Dealwatch: Stuyvesant Town Peter Cooper Village auction

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Published October 17, 2006 at 6:45 PM

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With their $5.4 billion purchase of Stuyvesant Town and Peter Cooper Village from Metropolitan Life Insurance Corp., New York real estate giant Tishman Speyer Properties and BlackRock Inc.'s real estate division will take 80 acres and 110 buildings in Manhattan, reportedly marking the biggest real estate deal for a single property in U.S. history.

MetLife put the sprawling complex on the block Aug. 30, asking $5 billion. The price tag didn't scare off contenders—the auction reportedly drew 12 bids by Oct. 5. At the time, MetLife's broker, CB Richard Ellis Group Inc., said it hoped to make a decision before the end of the year. A Dow Jones report Oct. 17 said it was the largest play for a single property in U.S. real estate history.

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THE CONTENDERS

The unprecedented real estate asking price of $5 billion was so large that some investors had to find partners to make a competitive bid for the complex. The auction garnered so much attention that real estate investors such as Donald Trump reportedly shied away from the deal fearing too many interested buyers could result in a bidding war that would make the price too high for him to see a reasonable rate of return.

Although MetLife was tight-lipped about the bidders, analysts expected the following parties came forth with offers:

New York City councilman Dan Garodnick of the 4th district — a lifelong resident of Peter Cooper Village — led an undisclosed consortium that according to the New York Sun had the support of New York Senators Hillary Clinton and Charles Schumer as well as City Council speaker Christine Quinn.
- According to a New York Times report Oct. 17, once the outcome was announced, Garodnick said he hoped a new owner wouldn't implement dramatic changes.
Saudi backed investment firm Istithmar PJSC was a potential bidder, the Chicago Tribune said.
Besides Tishman Speyer, whose other holdings include Rockefeller Center and the Chrysler Building, REITS Vorndao Realty Trust and Archsone-Smith Trust were also reported to be interested.

BUYER BEWARE

Of the 11,232 apartments in Stuyvesant Town Peter Cooper Village, about 70% are rent regulated meaning the owner of the complex can only raise the rent based on the legal limit set by the New York City Rent Guidelines Board. Any apartment that rents below $2000 and whose owner makes an annual income of less than $175,000 for two consecutive years falls under rent regulation.

In a statement Tuesday, Oct. 17, Tishman Speyer's president and chief executive said:

"We are committed to working closely with residents, elected officials and community leaders to help ensure a dynamic and vibrant future for this New York community. The thousands of tenants in rent-stabilized apartments are completely protected by the existing system. No one should be concerned about a sudden or dramatic shift in this neighborhood's make-up, character or charm."

In 2001, MetLife began legally deregulating apartments by renovating vacant ones and factoring those costs to the previous rent with the legally set rent increase so as to push the final rent to a new tenant above the $2000 threshold. At that point, the landlord can charge whatever rent the market will bear. These regulations will limit in the short-term how much revenue an owner could generate from the complex. Currently, about 27% of the 11,232 apartments rent at market rates. According to the New York Times, MetLife's marketing documents anticipate that 600 more units will be decontrolled next year and 1,000 more in 2008. But, a MetLife marketing book says by 2018, the percentage of market rate apartments in the development could sharply increase to 70%. That would mean the new owner would be able to double rents reaping nearly $519 million a year at Stuyvesant Town and $170 million at Peter Cooper, according to the New York Times.

There too are some environmental issues on the property. A MetLife memo states that Con Edison has been testing for possible soil and groundwater contamination that most likely was the result of the operation of natural gas plants on the site before the complex was built. MetLife assured potential buyers that the problem most likely would be solved by excavating the polluted soil.

STUCK IN THE CROSSFIRE

Stuyvesant Town Peter Cooper Village is home to nearly 25,000 residents. Because it is considered the last bastion of middle-class housing in Manhattan, some residents and local politicians fear a deal will only accelerate the complex’s direction into luxury housing. The Garodnick-led bid was an attempt to preserve the affordable housing, but a buyer like Tishman Speyer will most likely want a return on its investment, which would be contrary to maintaining affordable housing.—Gerald Magpily

Dealwatch executive summary
The Date	The Action
10.17.06	Tishman Speyer and BlackRock realty win StuyTown/Peter Cooper Village for $5.4 billion
10.15.06	NY Times says MetLife sets another deadline for group of finalists
10.05.06	MetLife reportedly receives 12 bids, including a tenant-backed offer
9.13.06	MetLife deadline for first-round bids for Stuyvesant Town/Peter Cooper Village set for Oct. 5
9.06.06	Tenant group led by councilman Garodnick organizes a bid for complex
8.30.06	MetLife puts Stuyvesant Town-Peter Cooper Village up for sale
8.15.06	CB Richard Ellis hired to market the complex
7.19.06	MetLife announces it may sell Peter Cooper Village and Stuyvesant Town complex
2001	MetLife begins to deregulate apartments and some new tenants pay as much as $3000
2.1972	Government's 25-year tax break ends for Stuyvesant
8.1947	First families move into Stuyvesant Town
6.1947	First families move into Peter Cooper Village
1943	MetLife commissioned to develop affordable housing for returning World War II veterans in an area known as the Gas House District in lower Manhattan
Source: The Deal