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Stuyvesant Town In Effective Default, As Loan Moved To Special Servicing; Mezz Lenders SL Green And Fortress Wiped Out
Look for the next batch of CRE numbers to be the worst ever as Tishman and BlackRock move the loan backing Stuyvesant Town to special servicing, in essence throwing in the towel, and pushing the affordable home complex into default. According to Fitch the property's worth has plunged from $3 to $1.8 billion. This means that not only Tishman and BlackRock have lost all their value, but Fortress and SL Green who own a $1.4 billion mezz loan in the property are also wiped out. Also, as Fannie and Freddie are the largest holders of the securitized mortgage, look for another set of requests for governmental bailouts out of the nationalized GSE's.
From Bloomberg:
Tishman Speyer Properties LP and
BlackRock Realty, the owners of Manhattan’s Stuyvesant Town-
Peter Cooper Village, moved closer to restructuring $3 billion
in debt on the apartment complex as the property verges on
default, Fitch Ratings said.
The companies turned the loan over to mortgage servicer CW
Capital on Nov. 6, Fitch said in a statement. Fitch said the
property doesn’t produce enough income to pay the debt and a
reserve fund probably will be depleted by year-end. A sale is
more likely than a restructuring because the complex has lost so
much value, said Kevin O’Shea, managing partner and head of the
real estate practice at the law firm Allen & Overy.
And somehow US taxpayers are once again on the receiving end of BlackRock and Tishman Speyer's bubble-inflated stupidity:
The biggest holders of the securitized mortgage are Fannie
Mae and Freddie Mac, the government-owned home-loan finance
companies. Freddie Mac has said it doesn’t expect to lose money
on the bonds backed by the property. Tishman Speyer and
BlackRock paid $5.4 billion for Stuyvesant Town in November
2006, near the top of the market, in the biggest deal in New
York residential real estate history. They counted on increasing
rents but were blocked by a tenant lawsuit and rising costs.
Since 2007, U.S. commercial property values have fallen about 40
percent and apartment rents declined nationwide. The drop in
prices and the credit freeze have made refinancing many loans
impossible.
As for the politically correct semantics from Tishman itself, they are of course forthcoming:
“We requested that the joint venture’s loan be moved to
special servicer in order to facilitate negotiations on a
restructuring of the debt load,” said Bud Perrone, a Tishman
Speyer spokesman. “The loan is not in default.”
Well, yes it is. Just ask mezz lenders SL Green and Fortress:
The transferring of the loan to special servicing means
holders of the $1.4 billion of mezzanine debt, including
Fortress Investment Group Inc. and SLGreen Realty Corp., may
have lost their money.
CW Capital, Tishman and BlackRock are likely to begin talks
soon. Among the scenarios that could be pursued include an
outright sale, a debt restructuring, and the conversion of
bondholder stakes to equity. In a case like this, bankruptcy is
another possible path.
The problem with this property (and many others in CRE which are finally starting to feel the sticky consequences of melting icecream) is that it simply can not cover its debt payments:
Tishman Speyer and BlackRock each invested $112.5 million
in Stuyvesant Town out of total equity financing of $1.9
billion. They took out a $3 billion mortgage from Wachovia Bank
and $1.4 billion of mezzanine debt. About half the equity was
set aside in reserves to pay interest, property taxes and such.
“Cash flow generated by the property remains insufficient
to service the debt,” Fitch said. “Debt service reserves are
expected to be depleted by the end of December.”
The $3 billion mortgage was bundled with other loans that
formed five pools of commercial mortgage-backed securities that
were sold in 2007 to investors. Fannie and Freddie are the
largest holders of the senior-most classes of the loan.
And as the property slips into a full fledged default, and all the various stakeholders come to the table, many investors will look here to see how many comparable complex defaults take place.
One scenario would be that the lenders don’t foreclose,
leave the current ownership in place, and collect all of the
rental income after paying operating expenses, including a
management fee to the owners, said O’Shea.
“All the net revenue generated by the property goes to the
lenders now anyway,” he said.
Stuyvesant Town could be transferred to the lenders through
a consensual or a contested foreclosure, although it’s unlikely
because Fannie Mae and Freddie Mac aren’t in the business of
owning real estate, O’Shea said.
As long as the net revenue is being paid to the lenders,
there’s little economic incentive for them to take ownership
since such a transfer would trigger a tax equal to 2.625 percent
of either the debt being foreclosed or the property’s market
value, whichever is higher, said O’Shea.
