The World's Biggest Real Estate Deal

MetLife sold 80-acre Stuyvesant Town in Manhattan for a record $5.4 billion

The record price for a real estate transaction was smashed on Oct. 17 when Tishman Speyer offered owner MetLife $5.4 billion for the 80 acres of Stuyvesant Town in Manhattan. The previous record in the U.S. was set in 2000, when Tishman Speyer bought Rockefeller Center for approximately $1.9 billion.

The offer surpassed the nearly $5 billion target that had been originally set. Why the high price? It is rare in a modern city to find so large a contiguous site come on the market at the same time.

Stuyvesant Town and the adjacent Peter Cooper Village—also included in the deal—were conceived in 1943 and supported by legendary Parks Commissioner Robert Moses as affordable housing to offset the city's housing shortage. It comprised the 18 square blocks that had made up the city's Gashouse district, and runs between First Avenue and the East River, from 14th Street to 23rd Street.

Rent and the Investors' ROI

Completed in 1947, just in time to accommodate returning GIs and their families, the developer was the Metropolitan Life Insurance Co. After nearly 60 years of ownership, MetLife (MET) reported in July that it was considering putting the 110-building site up for sale. The entire complex is home to approximately 25,000 people.

The biggest question at this point is how will privately held Tishman Speyer and its partner, the real estate arm of BlackRock (BLK), get a return on their investment. BlackRock is one of the world's largest money managers.

Dan Fasulo, director of market analysis at Real Capital Analytics in Manhattan, thinks that the investors will be willing to continue the gradual transition to more high-priced apartments that MetLife has already begun. "Given the makeup of the new ownership, it makes sense that they will follow the same path: continuing to make improvements to the property in order to bring it up to market levels."

New No. 1: Residential

In other words, it is unlikely that Stuyvesant Town's existing buildings will be razed and replaced by expensive condos in the immediate future—although the existing middle-income tenants are concerned that they may not be able to remain if rents rise steadily. But over the long term, in order to realize their investment, it is likely that the new owners will need to dramatically raise rents on the more than 11,000 apartments in the complex.

The neighborhood is also likely to change. Today it is a quiet, if somewhat drab part of the city on the edge of such posh areas as Gramercy Park and Stuyvesant Square. "We can expect a shift to a higher level and I am certain that buyers took a look at the existing retail businesses when researching the property," says Fasulo.

In addition to its sheer size, what also makes the deal unusual is that typically the highest prices have been for commercial, not residential real estate. Of the 10 biggest real estate deals in the U.S., the other nine are commercial. All of these transactions happened over the past six years and the majority, unsurprisingly, took place in Manhattan. The non-New York properties were the Bank of America Center in San Francisco and the John Hancock Tower in Boston. The Stuyvesant Town deal bumped the sale in April, 2004, of the Sears Tower in Chicago for $841,000,000 out of the top 10.

Industry Implications

How will the sale affect the real estate industry? Will other landlords, such as universities, hospitals, churches, and other major landowners, find themselves tempted to sell off their land in hopes of a fat payday? Will this ignite a flurry of billion-dollar deals?

Rockefeller Center is 22 acres, and it is conceivable that its current owners, also Tishman Speyer, may want to flip it for a new record price. After all, its approximately $1.9 billion price tag seems almost risibly low in comparison to the Stuyvesant price, even though the sale occurred only six years ago and at the height of the Internet boom. Given its location in Midtown, square footage, and prestige, it could fetch billions.

Click here to see a list of the 10 biggest real estate deals in the U.S.

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