As a plugged-in reader notes, Tishman Speyer’s led 2006 investment of $5.4 billion in Manhattan’s Stuyvesant Town and Peter Cooper Village continues to head south with all equity investors likely being wiped out.
Amongst those equity investors, the California Public Employees’ Retirement System (Calpers) to the tune of $500 million and the California State Teachers’ Retirement System (Calstrs) to the tune of $100 million.
That being said, “Tishman-Speyer apparently has very little skin in the game. The firm contributed just $56 million of its own money to the $5.4 billion purchase price and did not use any of its other properties as collateral.”
NY court rules against Stuyvesant Town owners [reuters.com]
Big Legal Setback for Tishman and BlackRock [New York Times]

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Comments from “Plugged-In” Readers

  1. Posted by huh?

    So, I wonder what this means closer to home. A fire sale of even the higher floor Infinity units? Tishman “deep pockets” Speyer decides not to subsidize the homeowner fees for un-occupied units and HOA fees go through the roof? Both? Either way I can’t be a pretty picture. I’d say the following poster was just slightly off the mark … a little too much of the Kool Aid –
    “I really would not worry about Tishman running out of money. The depth of their construction portfolio is astounding and the breadth of Tishman-Speyer’s holdings is truly astounding. Don’t worry about Tishman running out of money because if it comes to that we are going to be in worse shape than the great depression (which Tishman weathered well).”
    Posted by: joe shmoe at May 22, 2008 10:27 PM

  2. Posted by tipster

    Tishman is only into it for $56Mil. Not a big deal for them.

  3. Posted by huh?

    “Tishman is only into it for $56Mil. Not a big deal for them.”
    My guess is that the $56m is probably their initial investment out of the $224m ‘downpayment’. But how about the carrying costs of financing $5.4 billion for the past three years? I imagine that’s a heavy sunk cost that looks to be lost money. How about the cost of fighting the lawsuits? Moreover the recent ruling that illegally converted rent-stabilized apartments into substantially more expensive market-rent units which could impose another $600m of liability. And Tishman’s share of the following?
    “Including $400 million in interest rate reserves, a $190 million general reserve, and $240 million in closing costs and other expenses, the Tishman/BlackRock group paid about $6.29 billion to get the property.”
    I imagine the $56m is merely the tip of the iceberg … and there may be more pain in the courts yet to come.

  4. Posted by Katebear

    Part of that $56 million is probably out of the country by now.

  5. Posted by anon2

    didn’t tishman manage the property for the last few years? I bet those “management” fees were a whole lot more than 56mil!
    CALPERS and the cal teacher’s union, on the other hand? looks like they’re out of luck. 600mil. what a shame….

  6. Posted by huh?

    anon2 – You may be right about the management fees. But how about if the rental stream didn’t cover the costs of financing the development. And it didn’t … apparently by a few hundred million per year. I don’t imagine the limited partners get stuck with that bill – that’s likely the GP’s, which probably means Tishman/Blackrock. That said I agree that CALPERS, not exactly the brightest bulbs, will likely be feeling the greatest pain.

  7. Posted by Miles

    This deal was structured with pretty significant negative cash flow for the amount of debt involved and a large reserve account (nearly $600 million) was put in place to fund the negative while they brought rent controlled units up to market rates (aka the Lembi/CitiApartments approach). That reserve account has two months left before it is gone and now that they are on the hook for potentially $600 million in legal penalties and need to revert the converted units back to the lower rent stabilized units. The game is over for this property and the equity holders (and a significant chunk out of the lenders investment as well). This deal looked completely boneheaded when it went down and now looks utterly insane in hindsight. Whoever green-lighted this $500 million equity decision at Calpers should be fired after a good tar and feathering.

  8. Posted by andyc

    “CALPERS and the cal teacher’s union, on the other hand? looks like they’re out of luck. 600mil. what a shame….”
    I don’t know the details but I believe that the California tax payers are liable every year for pension liability shortfalls for unions covered by these funds. If true, what a shame and what a deal.

  9. Posted by Troy

    ah, rent-seeking at its finest. Let’s monetize these poor saps with their leasehold titles to affordable housing!
    If I were king, LLs could only profit on their fixed, depreciable capital investments, not the land component and its ground rents.
    I’d also upzone everything an establish land value taxes to encourage investment. It’s completely retarded that we tax buildings so much and land so little.

