Manhattan Real Estate Is Teetering - Barron's

With several large NYC apartment house deals faltering, the thus-far sturdy commercial-mortgage market may be in trouble, Barron's Andrew Bary says.

The $5.4 billion purchase of Stuyvesant Town/Peter Cooper Village by Tishman Speyer and BlackRock (BLK) was predicated upon the notion that rental income from the predominately rent-controlled housing would rise as the apartments were quickly converted to market rate apartments. But rental income is declining - covering just 35% of estimated annual interest costs of $300M on the $4.4B loan developers took. The partners cite a high rate of new leases written, low vacancy rates, a long-term outlook and a $1B equity stake that should comfort investors. Yet Tishman and BlackRock could lose their entire $1B equity stake - and more on the loans - if the market keeps faltering. Debt investors will suffer too.

Uptown, several smaller apartment deals in Harlem have either defaulted or are on the verge of defaulting, underwritten as well with high leverage and misconceptions about the pace of rent-controlled apartment conversions. The buyers made huge, initial profits. Now with much of the enormous debt on the buildings already hawked to bond investors, yields are rising sharply on these securitized loans. Delinquency rates are low, but investors could be left holding the hefty leverage bag if they rise.

Comments

[User 141585:]

will someone please comment on Judy's article!!!!! she deserves some attention for goodness sake. tomorrow morning I want to see some nice comments for the lady. I MEAN IT.

2008 Sep 07 07:17 PM

[1 of 4:]

"The $5.4 billion purchase of Stuyvesant Town/Peter Cooper Village by Tishman Speyer and BlackRock (BLK) was predicated upon the notion that rental income from the predominately rent-controlled housing would rise as the apartments were quickly converted to market rate apartments. But rental income is declining - covering just 35% of estimated annual interest costs of $300M on the $4.4B loan developers took."

Sounds like they made a bad bet. Oh well, that's how asset prices are normalized.

2008 Sep 07 07:47 PM

[User 141585:]

This was a killer deal for Wappinger, Sapohanikan & Co.....

www.accessgenealogy.co...

2008 Sep 07 08:16 PM

[fatcat:]

Judy,people in the real world cannot imagine multi-million dollar properties with 2 bedrooms...look out below.

2008 Sep 07 08:23 PM

[H-Bomb:]

User 141585,

I'll comment. JW seems to regurgitate what others have written. I've not seen her offer commentary of her own. She may be quite insightful, but I have seen it.

2008 Sep 07 09:14 PM

[trig8r:]

I'll comment on Judy's article. It's irresposible journalism, lacks rigor and quantitative support for broad sweeping negative conclusions. Perhaps she should join MSNBC staff...

2008 Sep 07 10:59 PM

[1worldcurrency:]

All I can say is they better not find a way to stick this to the taxpayer. The rent stabilization code is no secret, neither are the historically low vacancy levels at Stuy Town. The complex was built to provide affordable housing to working class families, including many returning WWII vets. It has always been home to many firemen, police officers and other city employees. the community was even integrated, after litigation. Metropolitan Life, the original owner, received tax breaks from the inception. Rent regulation was already well in place, but they knew they could still make a profit, and continued to do so even when the inflation of the 70's outran the yearly rent increases. But they are still "the projects" and will never be "luxury rentals", as now advertised. Tishman is screwed and Merrill/Blackrock should not be bailed out by the Fed.

2008 Sep 08 04:49 AM

[H-Bomb:]

squashnut,

"they better not find a way to stick this to the taxpayer"

Or what? What are you, me or a million more like us going to do about it?

I'm going to my room to sulk.

2008 Sep 08 07:43 AM

[romorris:]

OMG, she actually wrote one for herself instead of echo'ng the work of others. One is the start of a trend.

2008 Sep 08 10:44 AM

[evergreen16:]

I don't understand all these negative comments. Judy is doing a great job gathering information from many sources, so you don't have to. All the related articles from many news sources in one place. How genius!
Great Job.

2008 Sep 08 04:58 PM

[REIT Wrecks:]

On the same topic as teetering Manhattan real estate, I also suggest that How Could My Big Beatiful Loan Go So Bad?"should be required reading. Riverton is the precursor to the Stuy Town default.

2008 Sep 08 07:04 PM

[REIT Wrecks:]

Sorry the story link is: www.reitwrecks.com/200...

2008 Sep 08 07:04 PM

[PMMaven:]

Judy is an editor, not a news writer!

2008 Sep 09 03:32 PM

[Kunst:]

I am always happy to see Judy's articles. They contain pertinent, current info in an area I'm interested in. I don't know why some fault her for not offering more interpretation. If you want someone to tell you what it all means, there is no shortage of that. Half (!) of the opinion articles are BS, so she's not hurting the average. I take her info and blend it into my overall view of the area.

2008 Sep 13 06:44 PM