The fate of Stuyvesant Town probably won’t be clear for
several months. Different classes of bondholders might have
competing aims, dragging out any resolution. The senior classes,
more insulated from losses, might push for an immediate sale,
while more junior bondholders might seek a loan extension in the
interests of recouping more value when the real estate market
recovers. The legal questions surrounding future rent increases
at Stuyvesant Town further cloud the outcome.
h/t Ed
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"Fannie Mae and Freddie Mac aren’t in the business of owning real estate"
Really? They are now. It's called the Deed to Lease program.
i hated this deal from the day it was announced, always thought it marked the top in housing. everyone was so jubilant and it even provided a further boost to the frosty NY real-estate mkt at the time. As an owner of NY real-estate i can say that i hope all the speculators get wipped out and those who buy property based on either existing cash-flows or consumption (living in the dwelling) can finally prevail and get back to a sane mkt, where fundamentals and not fantasy take hold.
Sty town is probably a screaming buy at 1.8 bil, but at 5.4 bil was so over-valued and anyone who buys real-estate expecting appreciation is an idiot. many other factors involved
"One scenario would be that the lenders don’t foreclose, ..."
Yeah, that seems to be the name of the game these days. There was a similar deal here in the S.F. Bay area, in East Palo Alto. A bunch of investors moved into the poorest section of the Bay Area, bought up Real Estate, fixed it up with the goal of ousting the poor tenants and tried to bring in rich ones. They ran straight in to the local rent control laws, and got their heads handed back to them on a silver platter by the Courts.
They declared bankruptcy in September, but Wells Fargo said they were "working with" the Company to try to work things out. I.e. the name of the game is to keep the CRE foreclosures off the books as bad debt at all costs.
This, by the way, is why Fannie decided to become landlords for foreclosed houses, I suspect.
So the modern name of the game is to keep the foreclosures off the books.
Which also means your local Texas Ratio and Troubled Asset Ratios are going to be too low.
One wonders how long this game can go on. That is the $64 Trillion dollar question.
Todays rally : SLG +4%, FIG +4.84%.
It may have been the largest investment in CRE space but doesn't their loss depend on whether wachovia gave them recourse or non recourse financing. A loss of $250 million is not small but it doesn't compare with $1.9 billion
Tried to warn people months ago about this inevitability. Their cash burn is insanity. Weakness in the Manhattan Real Estate market is what allowed me to sell the dow @ 12,000 and predict for myself a 6400 Dow bottom. Things are becoming compoundingly worse here this is why I am convinced there is nothing even resembling a recovery underway.
We have tenants leaving our retails spaces at an increasing rate.
I took a nice walk through Stuy Town yesterday. A very peaceful, nice enclave amidst the Manhattan rat race. Did you know there are black squirrels in Stuy Town, something I'd never seen before!
Those aren't squirrels...those are the tennants!
Tons of 'em Steve! It is odd, the first few times you see 'em; they're vicious too .. will claw right through a metal window-screen for some leftover beef & broccoli from Spice. Stuy's a nice walk, so long as you aren't scouting for a parking spot.
From today's rant about systematic design development ... "Four Basic Qualities of Great Technical Indicators & "The Stochastics Default Club" ...
"Like so many other prior tenants of 16th & C no longer in Stuy Town, who have left Tishman Speyer to wither away in their self-afflicted Waterloo, I now reside further north. From within the heart of the Bermuda Triangle of vanishing bonus-based quant salaries that spans from Fairfield to Fishkill to Fort Lee ..."
I think they only give the no interest loans to companies that donated big time to Obama’s campaign. Remember the rich bankers got 90% of the stimulus money because of there big donations to Obama’s campaign.
business loans
I have lived in the complex, both ST and PC for a combined 40+ years. Would love the tenant's assn. to buy and then sell them as co-ops. Everyone would snap them up, particularly the insiders who live there and love the place.
Folks behind this deal should be AXED! All of them at Fannie, Freddie, SL Green, Fortress, Tishman, Blackrock, & all other so-called commercial real estate RE experts who ( who are un-named but you know who you are!) bought this prject at the peak of the market and hoped to make money by enforcing higher rents on the squirrels. Insane underwriting to justify the price tag and definitely, it is investors like these who behaved with herd mentality / borrrowed instincts ( since it is totally idiotic/ illogical) who should take responsibility for their lack of discipline or expertise as their actions could send more meltdown shocks in the weak market. Try switching jobs to become a real estate broker first. GE REAL and get a feel for the rental market before you commit billions and billions of your shareholders' money.