Concerns Continue For 25,000 Residents In 11,000-Unit Manhattan Apartment Complex As Foreclosure Action On $3B Mortgage Is Filed

In New York City, The New York Times reports:

• The lenders at Stuyvesant Town and Peter Cooper Village are expected to begin an uncontested foreclosure action [] against the owner of Manhattan’s largest residential complex, according to bankers and real estate executives. CWCapital, the company that is overseeing the complex on behalf of the owners of $3 billion in mortgages, plans to file the action in State Supreme Court in Manhattan, they said. The owner, a partnership of Tishman Speyer Properties and BlackRock Realty, announced last month that it would turn over the property after defaulting on a $16 million loan payment, rather than wage a battle for control.

• The foreclosure action is unlikely to immediately affect the 25,000 residents of the two sister complexes overlooking the East River, between 14th and 23rd Streets. But it marks the beginning of what promises to be a lengthy process in which the lenders will take control of the 80-acre complex and run it for an unspecified period before selling it to a new owner.

• Still, tenants of the 110 buildings are concerned that services and maintenance could deteriorate over time. “It is unfortunate that we find ourselves in this position,” said Daniel R. Garodnick, a city councilman and lifelong resident. He added: “Anything that moves this process toward an orderly restructuring will be in the tenants’ interest. We most certainly don’t want anyone gumming up the works.”(1)

For more, see Worry at Stuyvesant Town as Foreclosure Draws Near.

For story updates, see:

• Reuters: Lender's agent forecloses on Stuyvesant Town: The trustees for the holders of securitized senior mortgages on Stuyvesant Town/Peter Cooper Village in Manhattan have moved to foreclose after the owner of the apartment complex failed to make the monthly installments on the $3 billion loan (action filed in federal court in Manhattan).
• New York Post: LeFrak, Ross unfazed by StuyTown suit: New York real estate mogul Richard LeFrak says he and billionaire investor Wilbur Ross are still interested in buying Stuyvesant Town-Peter Cooper Village, despite moves by lenders to foreclose on the apartment complex. [...] Ross told The Post he supports a foreclosure sale, saying it will simplify the sale process.

(1) Reportedly, the Stuyvesant Town foreclosure would come only weeks after a state judge ordered the foreclosure sale of Riverton Houses, a middle-class complex in Harlem. And analysts predict that more complexes bought with enormous loans during the real estate boom will also default. At Riverton, which like Stuyvesant Town was built by Metropolitan Life Insurance in the 1940s, the owner reportedly defaulted on a $225 million mortgage. On behalf of mortgage holders, loan servicer CW Capital will have to pay a transfer tax of an estimated $100 million on the Stuyvesant Town foreclosure when it does take possession of the property, the story states.

Rain Clouds Hover Over Big NYC Landlords, Tenants, Bondholders, Housing Agency After State High Court Ruling Declaring Stuy Town Rent Hikes Illegal

In New York City, The New York Times reports:

• Tenants and landlords spent much of [last] Thursday struggling to figure out what the state high court’s ruling on the future of Stuyvesant Town and Peter Cooper Village meant for all types of New Yorkers.(1) Real estate moguls feared the news would cripple their industry, and tenants worried about their rents.

• Despite the lack of clarity, the ruling by the New York Court of Appeals had an immediate chilling effect on real estate in New York: Landlords questioned whether they could raise rents, and some even went so far as to cancel plans to buy more apartments in buildings with tax subsidies.

***

• While tenant groups who had spent the last several years fighting the owners of Stuyvesant Town welcomed the news, they also recognized that the ruling may complicate and extend how long it takes for current or past tenants to receive rent rebates. They also feared that conditions would deteriorate as owners deferred maintenance and repairs.

***

• The problem extends beyond Stuyvesant Town to buildings in the Bronx, Brooklyn and Queens. “They’re not the only landlords who did this,” said Daniel Alpert, managing partner of Westwood Capital, a New York investment bank that was part of a tenants’ bid for Stuyvesant Town in 2006.

***

• Government agencies scrambled to figure out how they would carry out changes the ruling would require. The state housing agency, the Division of Housing and Community Renewal, could be inundated with petitions from tens of thousands of tenants claiming they had been overcharged by landlords receiving tax breaks, as well as from landlords disputing the claims.

For more, see Stuyvesant Town Ruling Worries Tenants and Landlords Alike.

For the ruling, see Roberts v. Tishman Speyer Properties, L.P.

See also:

• Bloomberg: Bondholders Face Losses After New York’s Stuyvesant Town Ruling,
• Gothamist: Still Lots More Legal Wrangling In Store for Stuy Town.

(1) Stuyvesant Town and Peter Cooper Village are a combined 56-building, 11,000-unit apartment complex in Manhattan.

NY AG: Watch Out For Scammers Targeting NYC Tenant-Beneficiaries Of Recent $69M Stuyvesant Town/Peter Cooper Village Rent Rebate Settlement

From the Office of the New York Attorney General:

• Attorney General Eric T. Schneiderman [] issued an open letter to tenants of Stuyvesant Town and Peter Cooper Village in Manhattan warning them of a possible scam related to a recently announced multi-million rent-rebate settlement. Last week, several tenants reported receiving what appear to be scam calls about the settlement, and in which they were asked to provide personal information. The Attorney General warned residents about providing information to unknown callers and encouraged tenants to contact his office with information that may assist the investigation.

