The Painful Education of Real Estate Scion Rob Speyer

Rob Speyer showed little interest in his family's real estate business until his dad considered buying Manhattan's Rockefeller Center in 1995 for $1.2 billion. Intrigued by plans to revitalize the art deco complex, Speyer, then 26, left his job at the New York Daily News and joined Tishman Speyer, the firm his father founded with Robert Tishman in 1978. "I caught the bug," he says. "It was really hearing about that transaction that flipped the switch in my head and made me say: 'I want to learn this business.' "

Some 19 months after being named co-CEO with his dad, Rob Speyer is learning how to weather a commercial real estate rout. At least four big deals made by the firm as property prices peaked are unraveling. Stuyvesant Town and Peter Cooper Village, the Manhattan apartment complex that Tishman Speyer and BlackRock Realty bought for $5.4 billion in 2006, is on the verge of default and worth just $1.8 billion, according to credit rating company Fitch. "The overriding thing in real estate is timing," says Peter Hauspurg, chairman of Eastern Consolidated Properties, a real estate brokerage. "No matter how strong your skill sets are, if you buy at the wrong time, there's no way you can make it work out."

The 40-year-old Speyer and his father are major players in the industry drama that continues to unfold. The second-largest buyer of U.S. offices, malls, and apartment buildings since 2001, Tishman Speyer now sits atop a $33.5 billion empire that includes such high-profile properties as the Met Life Building in New York, the Civic Opera Building in Chicago, and the Paris Bourse. Like rivals, the firm faces the dual pressure of falling prices and rising vacancies; values in commercial real estate have dropped by 44% since their October 2007 peak, more than in the residential market.

The younger Speyer hasn't experienced the boom and bust cycles of his father, who at 69 is a 30-year industry veteran. A graduate of Columbia University, Rob Speyer passed up the prestigious Marshall scholarship for graduate school in Britain to go into journalism. In the early 1990s, Speyer worked as a reporter for The New York Observer and the Daily News, where he broke a housing scam in the South Bronx and covered the U.S. invasion of Haiti.

Rob Speyer first learned the family business as part of the firm's management and leasing group. In the makeover of Rockefeller Center, he replaced a U.S. passport office with a Reebok Sports Club, the first of many high-end tenants he lured. "That was a very exciting negotiation," says Speyer. "The passport office created these lines … around the building, and it was not great for the repositioning of the center." In 1998, Speyer joined the company's redevelopment unit and modernized 300 Park Ave., the headquarters of Colgate-Palmolive (CL); the property, bought for $180 million, was recently appraised at $650 million.

Debt Scramble Now Rob Speyer and his father are focused on reviving some of their splashiest deals. The company is in talks to overhaul debt on five downtown Chicago office buildings bought in 2007, including the opera center. A partnership that includes Tishman Speyer is trying to block its lender from foreclosing on a 56-acre office park in Los Angeles. Another Tishman Speyer group with 21 office buildings in the Washington (D.C.) area suspended interest payments on roughly $570 million in debt and is renegotiating with creditors, according to a Dec. 18 report by Standard & Poor's.

The biggest setback for the Speyers is in their hometown. When Tishman Speyer and BlackRock (BLK) bought Stuyvesant Town and Peter Cooper Village in 2006, they planned to raise rents, evict illegal occupants, and upgrade the complex with amenities, including a gym, concierge service, and new gardens. From the outset the deal to transform the 11,200 affordable housing units into luxury apartments was controversial. Tenants took the buyers to court over what they claimed were illegal rent increases. Then the recession hit, rental demand slackened, and the tenants won their case.

The Speyers are struggling to turn the property around. The firm has just started signing up new tenants and filling 100 vacant apartments. A temporary agreement with occupants will reduce some rents starting this month. With the property's reserve fund running dry, Tishman Speyer and its partners are trying to restructure $3 billion in debt. "It's clearly been a tough deal," says Rob Speyer. "We're not in a great position."

Despite the problems, the Speyers may not take much of a financial hit. As with many of its purchases, Tishman Speyer put in little of its own money, persuading big institutional investors, including the Church of England, to fork over the rest. The Florida State Board of Administration, the fourth-largest U.S. pension fund, invested $250 million, a stake it's valuing at $0. Tishman Speyer's hit will be limited to its $112 million investment, a person familiar with the structure of the deal says.

Dealmaking Continues Even after significantly marking down the value of Stuyvesant Town and other properties, Tishman Speyer has earned 20% a year over the past decade, according to the company. The returns have been cushioned by some notable sales. In 2007, Tishman Speyer got $525 million for the former New York Times Building in Midtown Manhattan, which it bought for $175 million three years earlier. The company sold 666 Fifth Ave. to Kushner Cos. for $1.8 billion in 2007, the highest price ever paid for a single U.S. office building at the time.

With $2 billion in cash, the Speyers have so far been able to continue their dealmaking. In November, Tishman Speyer paid $95 million for 114,000 square feet of office space in central Paris. Meanwhile, the Speyers continue to look for trophy properties. "If you're engaged in this business then you will never have every deal that succeeds," says Jerry Speyer. "It's not possible if you take some risks."

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