Retrospective: Tishman Speyer’s and BlackRock’s Acquisition of Stuyvesant Town and Peter Cooper Village
Company Details: Acquirer - Tishman Speyer
Tishman Speyer is a real estate development company, founded in 1978 by Robert Tishman and Jerry Speyer. Since its founding, Tishman Speyer has grown to operate in 41 markets, across 10 countries in 4 continents. The firm invests in high profile real estate properties, developing multiple buildings around the world, and has owned some of the most famous buildings and land plots, including the Chrysler building. Tishman Speyer aims to cultivate communities and build connections, through building long lasting strategic relationships by listening to stakeholders and finding new ways to add value. The company works on creating innovative and flexible solutions to complex challenges, and anticipates customers’ evolving needs. Tishman’s believes that real estate involves much more than simply a physical building, but it is about evolving spaces from functional to experiential, to assist in creating spaces whee people can flourish, and ideas can grow.
Founded: 1978
CEO: Rob Speyer
Company Details: Acquirer - BlackRock
BlackRock is an American multinational investment company, founded in 1988. BlackRock works as the world’s largest asset manager, with over $10 trillion in assets under management as of 2023. The company generates revenue from five different areas of work: Investments Advisory Fees and Securities Lending, Investment Advisory Performance Fees, Technology Services, Distribution Fees, and Advisory Work. The company has 70 offices in 30 countries, recently boosting their presence in India’s financial industry through a joint venture with Jim Financial Services in 2023.
Founded: 1988
CEO: Larry Fink
Company Details: Target - Stuyvesant Town and Peter Cooper Village
Stuyvesant Town was developed by Metropolitan Life Insurance Company after World War Two, as a private residential development in Manhattan. In January 1945 MetLife mapped out Peter Cooper Village, which would operate as an extension of Stuyvesant Town, housing 6,000 residents. The developments were created as a way to combat New York City’s housing shortage, which had grown since the Great Depression. There was a provision around the complex, which gave veterans priority in rental applications. Stuyvesant Town and Peter Cooper Village had 56 buildings, which housed more than 25,000 people. In 1947 rents ranged from $50-91 a month.
Acquisition
In 2006 BlackRock teamed with Tishman Speyer to purchase Stuyvesant Town and Peter Cooper Village at a price of $5.4bn. Some coined the acquisition a ‘Sweetheart Deal’, due to the price being a bargain and many believed it was due to BlackRock’s relationship with MetLife. The deal was financed with 80% leverage and Tishman invested $112 million of equity into the deal.
However, it was not long until it was clear there were cracks in the project. By 2009 the property had lost 10% of its value and was haemorrhaging cash. A debt service fund that had been established at the time of purchase, holding around $400 million, had fallen to $130 million. Additionally, another general reserve which had started with $190 million had less than $33 million by October 2008.
In January 2010, after missing a $16 million debt payment on the 8th January, Tishman Speyer handed back the multifamily complex, after failing to negotiate a debt restructuring with lenders. The company saw it as the only ‘viable alternative to bankruptcy’.
What Happened?
At the time of the purchase rent from the properties only covered 58% of the debt, but it was assumed the income from the properties would triple by 2011, and over the following five years the development would be worth $7 billion, a 23% increase from its original purchase price. Tishman’s strategy was to cover rent-stabilised apartments to market rates when a tenant vacated. Under the policy, over 4,311 apartments were converted to market rate apartments. This led to a court battle with the tenants.
The tenants of the complex argued that Tishman had acted improperly under the Rent Regulation Reform Act of 1993, citing an exception providing that decontrol “Shall not apply too housing accommodations which became or become subject to [rent stabilisation] by virtue of receiving [J-51] tax benefits”. Put simply, the tenants argued that Tishman could not change the apartments rents due to receiving J-51 benefits. The court rule in favour of the tenants, with the Court of Appeal upholding the ruling that Tishman had improperly deregulated thousands of rent-stabilised apartments.
