- Eastdil hired to market the property five years after default
- Apartment complex expected to fetch as much as $6 billion
Stuyvesant Town-Peter Cooper Village, the sprawling Manhattan apartment complex that became a symbol of the last decade’s real estate boom and bust, may now fetch more than the record $5.4 billion paid nine years ago as investors seek to capitalize on soaring New York real estate demand and rising rents.
CWCapital Asset Management, the loan servicer in control of the property after its prior owners defaulted in 2010, has hired Eastdil Secured LLC’s Doug Harmon to advise on a sale, the company said in a statement. The enclave -- Manhattan’s largest apartment complex -- is expected to change hands for $5 billion to $6 billion, with Blackstone Group LP among those in talks for a purchase, according to people with knowledge of the matter, who asked not to be named because the talks aren’t public.
While Manhattan apartments are in high demand, any suitor would have to be prepared for potential tenant outcry and the political hurdles of owning one of the last bastions of affordable housing for middle-class New Yorkers. The expiration of a city tax break in 2020 will make it easier for the new owners to raise rents, something Tishman Speyer and BlackRock Inc. were unable to pull off after their 2006 acquisition, which still holds the record for the biggest commercial real estate sale in the city.
“There’s been a tremendous demand for multifamily as homeownership rates have declined,” said Richard Hill, a real estate debt analyst at Morgan Stanley in New York. “The challenge with Stuytown will likely be the ability to keep it affordable.”
The sale of the property had been held up by litigation, and CWCapital said in its statement Monday that it has reached a settlement in principle for the outstanding lawsuit. The company was sued last year by junior creditors led by Centerbridge Partners LP who alleged they were being cheated out of hundreds of millions of dollars after CWCapital took over the title to the complex.
The sale situation is fluid and a Blackstone bid isn’t certain, said the people with knowledge of the matter. Other would-be buyers are also in the mix, they said. Peter Rose, a Blackstone spokesman, declined to comment.
A sale would end five years of squabbling between investors, bondholders and residents of the 11,200-unit complex, built in the 1940s by MetLife Inc. with city assistance, to house returning World War II veterans. Tishman Speyer and BlackRock defaulted on the $3 billion senior mortgage in January 2010 after real estate values plunged in the financial crisis and tenants successfully sued to stop a dramatic increase in some rents.
Now, apartments have led the five-year recovery in U.S. commercial real estate values. Prices for multifamily buildings are 33 percent higher than they were at the previous peak in 2007, according to Moody’s Investors Service and Real Capital Analytics Inc. The median rent in Manhattan was $3,405 in the third quarter, the highest in records going back to 1991, data from Miller Samuel Inc. and Douglas Elliman Real Estate show.
Tenants had sued Tishman Speyer and MetLife in 2007 for raising the costs of regulated units while taking tax breaks from the city meant to subsidize affordable housing. A 2013 settlement guides how much an owner can raise some rents at the complex through June 2020. After that, units are subject to deregulation and have the potential to rise to market rates.
A sale price above the one paid nine years ago is possible, based on how much income the complex generated in 2014, according to Alan Todd, a mortgage-debt analyst at Bank of America Corp. If a buyer foresees the ability to raise rents, a deal may exceed $5.6 billion, he said. Regardless, it’s very likely the price will at least be high enough to repay the $3 billion debt owed to bondholders who financed the bulk of the 2006 acquisition, Todd said.
“It’s a very special asset,” said Joshua Stein, principal of a New York-based real estate law firm that bears his name. “I would not be surprised if the value has now exceeded the value of the Tishman deal.”
A Blackstone purchase of Stuyvesant Town would extend a push into owning apartment buildings around the country. The New York-based firm made its first multifamily purchase in Manhattan in September, leading a venture that acquired 24 buildings for $690 million. Jon Gray, the company’s head of real estate, said this month that he was bullish on the borough’s rentals because it’s too costly for many residents to buy.
The winning bidder for Stuyvesant Town will have to work with the roughly 30,000 tenants and the city to develop a plan to protect the property’s long-term affordability, City Councilman Dan Garodnick, a lifelong resident of Stuyvesant Town-Peter Cooper Village, said in an interview last week.
For Mayor Bill de Blasio, “protecting this community’s legacy as a home for New York City’s middle class is a top priority,” Wiley Norvell, deputy press secretary for the mayor, said in an e-mailed statement Monday. “We will press any owner to preserve affordable housing.”
While a buyer will need patience before raising rents, the purchase should be attractive over the longer term, Stein said.
“Everybody wants to be in New York,” he said. “If they have a long-term hold, how could they go wrong?”