Bloomberg Reports: Stuyvesant Town Rewarding Patient Money

Bloomberg posted an article today regarding Peter Cooper Village/Stuyvesant Town, the 11,200 unit apartment complex on the East Side of Manhattan. The article speaks for itself, but as many of you know, this property has been the poster-child for bubble in commercial real estate.

The $5.4 billion transaction was initially leveraged with a $3billion senior mortgage, additional subordinated notes, and a plan to convert it from rent control units to units paying market rates. Unfortunately it transacted near the peak of the bubble, and then it immediately ran afoul of rent control regulations as it began evicting rent control tenants to replace with market-paying tenants. Not only were the owners benefiting from a tax break for remaining under rent control, a point which they later lost roughly a year's worth of revenues in litigation damages, but the ownership group was so aggressive in their eviction tactics that new laws were implemented in New York City to try to dampen the efforts. During this time period the ownership group threw the keys back to the special servicer, CW Capital, which has been representing bondholders for the last two years. Earlier this year, CW Capital came to a settlement agreement with all but 5 tenants, which has led stakeholders to believe that a sale of the property is becoming increasingly likely.

Just last week, ironically as we were performing a check up at the property, residents were literally protesting in the streets due to rent increase notices that had been placed under their doors the night before. Because the litigation was in progress for so long, most of the new leases signed allowed for rent increases before the end of the lease. The settlement agreement passed its last day for appeals on May 14th, and we witnessed the protests on May 15th, so CW Capital wasted no time in serving tenants notice of rent increases. While many tenants are obviously upset over the sudden rent increases, we view this as a positive for bondholders both because it will increase revenues at the property by bringing it closer to market-level rents, but also is another step in preparing the property for a sale. An important side note that we have mentioned in the past is that there remains a tenant group that continues to be willing to make an offer on the property in collaboration with Brookfield Asset Management.