***

• On December 11, New York City Councilmember Daniel Garodnick reached out to the Attorney General’s office to report that several tenants of the complexes had received telephone calls from individuals claiming to be the claims administrator of the Settlement. The callers attempted to solicit personal information from the tenants on the pretext that this information is required for the tenants to recover on the Settlement. The Attorney General’s office determined that these calls were not from the Settlement claims administrator or anybody else legitimately affiliated with the Settlement. Instead, the calls were a scam apparently designed to deceive tenants of the complexes into disclosing highly personal information to fraudsters who will use this information for their own personal gain.
  
  The Roberts v. Tishman Speyer case was settled on November 30th and will result in nearly $69 million being returned to tenants overcharged for rent between 2003 and 2011. The case was initially filed in 2007 by Stuyvesant Town residents against Tishman Speyer and Met Life, the former owner of the East Village building complex, claiming that units had been illegally deregulated while the development was receiving a J-51 tax abatement. The state’s top court, ruled in favor of the tenants in October 2009 and a settlement was reached this fall. The case involved the status of 4,311 apartments and will impact approximately 22,000 current and former residents.

For the New York AG press release, see A.G. Schneiderman Warns Against Stuyvesant Town Settlement Scam (Tenants Should Beware of Scam Calls Asking For Private Information; A.G. Schneiderman: Be Careful of Scammers Preying On Tenants).

Focus Shifts To Special Servicer As Overleveraged Landlord Of 11,000 Unit NYC Apartment Complex Readies To "Mail In The Keys"

In New York City, Crain's New York Business reports:

• In the coming weeks, control of Stuyvesant Town/Peter Cooper Village will pass from one of New York's most glamorous and powerful real estate families to a company that most people have never heard of, a major player in an industry that few even know exists. [...] Stepping into the breach will be CW Capital, a special servicer. Such companies work out troubled-property loans to salvage whatever it can for lenders.

***

• CW Capital will need all of its skills to sort out the wreckage left by the implosion of the largest single residential real estate purchase in history. Lenders who have lost billions of dollars as the property's value shriveled by more than half are jockeying to reclaim what's left of their doomed investments. Meanwhile, prospective buyers are circling, tenants are demanding that services be maintained and that they get a seat in the negotiations, and politicians are vowing to protect the complex's rent-regulated status. “Figuring out the future [of Stuy Town] won't be a simple process, and it won't necessarily be a fast process,” says Dan Garodnick, a City Council member who lives in the complex.(1)

For more, see Picking up pieces at Stuyvesant Town (Special servicer will lead the lenders).

(1) According to the story, one problem facing the servicer is dealing with the affected scores of investors around the world who now find themselves trapped in a giant maze of often competing interests. Like most big real estate deals of the boom years, the debt that helped finance the $5.4 billion Stuy Town deal was reportedly diced up and sold to a variety of investors, each with different rights, depending on the risk incurred.

A touchier problem will be figuring out how much rent can be charged and what rebates are due tenants, following last year's court ruling that the former landlord had illegally jacked up rents on roughly 4,000 units, the story states (see Walls Closing In On Beleaguered Owners Of 11,000 Unit NYC Apartment Complex As State High Court Hammers Landlord For Illegal Rent Increases).

Go here for other posts on the Stuyvesant Town / Peter Cooper Village predatory equity implosion.

Hedge Fund Operator Sues Loan Servicer To Jam Foreclosure Action On $3B Mortgage Secured By 11,000-Unit NYC Apartment Complex

In New York City, The Wall Street Journal reports:

• Hedge-fund investor David Tepper has stepped into the battle over the fate of Peter Cooper Village and Stuyvesant Town, the giant New York City apartment complex involved in one of the largest commercial-real-estate failures. Earlier this week, Mr. Tepper, who runs hedge-fund firm Appaloosa Management, filed a complaint seeking to hold up the foreclosure action launched by the so-called special servicer representing investors who own the $3 billion first mortgage on the property. That mortgage was packaged into commercial mortgage-backed securities that were sold to various investors such as Mr. Tepper's firm.

• In court papers filed with a federal court in New York, Appaloosa alleges that the servicer, CW Capital, has "irreconcilable conflicts of interest" because it owns some of the junior commercial mortgage-backed security, or CMBS, debt, among other alleged conflicts.

***

• Mr. Tepper, who says he owns more than $750 million of the CMBS debt, is among the largest investors in the debt. [...] Mr. Tepper's lawsuit is a sign the imbroglio over the future of Stuyvesant Town figures to become even more heated.

***

• In the lawsuit, Appaloosa says CW Capital shouldn't have moved to foreclose on the complex while earning fees. The complaint says a foreclosure could cost as much as $200 million in transfer taxes, which would be paid by the investors who own the CMBS bonds. Those expenses could have been avoided had the property gone into bankruptcy, the suit says. "The key is, the servicer has to practice its fiduciary duty" to CMBS investors, Mr. Tepper said. "Why did they go into foreclosure? Why are they taking all these excess costs?"

