CARLHAYDEN
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« on: January 09, 2010, 06:50:05 AM » |
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I told you about the impending collapse in the commercial real estate market.
From Crain’s New York Business.com
Tishman defaults on huge Stuy-Town loan
Friday's announcement by the Tishman Speyer partnership that it was defaulting on the on the mortgage that paved the way for the $5.4 billion acquisition of Stuyvesant Town and Peter Cooper Village was long expected. But sorting out the future of the sprawling Manhattan residential development has only just begun.
Tishman Speyer and BlackRock, the lead partners in the venture that owns the complex with roughly 11,000 apartments, said they would not make the full service payment due. However, they said that the failure to pay would have no immediate impact on tenant services or operations.
Loans on the complex were handed over to a special servicer two months ago in advance of the expected defaults. Special servicers work with owners and lenders to find solutions for financially troubled loans. Aside from a $3 billion mortgage, there are $1.4 billion in secondary loans and nearly $1 billion invested by the original equity partners.
“The special servicer will continue to work with the borrower to come up with a resolution,” said Adam Fox, senior director of Fitch Ratings, in a statement.
That byzantine financing structure means it will likely take months to sort out a solution that is amenable to the numerous parties involved. There's also a political element to the saga because the complex is one of the last bastions of affordable housing in the city, and there is keen interest among elected officials to protect the rent-regulated tenants who live in the building.
“We remain committed to protecting affordability, and we will continue to closely monitor the legal proceedings to prevent any negative effect on residents,” said City Council Speaker Christine Quinn, in a statement.
Tishman Speyer and its partners bought the complex in 2005 the hopes of deregulating many the apartments and boosting the rents to market rates. However, its deregulation push fell far short of expectations, forcing the new owners to dip into their reserve funds to make mortgage payments.
A $190 million reserve fund to finance improvements and mortgage payments has been nearly exhausted. By October that fund had fallen to $24.4 million from $400 million when the complex was purchased according to Fitch.
The outlook for the complex's finances worsened last year when New York State Court of Appeals ruled that it was illegal for Tishman Speyer and its partners to deregulate apartments while receiving special tax benefits for building renovations. Experts have estimated Tishman Speyer and its partners may have to pay $200 million in rent rebates to tenants.
The default will not change the course of the litigation, said Alexander Schmidt, the lawyer who represented the tenants in the Court of Appeals case, in a statement. He noted that Tishman Speyer or any subsequent owner would still be bound by the court's decision. Jack Lester, who represented some tenants in a related matter, said the default wouldn't have an immediate or short-term impact on the apartments or financial negotiations. However, he said tenants feared the complex's ongoing financial problems would hurt services and maintenance.
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