Brookfield Stuyvesant Town Conversion Plan Challenged by Competing Bidder
A partnership rejected by the Stuyvesant Town-Peter Cooper Village Tenants Association sent a letter to residents criticizing the group’s plan to work with Brookfield Asset Management Inc (BAM/A). and turn Manhattan’s biggest apartment complex into a condominium.
Guterman-Westwood Partners LLC said tenants would be better off financially if the development is converted into a co- operative rather than condos, in which occupants would own their units individually, according to the letter mailed today, a copy of which was obtained by Bloomberg News. The complex, on Manhattan’s east side, has more than 11,000 apartments.
Guterman-Westwood is pitching its own plan directly to residents after the tenants association announced on Nov. 30 it had chosen Toronto-based Brookfield as its partner in a bid to buy the 80-acre (32-hectare) enclave from its debt holders, without giving a specific proposal. Bondholders are owed about $3 billion on a senior mortgage left over after Tishman Speyer Properties LP and BlackRock Inc. (BLK) defaulted last year.
“Guterman-Westwood has told you, the association and its representatives exactly what we will do,” the partnership said in the letter. “Brookfield has not.”
Guterman-Westwood is a partnership between Gerald Guterman, founder of a company that led the conversion of more than 12,000 New York-area rental units in the 1970s and 1980s; investment firm Westwood Capital Holdings LLC; and Jonathan Miller, a New York appraiser. Gerald Guterman said in the letter that his group had “a number” of meetings starting more than a year ago with the tenants association, its lawyers, financial advisers and New York City Councilman Daniel Garodnick before the tenants decided to go with Brookfield (BAM), which manages about $150 billion.
Guterman-Westwood was told that the tenants wouldn’t make a choice for an alliance until CWCapital Asset Management LLC, which is representing bondholders, said it was ready to begin a sales process, according to the letter. The group was “disingenuous,” Guterman said.
“Over the past year the tenants association has met with dozens of potential partners as part of a thorough process to find the best fit,” Al Doyle, president of the tenants association, said in an e-mailed statement. “Brookfield Asset Management stood out as the partner with the experience and expertise, credibility, financial capability and the long-term commitment to our key principles that tenants need.”
The association began vetting potential investment partners shortly after the January 2010 default, Garodnick, a resident of Peter Cooper Village and longtime tenant advocate, said yesterday in a phone interview. There were about 60 expressions of interest, he said. The group retained the law firm Paul Weiss Rifkind Wharton & Garrison LLP and financial advisory firm Moelis & Co. to help manage the process, and began narrowing down the finalists about six months ago.
The tenants sought a partner who would support a “non- eviction conversion, which would give people a chance to become homeowners of an affordable apartment, or remain rent-stabilized without fear of harassment,” Garodnick said.
They also wanted to protect the complex’s open spaces from development, preserve its historical configuration, and structure the deal so that those who chose to remain renters could obtain government assistance to stay renters.
The association chose Brookfield “not only because they shared those goals, but also because they had the heft to get them all they way to a positive result,” Garodnick said.
Brookfield and the tenants association haven’t worked out the specific details of their planned bid to CWCapital. They will have a “robust community process” to develop a proposal in the coming months, according to a statement this week. The plan will include an option for some of the more than 25,000 residents to continue to rent, they said.
The Guterman proposal would offer tenants shares in the cooperative for $315 a square foot, with 85 percent financing. Tenants would pay equal or less than the complex’s average current rent as members of the cooperative, Guterman said in the letter. That would work out to about $3.1 billion, covering Guterman-Westwood’s purchase price plus closing costs, he said in a telephone interview yesterday.
The average price of condos and co-ops in the area surrounding Stuyvesant Town and Peter Cooper Village is more than $700 a square foot, according to Miller’s firm, Miller Samuel Inc., Guterman said in the letter.
Unsold, occupied apartments would be sold to ’‘a nationally known not-for-profit’’ organization, which has agreed to use tax-exempt bonds for the purchase and keep them as affordable rentals into perpetuity, according to the letter.
The tenants group plans to propose a condo conversion “because there are better options for end loan financing of each unit purchase; there are more flexible governance rules; and property tax abatements which may accrue for rental or ‘affordable’ apartments can be implemented on a unit by unit basis,” Dan Levitan, a spokesman for the association’s partnership, said in an e-mailed statement.
The absence of a master mortgage and a common tax lot, found in co-op conversions, also reduces the chances of financial distress, Levitan said.
There’s enough flexibility in the process that if tenants ultimately become more comfortable with a co-op structure or even other partners they will be able to change course, Garodnick said.
A cooperative corporation would become the borrower of about 45 percent of the total sales price of the apartments, according to the Guterman-Westwood letter. That would make the interest for that portion of the price about 2 percent lower per year than it would be if each tenant had to qualify for a larger condo mortgage, the partnership said. Monthly interest costs would total about 16 percent less than an equivalent individual condo loan, according to Guterman-Westwood.
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