For the story, see Tepper Enters Contest Over Apartment Complex (requires paid subscription; if no subscription, try here, then click link for the story).

See also: The New York Observer: 'Tranche Warfare' Finally Breaks Out at Stuy Town as Billionaire Hedge Funder Goes to Court:

• [Mr. Tepper's] Appaloosa said in court papers that it bought a giant $750 million of the mortgage, a substantial piece of which was junior tranches, which would be among the earliest to be wiped out if the property is sold for less than the $3 billion initial price tag on the mortgage. "CWCapital has recklessly and imprudently exposed the Appaloosa Intervenors—and other Certificateholders—to wholly avoidable losses, risks, and injuries," the filing said.

Go here for Appaloosa's Memorandum of Law on its Motion to Intervene in the Stuyvesant Town foreclosure action.

Duo To Snatch Control Of Financially Troubled 110-Building, NYC Housing Complex For $45M? 11,000-Unit Property Sold For $5.4B In 2006

In New York City, Crain's New York Business reports:

• If all goes according to plan, next Thursday a new partnership led by hedge fund honcho William Ackman will buy Manhattan's largest housing complex—the 110-building Stuyvesant Town / Peter Cooper Village—paying as little as $45 million in a foreclosure auction. Incredible as such a scenario may seem, real estate experts say that it—or something like it—could well come to pass.

***

• In a surprising development, Mr. Ackman announced last week that his hedge fund, Pershing Square Capital Management, had been tapped by Winthrop Realty Trust, one of Stuy Town's creditors, to help it take control of the 80-acre complex. Acting in concert, the duo quietly paid $45 million—15 cents on the dollar—to scoop up a $300 million mezzanine loan, a key slice of the complex's debt that stands between the owner's equity and the first mortgage.(1)

• Mr. Ackman also scheduled an auction for Aug. 25, when he plans to foreclose on the property and take control of Stuy Town. If he succeeds, he intends to assume the complex's nearly $4.5 billion in debts and quickly begin a voluntary, noneviction co-op conversion on the rental property to generate cash to pay off its loans.

***

• [Mr.] Ackman appears to have a key advantage. If the foreclosure auction is held, he can open with a bid of $300 million, the face value of his mezzanine debt. Other bidders will have to pony up $300 million in cash for a property now estimated to be worth a mere $1.8 billion. In addition, the first notice of the auction appeared in the papers on Aug. 8, giving bidders little time to get their act together.

For the story, see Upstart roils Stuy Town battle (Fledgling duo may get complex for as little as $45 million in foreclosure).

Go here for other posts on the Stuyvesant Town / Peter Cooper Village fiasco in NYC.

(1) According to the story, several recent deals suggest that the partner's chosen route to ownership may work, such as one involving the 60-story John Hancock Tower in Boston, which was bought by a partnership that had snapped up the mezzanine debt and put the property into foreclosure. At the auction, the partnership won the tower with a bid of $20 million and an agreement to take on its $640 million first mortgage, the story states. The story also cites the W Union Square Hotel, 100 Church St. and several other properties in New York City that have also been successfully foreclosed on by their mezzanine lenders. “This trend will continue as more troubled assets hit the fan,” says Edward Hunter, chair of the real estate practice group at law firm Lowenstein Sandler.

City Concerned About Effect On Tenants From Unwinding $5.4B Purchase Of 11,000+ Unit Apartment Complexes Gone Bad

In New York City, The New York Times reports:

• Three years ago, the sale of the 110 red-brick apartment buildings at Stuyvesant Town and Peter Cooper Village in Manhattan represented the most expensive American real estate deal in history.(1) Now the buyers are running out of time and money. Jerry I. and Rob Speyer and their partner, BlackRock Realty, who paid $5.4 billion for the quiet middle-class redoubt near the East River, have seen the property lose more than half of its value, and the income from rent — down 25 percent from its peak — covers less than half of their debt payments. Real estate analysts say they expect that by December, the partnership will run out of an additional $890 million set aside for apartment renovations, landscaping and interest payments, and that the owners are at “high risk” of default on $4.4 billion in loans.(2)

***

• Stuyvesant Town and Peter Cooper Village are in trouble. City officials have been monitoring the looming crisis and how it might affect a complex that has served as an oasis of affordability in Manhattan for middle-class New Yorkers. Some 6,875 of the 11,227 apartments at the complexes are rent regulated. “We are absolutely keeping an eye on it,” said Rafael E. Cestero, the city’s housing commissioner. “It’s an iconic complex.” Referring to the people who were part of the original real estate transaction, he went on, “Those folks are going to take their lumps. We are looking at how we can ensure that the rent-stabilized units and the families that live there and families that could live there in the future could be insulated from the unwinding of this deal.”(3)(4)

For the story, see Buyers of Huge Manhattan Complex Face Default Risk.

(1) The residential complex, the largest of its kind in New York City, covers approximately 80 acres, or a full 10 city blocks, between First Avenue and Avenue C, and 14th Street and 23rd Street, and consists of 110 apartment buildings comprising 11,200 units, which house at least 20,000 people.

