The cracks are now showing on loans private equity firms and real estate investment trusts took to acquire apartment buildings that offered affordable housing in New York City. These apartment buildings were once considered golden opportunities, but now in hindsight the deals have become ticking time bombs that are just now detonating.
"Many of these properties have moderate-to-high risk of default over the next six to 12 months, because the debt service reserve funds are either inadequate or exhausted and the cash flows are very poor," Frank A. Innaurato, a managing director of Realpoint, a bond rating agency told The New York Times. "The apartments are just not generating revenues anywhere close to market rents. Yet, they were underwritten as if they were."
Here's a list of some of these deals gone bad:
- Standard & Poor's downgraded the ratings last month on the bonds used in Tishman Speyer Properties' $5.4 billion acquisition of Stuyvesant Town and Peter Cooper Village. The downgrade was based on a 10% decline in the value of the property, declining reserve
funds (to $33 million from $190 million) and operating expenses that were 11% higher than expected.
- Vantage Properties and Apollo Real Estate Advisors are under much financial duress on total debt of $93 million it used to purchase eight six-story buildings in Washington Heights in Upper Manhattan. The NY Times reports rental income from the properties currently cover only 40% of the annual loan payments on the mortgage.
- Stellar Management is renegotiating the terms of its $250 million mortgage for Riverton Houses, 1,232 apartments in seven buildings, it acquired in Harlem. The company is awaiting the outcome before it pays this month's $1.1 million payment. RealPoint states the complex is worth $170 million, $80 million below the total amount it owes, according to the NY Times.
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Gerald Magpily
See New York Times article (registration required)
See Bloomberg article
Dealscape: Real estate investors do the Harlem shuffle
Dealscape: Investing in rent-stabilized apartments
Dealwatch: Stuyvesant Town Peter Cooper Village auction