  10. Posted by anon

    Yes Troy, we all read Henry George our freshman year too.

  11. Posted by Mikey

    So, I wonder what this means closer to home. A fire sale of even the higher floor Infinity units? Tishman “deep pockets” Speyer decides not to subsidize the homeowner fees for un-occupied units and HOA fees go through the roof? Both? Either way I can’t be a pretty picture.
    Makes sense, because IF they’re in it for a lot more than 56 million, the handful of higher level units and the thousands of dollars they’re paying the HOA for unsold units will pull them into the black on a multi-BILLION dollar project.
    It’s like me not buying gum because I can’t pay my mortgage.

  12. Posted by gowiththeflow

    Heard there are only 60 units left at the Infinity which is great so the HOA on tht quantity of units is not that big a number in the spectrum of things. I seriously doubt they would stop paying on the unsold units or they will never sell them; in that case they lose more. I also believe the developer is tied to pay the HOA on unsold units for a decent period of time, would have to double check the contracts. I was worried the developer would let things slide given the muck they are wading through however they have not. As a resident I can report that the developer is as with it as they were at groundbreaking still upgrading things they are not required to, still making changes to make the property better even though they don’t have to. After dealing with many developers I can say Tishman is top notch and my expectations are pretty high (although fair) so I commend them. If anything changes I will let you all know.

  13. Posted by SocketSite

    I also believe the developer is tied to pay the HOA on unsold units for a decent period of time, would have to double check the contracts.
    Once a certificate of occupancy has been granted, a developer is on the hook for both HOA dues and property taxes (usually at a below market basis) on all unsold units.

  14. Posted by tipster

    Well, a solvent developer is on the hook for those things.
    This isn’t going to bring down Tishman. What this will do though is to destroy their plans. They were planning on getting management fees and a decent sized payoff. Instead, whet they are going to get is a big bill for legal fees and probably no management fees at all, and they will lose a big part of their 56Mil. So it’s going to turn a money making operation into a big money losing operation and they’ll take a capital hit. They can take it, but it won’t be pretty for them. They’ll start bleeding red ink, and their capital will have to be written down.
    How will it impact Infinity? In another quarter or two after they give up (maybe after they lose an appeal, though who knows if they haven’t already given up), they’ll be more motivated than they already are to unload them. We’ll get another dose of “breaking news” from our friendly realtors, mentioning how many units are suddenly going into contract while neglecting to mention that it’s because they are dropping prices, not because the market has suddenly picked up.
    Will they default on the HOA? Not a chance.

  15. Posted by another anon

    Shorter tipster:
    “There will be deals at the Infinity as they push to get the final units sold.”
    Thanks for the update! Never would have expected that.

  16. Posted by Outsider

    The developer has been discounting at The Infinity over the past year with lower level larger and higher floor smaller 1 BR sold in the 450-500K and lower level and tree-top 2 BR in the 550-600K range. Give them credit for their willingness to let units go at what the current market will bear instead of hanging on to the property to the bitter end. Since most projects are independently financed, I don’t see any reason Tishman and Speyer would let the 10% tail end of this pretty successful venture further damage their reputation.

  17. Posted by huh?

    Outsider,
    Your ranges seem to confirm discounts of 20-30% for Tower II versus Tower I, given that T1 studios at one time exceeded $500k and 2/2 in the T1 tree-tops were $750k+. I remember being offered a larger unit in the tree-tops of Tower I at $850 psf and being assured it was a “good deal” in mid-2006. Some of these recently traded in the $600 psf range. I think their “willingness” is based more on necessity than altruism. Quite a departure from the expectations of some early buyers –
    “Of course time will tell, but I think Infinity may have had a smarter selling strategy–set the price fairly high and leave it there (I was told by the sales office that they’ve only had a couple of modest price increases throughout the sales process).”
    Posted by: anon at May 6, 2008 5:58 PM

  18. Posted by OneEyedMan

    Is “NY Fed taking a hard line” a punchline from some inside joke?
    http://www.crainsnewyork.com/article/20091205/FREE/912059998

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