The commercial real estate market was predicted to take a hit. And one "hit," according to the NY Times of today ( 10-14-09) is the sprawling Manhattan apartment complex known as Peter Cooper Village and Stuyvesant Town.
This 56 high rise building complex with 11,000 apartments is in financial distress.
Back in the good old days of 2006 a few whiz kids paid $5.4 billion for this real estate complex, thinking they could raise the rents, decrease expenses while riding the iron-clad anticipated real estate value appreciation.
Real estate values always and always go up, right?
Well some some deep-pocket, well known institutional investors had that concept and helped to finance the deal including, The Church of England and the California Public Employees' Retirement System along with Fannie Mae and Freddie Mack (which together own $1.5 billion of the most highly rated, triple A slices of the debt.
The property was developed by Met Life for the returning WWII veterans. Now you know the real age of this asset.
Well after Met Life sold the property to the Whiz Kids with the borrowed $5.4 billion, the tenants sued stating that Met Life had received tax credits from the City etc. etc. and " they didn't want the rents to increase."
The courts back the tenants; the market went south and now the property is estimated to be valued $2.1 billion less or $3.3 billion. The Times reported that they will probably be able to hang on until January 2010.
What's a few billion here and there?
A lot. That is a lot of money investors, banks, financial instiutions are going to have to write down. That's a lot of money to lose!!
OK, my question is who werethe brains that approved the deal? What real estate appraisal firm or firms valued that property in 2006 for that sales price?
What genius group of MBA's approved the deal for the banks, private and public investors?
For once, just once, I would like some publication name names. Just so this madness does not occur again.
Bill McInerney
Commercial Realtor
1 comment:
Here's the good news. All that has happened that drove the country into a deep recession has already happened. Right? Banks have failed because they deserved to fail. Financial wheelers have failed becuz they deserved to fail. People have lost their houses because they paid inflated prices and were coerced into mortgages they couldn't afford. The Maddoffs have been caught and are serving time. the Ken Leys have been caught. The stock market has crashed. Big and small companies have failed. In other words bad that could happen has happened. What goes up must come down and it did. What goes down must go back up. The bad stuff is past, the good stuff in ahead. So while you wold like to know who engineered the horrible deal that will break many people, as we know the old cliche - the only sure thing in life is death and taxes. All those people involved were gambling. And when people gamble, sometimes they lose. The fact that everyone lost is the most important. They ended up punishing themsleves,
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