The $5.3 million sale puts on display the remarkable recovery of the Manhattan real-estate market
Five years ago, the 11,200-apartment Stuyvesant Town and Peter Cooper Village was hurtling toward foreclosure, with nowhere near enough income to pay its monthly debt payments and its estimated value down to less than $3 billion—a far cry from its $5.4 billion sale price in 2006.
Times have changed.
Blackstone Group LP and Canadian pension investor Ivanhoé Cambridge announced on Tuesday they were in a deal to purchase the 80-acre East Side complex for $5.3 billion. The pending sale puts on display the remarkable recovery of the Manhattan real-estate market since the downturn.
The rebound has been largely fueled by two factors. Investors who vanished in the depths of the downturn are hungry for any piece of the Manhattan skyline, particularly foreign pension and sovereign-wealth funds like those of Norway and Middle Eastern countries, which have spent billions in the past few years.
In addition, surging demand from a growing population has sent average monthly rents soaring to new highs of just over $4,000, up from $3,496 at the end of 2010, according to appraisal firm Miller Samuel Inc.
Developers have piled into once-unlikely locales such as the area around the Gowanus Canal in Brooklyn and the Astoria waterfront in Queens even as central Manhattan rents keep grinding upward.
“There is a shortage of apartments in New York City,” Jonathan Gray, Blackstone’s head of real estate, said at a news conference announcing the sale Tuesday. “We think rents will go up—that’s part of the reason we’ve been investing so much.”
Of course, Stuyvesant Town is no ordinary property.
Times have changed.
Blackstone Group LP and Canadian pension investor Ivanhoé Cambridge announced on Tuesday they were in a deal to purchase the 80-acre East Side complex for $5.3 billion. The pending sale puts on display the remarkable recovery of the Manhattan real-estate market since the downturn.
The rebound has been largely fueled by two factors. Investors who vanished in the depths of the downturn are hungry for any piece of the Manhattan skyline, particularly foreign pension and sovereign-wealth funds like those of Norway and Middle Eastern countries, which have spent billions in the past few years.
In addition, surging demand from a growing population has sent average monthly rents soaring to new highs of just over $4,000, up from $3,496 at the end of 2010, according to appraisal firm Miller Samuel Inc.
Developers have piled into once-unlikely locales such as the area around the Gowanus Canal in Brooklyn and the Astoria waterfront in Queens even as central Manhattan rents keep grinding upward.
“There is a shortage of apartments in New York City,” Jonathan Gray, Blackstone’s head of real estate, said at a news conference announcing the sale Tuesday. “We think rents will go up—that’s part of the reason we’ve been investing so much.”
Of course, Stuyvesant Town is no ordinary property.
Back when MetLife Inc. sold the complex in 2006 to a venture led by Tishman Speyer Properties, the deal was a marker of the bullish bets investors were making on Manhattan real estate.
The annual operating income from the property was just $112 million, only about half as much as was needed to cover its annual mortgage payment. The buyers expected to raise rents substantially and rapidly convert rent-regulated apartments into lucrative market-rates units. The plan was to bring income up $336 million by 2011, according to loan documents.
But the Tishman Speyer group proved far off in its projections. Income rose only modestly, quickly leaving the group without money to pay its debts. When the owners surrendered the property to creditors in 2010, the outlook was so bleak that its appraised value came in at $2.8 billion; analysts projected losses for the bond investors who owned the $3 billion mortgage and controlled the property.
“I thought it was going to be hard to figure out how to get them paid,” said Rafael Cestero, the city’s housing commissioner at the time.
At Stuyvesant Town, growing rents and a gradual conversion of more rent-regulated units to market rates brought the income up each year. With about 45% of the complex’s residents still paying the regulated rents—down from 71% in 2006—income is above $200 million a year, people familiar with the numbers said.
In short, that means the property’s income nearly doubled since 2006, while its price stayed roughly the same.
Under the terms of the deal, a large chunk is staying regulated for at least 20 years. The complex will be required to keep 4,500 apartments available to residents making up to about $130,000 a year for a family of three. Another 500 would be reserved for moderate income families making up to $62,150 a year. The cost is about $225 million, city officials said.
The unusual agreement—crafted between city officials and Blackstone executives—came in part because residents at the complex have proved politically adept in protests against its owners over the years. In 2006, some elected officials tried to block the deal. Later, Bill de Blasio, then just a mayoral aspirant, stood with Stuyvesant Town tenants vowing to keep the red-brick buildings affordable to middle-income residents.
Blackstone executives knew the history. On Tuesday, Mr. Gray said he didn’t feel comfortable moving forward unless the city and the tenants’ association gave their approval.
The annual operating income from the property was just $112 million, only about half as much as was needed to cover its annual mortgage payment. The buyers expected to raise rents substantially and rapidly convert rent-regulated apartments into lucrative market-rates units. The plan was to bring income up $336 million by 2011, according to loan documents.
But the Tishman Speyer group proved far off in its projections. Income rose only modestly, quickly leaving the group without money to pay its debts. When the owners surrendered the property to creditors in 2010, the outlook was so bleak that its appraised value came in at $2.8 billion; analysts projected losses for the bond investors who owned the $3 billion mortgage and controlled the property.
“I thought it was going to be hard to figure out how to get them paid,” said Rafael Cestero, the city’s housing commissioner at the time.
At Stuyvesant Town, growing rents and a gradual conversion of more rent-regulated units to market rates brought the income up each year. With about 45% of the complex’s residents still paying the regulated rents—down from 71% in 2006—income is above $200 million a year, people familiar with the numbers said.
In short, that means the property’s income nearly doubled since 2006, while its price stayed roughly the same.
Under the terms of the deal, a large chunk is staying regulated for at least 20 years. The complex will be required to keep 4,500 apartments available to residents making up to about $130,000 a year for a family of three. Another 500 would be reserved for moderate income families making up to $62,150 a year. The cost is about $225 million, city officials said.
The unusual agreement—crafted between city officials and Blackstone executives—came in part because residents at the complex have proved politically adept in protests against its owners over the years. In 2006, some elected officials tried to block the deal. Later, Bill de Blasio, then just a mayoral aspirant, stood with Stuyvesant Town tenants vowing to keep the red-brick buildings affordable to middle-income residents.
Blackstone executives knew the history. On Tuesday, Mr. Gray said he didn’t feel comfortable moving forward unless the city and the tenants’ association gave their approval.
This Content was originally posted on: Eliot Brown
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