Tishman’s StuyTown capitulation

January 25, 2010

Perhaps the most shocking thing about Tishman Speyer Properties’ decision to sign over its Peter Cooper Village and Stuyvesant Town apartment complex in Manhattan to creditors is that it comes this late in the real estate down cycle.

The acquisition of the property in 2006 was one of the largest of the real estate boom at $5.4 billion. The venture finally defaulted on its mortgage this month. The value of the complex is believed to have fallen to $2 billion or less.

In its post-mortem, the naked capitalism blog, noting the aggressive increases in rentals the buyers had projected, called the deal “a classic example of peak of cycle excess.”

Singing along with Frank Sinatra, it’s not hard to find real estate investors who believe Manhattan will never lose its price hype. Their faith has always been blessed by tenant-friendly rent-fixing and other socially redeeming characteristics that may have seemed like solid struts for the project back at the peak of the cycle.

Tishman and Co had hoped to increase rents on the complex’s apartments to higher, “market” levels, but New York’s highest court in October rejected that. Imagine the hubris that had to be involved. The rate of return, even distorted by rent control, would not have been hard to make sound like a no-brainer to bankers in 2006. According to Wikipedia, in 1947, rents ranged from $50 to $91 per month, while current rents range from $2,850 for a one-bedroom apartment to $7,000 for a five-bedroom unit.

Now the best the venture can come up with is a statement that it had “no intention” of putting the roughly 11,200-apartment property in bankruptcy, opting instead to transfer control and operation to lenders.

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