take quite a long while to dissipate.


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