Tishman Loses Stuyvesant Town Ruling
October 22, 2009
A court of appeals today ruled that Tishman unlawfully raised rents at Stuyvesant Town and could be forced to pay back millions. The massive Stuyvesant Town/Peter Cooper Village project is a huge project that we previously posted about. This project was originally acquired for some $5.4B. Estimates at the time of our post were about $2.1B. Take out $200M for litigation and rent reimbursement charges, and the project is now worth less than $2B.
Why is this project important? Well, we titled our previous post CRE Dominoes, because we believe the default on this debt could be the start of something much bigger. In fact, in a Bloomberg article today, we see this quote:
A default “could be the triggering event for the collapse of the commercial real estate market,” said Stuart Saft, a partner at law firm Dewey & LeBoeuf LLP in New York who specializes in real estate. “The losses the lenders are going to take on Stuy Town could force them to call some of their other loans on commercial property.”
The sheer size of the Stuyvesant Town deal mean that Tishman had to look far and wide for sponsorship, so the fallout from this deal will extend to governments (Singapore), pension funds (CalPERS- surprise, surprise), and many other money management firms and investors.
The losses here could cause two things to happen. One is that investors retreat and change their allocations for investments in commercial real estate, and possibly worse, begin to sell off other assets to cover losses or raise equity because this and other high profile deals they are invested in are taking a bath.
The last issue here is what is MetLife’s liability as the previous owner? They joined the lawsuit so they obviously had an interest in trying to get the lower court’s ruling overturned, but now that it isn’t, is Tishman going to try and go after MetLife? Did they provide guarantees or representations that the rent controlled apartments could go market rate? If so, there are a lot of damages that Tishman and lenders could point to, which would make me quite nervous if I was MetLife. That would be something if they had this come back and bite them in the ass after seeming like heroes for selling the property for what can now (and really, then) be seen as the top of the market.
[via Bloomberg]
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the MetLife involvement was curious. it makes you wonder if they made representation they shouldnt have. of if they simply joined tishman in an effort to help out so tishman wouldnt turn around and point fngers at MetLife in court. I remember tracking down the OM for ST/PCV back when it hit market just to see what it looked like. it always seemed like tishmans play really had no hope/prayer of working.
but in a more long term sense, they did a lot fo illegal things that have driven a far amount of turnover at ST/PCV. not a huge amount, but way more than normal. and they may have to pay up some big bucks for this. but the end result is apts that they can rent at market. I think they planned to do that and then flip the property back to market in a couple years after they went down this path. just so happens they got caught without a chair when the music stopped.