As a result, Tishman Speyer was forced into putting more than 4,000 apartments back under rent-stabilisation. The company reached a settlement of $147 million to resolve claims by thousands of tenants who said they were overcharged on rent. The effect of this verdict mean that the plans for the growth of the complex and repayment of the debt, were void.
Impact
Tishman’s and BlackRock’s acquisition was emblematic of a larger issue plaguing New York. At the time thousands of landlords had been raising rents, moving rent stabilised apartments to being market rated apartments. Many saw it as symbolic of the systemic issue of landlord’s abuse of power, and it was becoming clear that the landlord-tenant relationship was stained. This could be seen through Vantage Properties, who owned 80 buildings, being sued by many of their tenants in 2010 over allegations of harassment, and which ultimately ended with a $1 million settlement being reached.
Subsequently the Housing Stability and Tenant Protection Act (HSTPA) was introduced in 2019. The act provided stronger protection to New York residents by making fundamental changes to the laws that established New York’s system of rent regulated housing. The Act impacted buildings with at least 6 units, that were either built before 1974 or were part of a tax abatement programme. Some of the provisions in the Act include:
Relief from large rent increases for rent-controlled apartments
Stabilisation of apartments rented to non-profits in the stabilisation system
Extension of rent overcharge ‘Look Back’ to 6 years
Repealing high rent vacancy deregulation and high income deregulation
Reforming preferential rent
The Future
Since the HSTPA’s inception in 2019, the Community Housing Improvement Program (CHIP) and the Rent Stabilisation Association (RSA) have been petitioning the Supreme Court to examine the constitutionality of the Act. The petition is based on the Takings Clause of the Fifth Amendment, which states “No private property can be taken for public use without just compensation”. Additionally, while the Act was introduced for the benefit of tenants, it has negatively impacted renters. For instance, the regulations have removed the incentives for landlords to renovate rent stabilised apartments vacated by long term tenants. This resulted in more than 30,000 units remaining vacant in 2023. Additionally, rent for stabilised rent apartments which is set by the Rent Guidelines Board (RGB), in June 2023 only increased rents up to 3.2% while fuel, utilities, labour, maintenance, administrative costs, insurance, and taxes in rent stabilised multifamily buildings rose by 8.1%. As such, while rent stabilised apartment building have stabilised rent, they are not necessarily affordable housing. Subsequently, landlords have argued they need more money to combat rising property taxes, insurance, building repairs, and other costs.
Furthermore, New York’s rental market has worsened since the onset of Covid 19. Apartment vacancies dropped to 1.5% in 2023 compared to a 4.% vacancy rate in 2021. It was estimated that in 2023 there were over 4,000 tenants in rent stabilised buildings who had rental arrears of over $50,000 and more than 500 renters had rental arrears more than $100,000. A combination of different factors has led to the valuations for rent stabilised buildings dropped to levels like those of 10-15 years ago, which has impacted property investors. In September 2023 Barberry Rose Management sold a portfolio of 16 rent stabilised buildings in Inwood and Washington Heights for $47 million, which was a 44% discount from the package $83.6 million purchase price in 2016. Similarly, an 88 unit elevator building at 658 W 188th St in Northern Manhattan was purchased in 2015 for $23 million, but sold in 2023 for $10.6 million, a 54% discount. The combination of owners of rent stabilised buildings selling, along with the drop in values, injected uncertainty in the lending market, which made refinancing of rent stabilised buildings, as an alternative to selling, increasingly more difficult.
In 2024 updates were made to HSTPA 2019, to resolve landlords’ issues and to help combat the issues within the New York rental market. The State Legislature raised the cap for individual apartment improvements from $15,000 over a 15-year period to $30,000, so long as the unit was either occupied continuously for 25 years or registered as vacant in 2022, 2023, or 2024. However, alone these updates are not going to be the solution to the crisis. There are continuing discussions around other creatives solutions to the rental market problem, such as converting rent stabilised apartments into affordable housing, possible tax reforms, and the reinstatement of the J-51 program.