Monday, January 25, 2010

Blackrock and Tishman Walk Away from Manhattan Apartment Project

Morgan Stanley has done it. Now Blackrock is doing.

The joint venture of Blackrock Inc. and Tishman Speyer Properties has decided to return the key to the lenders and walk away from the Manhattan apartment project.

Tishman Venture Gives Up Stuyvesant Project (1/25/2010 Wall Street Journal)

"A group led by Tishman Speyer Properties has decided to give up the sprawling Peter Cooper Village and Stuyvesant Town apartment complex in Manhattan to its creditors in the collapse of one of the most high-profile deals of the real-estate boom.

"The decision comes after the venture between Tishman and BlackRock Inc. defaulted on the $4.4 billion debt used to help finance the deal. The venture acquired the 56-building, 11,000-unit property for $5.4 billion in 2006—the most ever paid for a single residential property in the U.S. The venture had been struggling for months to restructure the debt but capitulated facing a massive debt load and a weak New York City economy that has undercut rents and demand for high-priced apartments.

"The property's owners signaled they would be unable to reach a deal with lenders and instead decided to allow creditors to proceed with what amounts to an orderly deed-in-lieu of foreclosure, which means a borrower voluntarily gives the property back to lenders to avoid a foreclosure proceeding." [The article continues.]

The property was acquired for $5.4 billion, but is currently valued at less than $2 billion. The joint venture is underwater by $2.4 billion, as its mortgage is $3 billion (1st) and $1.4 billion (2nd), according to the AP article on the subject.

When a big financial firm and a big property management firm do it, it's called "strategic default", a wise business decision; if a distressed underwater homeowner does it, it is called "walk away", with a stigma of irresponsibility attached.

The article also mentions other investors in the project, who is set to lose almost all their investment:

"By some accounts, Stuyvesant Town is only valued at $1.8 billion now, less than half the purchase price. By that measure, all the equity investors—including the California Public Employees' Retirement System, a Florida pension fund and the Church of England—and many of the debtholders, including Government of Singapore Investment Corp., or GIC, and Hartford Financial Services Group, are in danger of seeing most, if not all, of their investments wiped out."

CALPERS again. But the Church of England??? What is the world coming to?

GIC is set to lose $575 million in the form of mezzanine loan backed by the property, on top of $200 million in equity. Ouch.


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