(2) The purchase of Stuyvesant Town and Peter Cooper Village was one of the more scrutinized of its deals in recent years, the story states. The winning bid presumed the partnership could increase profits by renovating and deregulating apartments, but the owners have been unable to quickly convert apartments to market rates.

(3) “Residents are increasingly concerned that the maintenance of the buildings is slipping, even as they are getting hit with a flurry of potential charges for major capital improvements,” said Daniel R. Garodnick, a city councilman who lives in Peter Cooper Village.

(4) The underwater landlords in this story have gone to the New York Court of Appeals (the state's highest court) to appeal a recent state intermediate appellate court ruling that could result in them having to pay more than $200 million to repay the tenants in these complexes for illegal rent increases over the last four years in connection with improperly deregulating more than 3,000 apartments while receiving special property tax breaks from the city. See:

• The New York Times: Big Landlord Found to Have Wrongly Raised Rents,
• The New York Times: New York Landlords Fight as Rent Refunds Loom.
• For the appellate court ruling, see Roberts v Tishman Speyer Props., L.P., 2009 NY Slip Op 01595 [62 AD3d 71] (March 5, 2009).

11,000+ Unit NYC Apartment Complex Defaults; City Lawmakers Concerned About Possible Neighborhood Fallout; Appraisers Say $5.4B Property Now Worth $2B

In New York City, Reuters reports:

• The joint venture led by Tishman Speyer and BlackRock Inc that owns New York City's vast Stuyvesant Town/Peter Cooper Village apartment complex on Friday said it missed making its full loan payment, moving the deal one step closer toward possible foreclosure. Credit agencies had warned that the joint venture, has seen the complex's value collapse by more than half since buying it for $5.4 billion in 2006, would likely default as it burned through reserves during a court battle over whether it could deregulate rents and raise them to market prices as swiftly as planned.

***

• The payment lapse could set in motion a foreclosure process, but many experts said that is unlikely -- at least in the near term, given the anemic real estate market. The property is now valued at $2 billion or less, according to appraisers, so a swift foreclosure would mean lenders could lose even more money.

***

• City Council Speaker Christine Quinn and Councilman Daniel Garodnick, who lives in the complex, said they were concerned about any negative impact on the community.

For more, see Huge NYC apartment complex misses loan payment.

See also, New York Post: StuyTown default worries 25,000 tenants (New York real estate giant Tishman Speyer yesterday missed a $16 million mortgage payment for Stuyvesant Town-Peter Cooper Village, raising questions about the future of the 80-acre property and its 25,000 residents).

Go here for other posts on the Stuyvesant Town / Peter Cooper Village fiasco.

11,000-Unit NYC Housing Complex Becomes "Pawn In A Financial Chess Game" As 1st Mtg Holder Sues To Stop Next Week's 2nd Mortgagee's Foreclosure Sale

In New York City, Crain's New York Business reports:

• Hedge fund honcho William Ackman’s plan to takeover Stuyvesant Town/Peter Cooper Village hit a major snag Wednesday afternoon. Bank of America and U.S. Bancorp, trustees for the senior lenders of the giant residential complex sued to block his plan to foreclose on the 110-building property(1) next week.

• Last week, Mr. Ackman, through a joint venture of his firm, Pershing Square Capital Management, and Winthrop Realty Trust snapped up a $300 million mezzanine loan, a key piece of the complex’s debt that stands between the owner’s equity and the first mortgage. They bought their stake for a mere $45 million, or 15 cents on the dollar. With that in hand they quickly scheduled a foreclosure auction for Aug 25, which they hoped to win.

• Wednesday’s suit, which was filed in New York State Supreme Court in Manhattan,(2) said Pershing and Winthrop violate the terms of the inter-creditor agreement for the property, which outlines how the loan will be paid by all the different creditors. The suit says that Pershing and Winthrop will file for bankruptcy once they take control of the property and will seek to avoid paying the mortgage.(3)

For more, see Banks sue to block Stuy Town foreclosure (BofA and U.S. Bancorp race to court to block an auction of the sprawling 110-building Manhattan residential complex, that had been set for Aug. 25).

See also The New York Times: Opening Legal Salvos in Stuyvesant Town Battle:

• Dan Garodnick, a city councilman who grew up and lives in Peter Cooper Village, said that he was disappointed but not surprised that the complexes were being treated as a “pawn in a financial chess game.”

For story update, see Court suspends Stuy Town foreclosure (On Sept. 2, Pershing Square Capital Management, Winthrop Realty Services and creditors will come together to haggle over the 110-building complex).

(1) The property consists of over 11,000 apartments and sits on about 80 acres of land. Reportedly, the current owner bought the complexes for a record-breaking $5.4 billion in 2006.

(2) The case is Bank of America Corp. v. PSW NYC LLC, 10-651293, New York State Supreme Court in Manhattan (New York County).

(3) With all this multi-million dollar jockeying around going on to snatch ownership of this complex, which on of these financiers does a tenant call to get a toilet unclogged?

