Expect bankruptcy in the record Stuyvesant Town real estate deal
Three years ago, MetLife agreed to sell the community of Stuyvesant Town (Peter Cooper Village) to Tishman Speyer and BlackRock for the exorbitant sum of $5.4 billion at the top the market. That deal has now gone completely pear-shaped and bankruptcy is expected soon in another bizarre chapter in the history of one of the most iconic 20th century planned communities in America.
Brief History of Stuyvesant Town
Stuyvesant Town was born in controversy. The Stuyvesant Town Wikipedia entry gives a fairly even-handed description of the events surrounding its development (more history found in the NYTimes article from 2006 second in the links at the bottom).
Due to a housing crisis building since the Depression, Stuyvesant Town was already being planned as a post-war housing project in 1942-43, some years before the war’s end. Provision was made that the rental applications of veterans would have selection priority.
Stuyvesant Town was controversial from the beginning. It was championed by Parks Commissioner Robert Moses, who, at the behest of Mayor La Guardia, sought "to induce insurance companies and savings banks to enter the field of large-scale slum clearance" (Moses, Letter to The New York Times, June 3, 1943). It was enabled by various state laws and amendments which permitted private companies to enter what was previously a public field of action. The new public-private partnership, and the contract entered between the city and the developer, the Metropolitan Life Insurance Company, were the source of much debate.
Among the issues at stake were use of the power of eminent domain for private purposes; the reversion of public streets and land, such as public school property, to private ownership; the 25-year tax exemption granted by the contract; and the rights of the company to discriminate in selecting tenants.
When the $50 million Stuyvesant Town plan was approved by the City Planning Commission on May 20, 1943 by a five to one vote, discrimination against African Americans was already a significant topic of debate.
Let’s call this redlining. Just as an addendum to this factoid on the ignoble beginnings, I should also add that Robert Moses used his coercive power as Triborough head on slum clearances throughout New York City to make way for progress in the form of roads, bridges, and development (see the eponymous mid-70s book, “The Power Broker” for more – a true testament to coercive power in an advanced democracy). Another notable slum clearance of a similar nature was the Park West Village which went up in the Bloomingdale District of Manhattan just west of Central Park. Thousands were displaced in these actions and while Stuyvesant Town is a notable architectural achievement, Park West Village is not a wonder of post-War architectural design.
The bubble and the end of rent control
But Stuyvesant Town eventually thrived and developed a vibrant community of renters. When Tishman Speyer and BlackRock took over the days of below-market rents were over as the companies needed to get market prices to finance the enormous debt used to purchase Peter Cooper Village. See last year’s NYTimes article “Renters Forced Out of Stuyvesant Town” for more. However, this move was blocked on Thursday in court and now the New York Times is reporting that Stuyvesant Town is about to go bust.
Despite all the wailing and celebrating by opposing parties, it may be years before landlords and tenants in New York City know the full impact of a decision by the state’s highest court on Thursday that the owners of two major residential complexes improperly charged market-rate rents for thousands of apartments.
The New York Court of Appeals ruled that the owners of Stuyvesant Town and Peter Cooper Village, adjoining complexes in Manhattan with 11,227 apartments, improperly raised rents and deregulated 4,400 apartments while receiving special tax breaks from the city.
Landlords immediately criticized the decision, saying its impact would throw thousands of building owners who did the same thing into financial distress. At the same time, tenants looked forward to rent rebates going back years and damages worth tens of thousands of dollars.
But lawyers on both sides of the issue said on Friday that it could take years of litigation to determine if the owners of Stuyvesant Town and other landlords must repay tenants for years of rent overcharges, or simply adhere to the court’s decision from now on.
By that time, this property will be bust because there is no way this top of the market purchase is affordable with rent control and under anything but the the best of economic circumstances. All of the top of the market mistakes are eventually going to come a cropper. Consider this in that vein.
The Upscaling of Stuyvesant Town – NYTimes, 28 Jan 2001
Megadeal: Inside a New York Real Estate Coup – NYTimes, 31 Dec 2006
Big Landlord Found to Have Wrongly Raised Rents – NYTimes, 6 Mar 2009