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.
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
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.