Loan Servicer Cries Foul; Says Its Being Squeezed By Hedge Fund's Attempt To Jam Foreclosure Suit On 11,000 Unit Complex

In New York City, the New York Post reports:

• The company that controls troubled Manhattan apartment complex Stuyvesant Town-Peter Cooper Village told hedge fund Appaloosa to back off [], saying the New Jersey bondholder has no right to try to scuttle the property's foreclosure proceedings.

• In a brief filed with Manhattan federal court, CW Capital -- which represents holders of the $3 billion defaulted mortgage -- argued that the hedge fund must gain the support of 25 percent of bondholders to have a say in the foreclosure.

• CW also accused Appaloosa of trying to hold up the foreclosure to "maintain its stream of payments" on its bonds, which were bought "at a steep discount" when it was clear foreclosure was coming.(1) Late last month, David Tepper's hedge fund filed a motion to stop recent foreclosure proceedings on StuyTown, saying the move would hurt its investment.

Source: CW Capital: Back off, Appaloosa.

For the follow-up to this story, see The New York Observer: Hedge Fund to Special Servicer: Stop the ‘Revisionist History’ On Stuy Town:

• The hedge fund angrying up the waters in Stuyvesant Town's foreclosure has filed a testy response in federal court to the firm controlling the 11,200-unit property, complete with colorful legal vituperation.

(1) Until the foreclosure process is completed, the loan servicer is typically required to continue coughing up monthly payments to the investors in the mortgage backed securities, despite the fact that it no longer collects the mortgage payments from the complex's defaulting landlord. The longer the foreclosure process drags out, the longer the loan servicer gets squeezed.

Renters In 11,000-Unit NYC Complex In Foreclosure Score Big Win In Rent Overcharge Case; Tenants' Lawyer Pegs Haul At Approx. $200M

In New York City, Crain's New York Business reports:

• Tenants of market-rate apartments at Stuyvesant Town/Peter Cooper Village won a significant victory on Thursday when a judge ruled that they are entitled to rebates for rent overcharges. The ruling stems from a court decision last October, which said that the owners of the sprawling Manhattan residential complex were not entitled to deregulate rents while they were receiving a particular type of tax abatement. The court didn't rule on the issue of retroactive payments at the time.

• After the October ruling, former owner MetLife said the ruling should not apply to it because the decision came several years after the company sold the property to a partnership led by Tishman Speyer. That partnership paid an eye-popping $5.4 billion in 2006 and has since defaulted on its loans. However, the special servicer representing the lenders has yet to foreclose on the property. Sources expect the foreclosure in the next few months. MetLife had been trying to get the case against it dismissed but New York Supreme Court Justice Richard Lowe declined to do that and said the tenants are entitled to be reimbursed for rent overcharges.

• Tenant lawyer Alex Schmidt estimated that tenants could be due a total of $200 million. However, he isn't sure whether MetLife will try to appeal the ruling. Mr. Schmidt says negotiations with Tishman Speyer over settling the rebate issue are ongoing.

For more, see Stuy-Town tenants take home big win (Judge rules that they are entitled to be reimbursed for years of rent overcharges on apartments whose rents were unlawfully de-regulated; decision's impact on other properties is unclear).

Go here for other posts on the Stuyvesant Town / Peter Cooper Village fiasco in NYC.

Landlord To Deed Over Title To 11,000 Rental Units As Attempt To Restructure $4.4B Debt On $1.8B Complex Fails; Equity Held By Pensions Appears Doomed

In New York City, The Wall Street Journal reports:

• A group led by Tishman Speyer Properties has decided to give up the sprawling Peter Cooper Village and Stuyvesant Town apartment complex in Manhattan to its creditors in the collapse of one of the most high-profile deals of the real-estate boom. The decision comes after the venture between Tishman and BlackRock Inc. defaulted on the $4.4 billion debt used to help finance the deal. The venture acquired the 56-building, 11,000-unit property for $5.4 billion in 2006—the most ever paid for a single residential property in the U.S. The venture had been struggling for months to restructure the debt but capitulated facing a massive debt load and a weak New York City economy that has undercut rents and demand for high-priced apartments.(1)

***

• By some accounts, Stuyvesant Town is only valued at $1.8 billion now, less than half the purchase price. By that measure, all the equity investors—including the California Public Employees' Retirement System, a Florida pension fund and the Church of England—and many of the debtholders, including Government of Singapore Investment Corp., or GIC, and Hartford Financial Services Group, are in danger of seeing most, if not all, of their investments wiped out.(2)

For more, see Tishman Venture Gives Up Stuyvesant Project (High-Profile Purchase of Manhattan Complex Collapses Under Debt Mountain).

(1) According to the story, the property's owners signaled they would be unable to reach a deal with lenders and instead decided to allow creditors to proceed with what amounts to an orderly deed-in-lieu of foreclosure, which means a borrower voluntarily gives the property back to lenders to avoid a foreclosure proceeding.

(2) According to this story, Calpers, the giant California public employees’ pension fund which bought a $500 million stake in the property, has written off its investment. So has Calsters, a California pension fund that invested $100 million, as has a Florida pension fund that put $250 million into the deal.

