Tishman Speyer Hands Over Keys To Stuy Town

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New York is a unique town, so it's only fitting that it should have it's own unique version of the real estate crash -- one that is writ large.

Today, lenders took back the keys to one of the city's biggest apartment complexes, the massive Stuyvesant Town and Peter Cooper Village, ending a months-long saga. But Stuy Town may be just the first of many: more than 100 large apartment complexes in the Big Apple may be headed into foreclosure, largely because speculators overpaid and under-estimated the local rent laws.

The red brick towers at Stuyvesant Town and Peter Cooper Village sold for $5.4 billion back in 2006 to a partnership led by Tishman Speyer and BlackRock Inc. That's still the largest amount ever paid for a single residential property -- the price works out to about half a million per apartment.Why would Tishman Speyer, et al. pay such a princely sum for 11,000 dowdy, rent stabilized-apartments originally built for middle class residents?

Okay, many of the apartments are pretty roomy for New York. But the real reason is that, like many New York landlords, Tishman thought it could skirt the city's rent regulations and, because this is New York, after all, jack up the rents.

But the speculators were wrong, and most of the apartments they bought are still covered by rent laws. Without enough rent money to pay their mortgages, landlords like Tishman Speyer now must hand over the keys.

Speculators paid inflated prices for as many 120,000 New York City apartments at well over 100 properties during the real estate boom, many concentrated in poorer neighborhoods of Upper Manhattan or the Bronx, according to local housing advocates. Most are still covered by rent stabilization and now carry more debt than the properties are worth, based on the rental income from the property.

Lenders have already seized 40 properties like these, not including Stuy Town. The danger for New York is that these properties will languish in foreclosure at creditors fight over the scraps. The tenants, meanwhile, suffer. Several buildings are already plagued by a lack of decent maintenance.

The failures of speculators like Tishman Speyer are contributing to the mess of commercial real estate foreclosures expected this year, adding to the half-finished condos of Miami and over-leveraged office towers that are expected weigh down the economy in 2010.

Local housing officials have their eyes on these buildings, and they may help developers who specialize in affordable housing buy the apartments back from the lenders if they ever come to auction.
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