Giant California Public Employees Pension Plan Feeling Backlash For Its Role In Predatory Equity Real Estate Investments

The Wall Street Journal reports:

• Calpers(1) took a hit last year when its investment in Manhattan's Peter Cooper Village and Stuyvesant Town apartment complex collapsed. But Stuyvesant Town wasn't the huge pension fund's only foray into real-estate investments that involved ousting low-rent tenants. The California Public Employees' Retirement System has partnered with firms that have bought and converted rent-regulated buildings in East Palo Alto, Calif., and in other New York City neighborhoods, including Harlem and Manhattan's Upper East Side.

• Some deals have led to losses; at least one has paid off. But whatever the investment result, the conversion of low-rent properties to market-rent apartments—and ejection of some tenants in the process—is raising concerns within and beyond Calpers about its role in these deals.(2)

***

• Calpers, which manages about $200 billion in retirees' money and other benefits for public employees, prides itself on taking a leadership role in promoting socially responsible investing. Some detractors say deals that involve ousting tenants conflicts with that mission.

For more, see Backlash Hits Calpers Property Deals.

(1) The California Public Employees' Retirement System (CalPERS) is an agency in the California executive branch that manages pension and health benefits for more than 1.6 million California public employees, retirees, and their families.

(2) According to the story, in these types of real-estate deals, which detractors call "predatory equity," investors borrow funds to buy the buildings and then try to make money by getting the buildings to operate more profitably, primarily by raising rents. Rent-regulated units generally can be raised to the market rate after a tenant moves out, as long as the landlord makes sufficient improvements to the apartment. But waiting for apartments to become vacant may not be profitable for investors who do these types of deals, given interest due on the money borrowed to buy the building. Tenants in rent regulated apartments typically are automatically entitled to renewal leases upon the expiration of their current leases, which means that, as long as they are making their rent payments, they can remain in possession of their units indefinitely. So owners often try to move out a number of tenants quickly, for example by trying to identify tenants occupying the apartments illegally.

Tenants often maintain they resided legally and were harassed or intimidated by new owners in hopes of getting them to leave voluntarily. Other times, owners have looked for possible ambiguities in rent-control laws that might justify a rent increase, tenants say. Sometimes, lower-income and non-English-speaking tenants are reluctant to challenge these abrupt increases in court, say affordable-housing advocates.

Signing Over Deed & Handing Over Keys To Distressed NYC Rental Complex Not As Easy As It Sounds; Proposed Transfer Estimated To Cost $90M In Fees

In New York City, Bloomberg reports:

• Tishman Speyer Properties LP and BlackRock Inc. haven’t handed Manhattan’s biggest apartment complex to creditors as they pledged two weeks ago, in part because of questions over payment of about $90 million in taxes. The companies said Jan. 25 they would cede control of Stuyvesant Town-Peter Cooper Village to lenders after missing a payment on the $3 billion mortgage.

• Even in foreclosure, any property transfer in Manhattan requires payment of city and state taxes, and Tishman is negotiating with CWCapital, the special servicer for the senior debt, over who must pay them, said Rafael Cestero, New York City’s commissioner of Housing Preservation and Development. “The reality is they can’t just turn back the keys,” Cestero said in an interview. “There are some impediments.”

• Under New York law, the party that owns the property and is getting rid of it must pay the taxes on the transfer, according to Owen Stone, a spokesman for the New York City Department of Finance. Otherwise, the burden shifts to the receiver of the property, he said. “CW doesn’t want to pay the $100 million so they’re going to have to negotiate this,” said Cestero, estimating the taxes. “They have not initiated foreclosure proceedings.” Transfer taxes for the city and the state equal 3.025 percent of the “consideration,” or the price of the real property, said Joshua Stein, a partner in the real estate practice group of law firm Latham & Watkins LLP in New York.

For more, see Stuyvesant Town Ownership Hinges on $90 Million Tax.

Overleveraged 11,000-Unit NYC Apartment Complex Teetering On Foreclosure

In New York City, The Wall Street Journal reports:

• One of the biggest, most high-profile deals of the commercial real-estate boom is in danger of imminent default, say people familiar with the matter, signaling the beginning of what is expected to be a wave of commercial-property failures. The sprawling Manhattan apartment complex known as Peter Cooper Village and Stuyvesant Town -- acquired for $5.4 billion in 2006 by a venture of Tishman Speyer Properties and a unit of BlackRock Inc. -- is running out of cash. As of the end of September, it had $33.7 million left of the $400 million in interest reserves set up to service its debt, according to the people familiar with the matter. At its current burn rate of about $16 million per month, the reserve could be depleted before the end of the year, the people said. Others have said the venture could avoid default until February.

***

• Lenders who financed the deal first projected the complex's net operating income would triple to $336 million in 2011 from $112 million in 2006, according to Deutsche Bank AG. But net income is projected to be $139 million this year, according to Realpoint LLC, a credit-rating agency.

• Investors who bought into the deal were confident that real-estate manager Tishman Speyer would be able to greatly boost profits by raising rents in Manhattan's sizzling apartment market. But today, the 56-building, 11,000-apartment property is suffering from a slowing New York economy, a lawsuit that has hindered the owner's ability to convert rent-controlled units to market rentals, and the debt load.

For more, see An Apartment Complex Teeters (High-Profile Tishman/BlackRock Property in New York in Danger of Default).

See also, New York Magazine: WSJ: T Minus Four Months Until Stuyvesant Town Defaults.

California State Pension Plan To Cease Predatory Equity Real Estate Investments After Writing Off Million$ In Soured Deals

In Sacramento, California, Bloomberg News reports:

• The California Public Employees’ Retirement System, the largest U.S. public pension, said it will stop investing in real-estate projects that would eliminate rent-regulated apartments, such as New York City’s Stuyvesant Town-Peter Cooper Village. [...] The new policy states that Calpers cannot invest in projects that would eliminate rent-controlled apartments or convert them to market rates.

• Calpers wrote off a $500 million investment with Tishman Speyer Properties LP and BlackRock Inc. after the partnership’s plan to raise rents at Manhattan’s largest apartment complex failed to generate enough income to pay the $3 billion mortgage. The group paid $5.4 billion for Stuyvesant Town-Peter Cooper Village in 2006. The policy change is intended to head off a more restrictive proposal making its way through the California Legislature. That bill might prevent the fund from investing in affordable housing projects, said Brad Pacheco, a Calpers spokesman. Tenant-rights advocates sought the change after Calpers invested $100 million in a project in East Palo Alto, a low-income city in Silicon Valley. Tenants there complained to the Calpers board that if vacancy rates increase enough, the owners would be allowed to end rent-control rules.

Source: Calpers’ Board Approves Policy Shift to Protect Rent Control.

Walls Closing In On Beleaguered Owners Of 11,000 Unit NYC Apartment Complex As State High Court Hammers Landlord For Illegal Rent Increases

In New York City, The New York Times reports:

• The state’s highest court dealt a financial blow on Thursday morning to the already beleaguered owners of the sprawling Stuyvesant Town and Peter Cooper Village complexes in Manhattan when it ruled that they improperly began charging market rents on thousands of apartments.

• The ruling by the Court of Appeals may mean that the current owner, a partnership of Tishman Speyer Properties and BlackRock Realty, and the former owner, Metropolitan Life, may have to pay an estimated $200 million in rent overcharges and damages to tenants of about 4,000 apartments. In a majority ruling (two of the six judges dissented), the court said the owners improperly raised rents beyond certain set levels at the complexes while receiving tax breaks from the city for major renovations.

• The decision could also affect landlords of as many as 80,000 apartments across the city who may also have improperly raised rents and deregulated apartments while receiving special tax breaks.

• But the immediate and most devastating impact was on the Tishman Speyer partnership, which was already facing extreme financial difficulties after paying a record $5.4 billion in 2006 for the properties near the East River. The owners are running out of cash to pay building loans, and analysts have said it is highly likely the partnership will default by December. If the owners are forced to reimburse tenants, analysts say it would only hasten the path to default.

For more, see Court Deals Blow to Owners of Huge Apartment Complex (The Court of Appeals has ruled that the owners of Stuyvesant Town may have to pay an estimated $200 million in rent overcharges and damages to tenants of some 4,000 apartments).

For the ruling, see Roberts v. Tishman Speyer Properties, L.P.

In a related story on this massive 56-building, 11,000-unit New York City apartment complex, described by some as an alleged "predatory equity" deal designed to force tenants from their homes, see The Wall Street Journal: An Apartment Complex Teeters (High-Profile Tishman/BlackRock Property in New York in Danger of Default).

Recent NYC Landlords' Seminar Promotes "Demolition Evictions" Approach As Legitimate Way To Boot Nearly-Impossible To Evict, Rent Regulated Tenants In Gentrifying Neighborhoods

In New York City, The Real Deal (NYC) reports:

• [At a recent presentation to a local landlords' group, well-known New York City landlord attorney Michelle Maratto Itkowitz] quickly got down to the business of eviction, telling landlords the best way to get tenants out of their buildings is to show the state they plan to knock ’em down in the first place.
  
  “Things have changed in three years,” Itkowitz said. “Tenants understand implicitly, even if they live under a rock, that there is value for owners, developers and managers in recovering rent-stabilized apartments. It’s not a secret anymore.”
  
  Shooing out existing tenants from stabilized and market-rate properties alike has become more difficult with a more organized tenant movement, increased media attention — think the Stuyvesant Town debacle — and stricter regulation on both the city and state levels. Tenants are now too savvy to succumb to the old tricks of the trade and housing codes have been revised, Itkowitz said. As such, she had three main points for landlords who have still not figured out how to go about “de-tenanting” in the “next generation.”
  
  “No harassment. No frivolous litigation. No supers,” she said, giving examples of how not to operate in a market with heightened tenant protections.
  
  ***
  “Now let’s talk about about something that actually moves tenants out of the way if you have to get to that point,” said Itkowitz, transitioning from don’ts to dos. “Demolition eviction, page 23,” she prompted, referencing a pamphlet that accompanied her speech.(1)
  
  A line in the rent-stabilization law allows landlords to deny tenants’ renewals on leases at stabilized apartments if the landlord can show the state they have approved new building plans, the money to complete them, and agree to pay tenants relocation expenses and a stipend.
  
  Currently, many landlords try to evict tenants and clear a building before really getting the ball rolling with demolition and development plans, she said. But if landlords would just bite the bullet and get all of that filed up-front, they’d have an easier time getting tenants out.
  
  That got the audience talking.
  
  “So can you do demolition eviction and then evict the tenants and then not demolish the building?” asked one man in attendance.
  
  “There’s nothing in there I can see that penalizes you for not demolishing the building,” Itkowitz replied. This bait-and-switch technique is probably fair game, excepting that a “nasty person with a grudge” tried to take you to court over it after the fact, she said.
  
  More questions followed: Does the phantom demolition technique work for gut renovation? (No.) Does it work for rent-controlled buildings? (Sometimes, but it’s hard to do.) Does the unit count have to be the same in the new project after demolition? (Only if rent control is involved.) Does it work with SROs? (You bet.) Can you start the demolition eviction while you’re not legally allowed to be contacting tenants about buyouts? (Yeah, I don’t see why not.) Does starting this process preclude you from also suing your tenants or buying them out? (No, that’s fine.)
  
  “I like demolition eviction and I’d just like to see people do more of it” instead of frivolous and sneaky tactics that lead nowhere, Itkowitz concluded.
  
  “I don’t understand why more landlords aren’t doing it,” she said.
  
  Other bits of advice for owners looking to part with tenants included coming up with a de-tenanting strategy before closing on a building, and making sure new buyers have all the outstanding lease contracts in hand ahead of time. “Someone needs to be looking at them and methodically planning,” she said.
  
  Itkowitz also noted that many landlords get themselves into trouble by trying to be sneaky. “Own your agenda, people,” she told the audience — “none of this hidden stuff.” Owners should also try in advance to identify the likely holdovers looking to lawyer-up and deal with them directly and honestly.
  
  “I can’t help you with lies,” she said, “but there’s enough tools in the truth.

For the story, see An insider’s guide to evicting rent-stabilized tenants ("Demolition eviction, page 23," RE attorney Michelle Maratto Itkowitz advises landlords).

See also, Gothamist: Real Estate Vampires Plot How To "De-Tenant" Rent-Stabilized Brooklyn.

------------------------

(1) For a handbook describing this process, see Demolition Evictions: A Real Possibility. See also, Tenant Buyouts for the Next Generation and Demolition Eviction.

NYC Landlord Lender Unloads Mtgs Backed By Crappy Collateral To Non-Profit Developer; Tenant Groups Hope For Similar Deals To Save Affordable Rentals

In New York City, Crain's New York Business reports:

• New York Community Bank, which has been targeted by housing advocates and city officials for selling off distressed mortgages to the highest bidders, has for the first time agreed to a discounted sale of notes to a nonprofit housing developer.



• The bank has sold the debt on a portfolio of four foreclosed residential buildings in Bedford-Stuyvesant to the Mutual Housing Association of New York Management, Inc., a Brooklyn nonprofit that is funding the purchase by tapping a new city loan fund designed to preserve affordable housing.



• The housing group got the $2.4 million worth of mortgages on the dilapidated buildings at a nearly 50% discount. The size of that price cut signals a big potential thawing in a protracted battle between housing advocates and the bank over how the institution is disposing of mortgages on properties in both physical and financial distress.

***

• New York Community Bank is by far the biggest lender to landlords in the city. In all, the bank provides financing for more than 3,000 buildings housing 85,000 apartments, twice as many as anyone else in town. A study by a housing group last year found that New York Community Bank finances the owners of nearly 9,000 distressed apartments, more than the next three banks combined.



• The lender has come under fire from activists and city officials for selling distressed mortgages on rundown properties at prices that would make it tough for new owners to repair the buildings. Last year, the city backed an $8 million bid by Mutual Housing for a portfolio of eight dilapidated buildings in the Bronx, but New York Community Bank sold the mortgage to investors for only a slight discount on the mortgage's $16 million face value.

***

• After battling each other on the streets and in court, the bank and advocates have finally reached a détente in which nonprofit developers will be given a first look at any distressed mortgages the bank is looking to sell. [...] Tenant advocates applauded the Mutual Housing deal and hoped it could serve as a model for the growing number of buildings in financial and physical distress across the city.(1)

For more, see NYC's biggest landlord lender cuts mortgage deal (New York Community Bank's sale of distressed mortgages on four residential properties in Brooklyn at a 50% discount will leave the buyer with enough cash for much-needed rehabs).

(1) In this story, the following excerpt provides some insight as to why New York Community Bancorp head Joseph Ficalora decided it best to reach a deal with his critics:

• He wouldn't say what moved him to lay down arms, but the FDIC's decision to cut his bank's community-lending rating may well have been a factor. Starting two years ago, Mr. Ficalora has been expanding nationally, snapping up failed banks in Ohio, Florida and Arizona.
  
  The seller? None other than the FDIC. If he wants more busted banks sent his way, he needs good relations with his regulator.
  
  As Mr. Ficalora sees it, his decision to forge a deal with his critics was just a matter of simple logic. “When a baby is howling, you eventually figure out that you have to change the diaper,” he said.