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The "Peak Bubble" Deal Is Back: Stuy Town To Be Sold Again

Tyler Durden's picture




 

Stuyvesant Town, Manhattan's largest 'rental community', is back on the block as Bloomberg reports Fortress is preparing a $4.7bn bid for the apartmenet complex whose last 'failed' deal came to epitomize the lax lending based on unrealistic projections of future income that fueled the real estate bubble. Tishman Speyer and BlackRock purchased the 11,000-unit complex for $5.4 billion in 2006 - a record at the time - helped by a $3bn senior loan which was sliced-and-diced to investors (and then defaulted upon). But, as one analyst notes, "Stuytown has certainly come a long way since the depths of the crisis,” and Fortress' $4.7bn reflects a "resurgence in pricing." No bubble here at all as they hope rent-stabilized tenants will flip enabling all that fresh cash-flow for yet another yield-chasing investment idea based on the belief that real-estate prices (and rents) never go down (ever)... or potential buyers might remember "too many people have had too many unpleasant surprises at this location."

 

The "market" is sending signals...

“The Manhattan apartment market has never been stronger,” said Dave Bragg, an analyst at Green Street Advisors Inc., a Newport Beach, California-based real estate research firm. The company estimates that Manhattan apartment asset values are about 9 percent above the 2007 peak.

And so Fortress is jumping in...

Fortress Investment Group LLC is preparing a bid to buy Stuyvesant Town-Peter Cooper Village, the Manhattan apartment complex whose future has been in limbo since its owners defaulted on a $3 billion mortgage four years ago, according to a person familiar with the plans.

The New York-based private-equity firm is seeking financing for an offer valued at about $4.7 billion, said the person, who asked not to be identified because the discussions are private.

...

Stuytown has certainly come a long way since the depths of the crisis,” said Ben Thypin, director for market analysis at real estate research firm Real Capital Analytics Inc. The $4.7 billion value considered by Fortress “reflects that resurgence in pricing.

A long way indeed...

Tishman Speyer and BlackRock purchased the 11,000-unit complex for $5.4 billion in 2006, a record for a New York commercial property at the time. The $3 billion senior loan that financed the transaction was carved up and bundled into commercial-mortgage bonds that also contained debt tied to offices, hotels and shopping centers.

 

...

 

Tishman Speyer, which based its acquisition on plans to raise the cost of rent-regulated units to market rates and evict illegal occupants, defaulted after tenant litigation blocked that effort and the apartment market crumbled following the global financial crisis. The deal came to epitomize the lax lending based on unrealistic projections of future income that fueled the real estate bubble.

But prices are accelerating...

Stuyvesant Town was appraised at $3.4 billion in September, according to Barclays Plc, up from about $2.8 billion when CWCapital took it over. Barclays estimated in a May 2 report that the property could fetch $4 billion to $4.3 billion in a sale, which would result in zero losses to bondholders.

And now Fortress is set to bid $4.7bn...

“There used to be a saying, if you’re a restaurant you don’t want to open up in a place where other restaurants went out of business,” Stein said in a telephone interview. “All these bidders who otherwise might be very interested may say, ‘you know what? Too many people have had too many unpleasant surprises at this location.’”

It would appear that we have once again reached peak credit, peak real estate bubble, and peak extraploated exuberance all over again.

Source: Bloomberg

 

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Wed, 05/14/2014 - 10:41 | 4758887 patb
patb's picture

No Surprises here, the CAPE adjusted P/E is almost 24,  that's a really high price to averaged smoothed earnings.

 

Wed, 05/14/2014 - 10:42 | 4758899 whatsinaname
whatsinaname's picture

Stuytown.. As good as it Gets..

Wed, 05/14/2014 - 10:45 | 4758918 Hexagon
Hexagon's picture

Why hasn't ZH link that article yet: http://www.theguardian.com/commentisfree/2014/may/13/ukraine-us-war-russ...?

 

"A popular truism is that "the world changed" following 9/11. But what has changed? According to the great whistleblower Daniel Ellsberg, a silent coup has taken place in Washington and rampant militarism now rules. The Pentagon currently runs "special operations" – secret wars – in 124 countries. At home, rising poverty and a loss of liberty are the historic corollary of a perpetual war state. Add the risk of nuclear war, and the question is: why do we tolerate this?"

Wed, 05/14/2014 - 10:55 | 4758964 knukles
knukles's picture

Stuytown is a shit hole inside of a shit hole wrapped in a shit hole

Wed, 05/14/2014 - 10:58 | 4758978 jbvtme
jbvtme's picture

it's all one big feed lot

Wed, 05/14/2014 - 11:15 | 4759034 quintago
quintago's picture

10Y at 2.57%. Stuytown at 4.7B. Why are you acting so surprised.

Wed, 05/14/2014 - 13:43 | 4759718 ebworthen
ebworthen's picture

I was going to ask if the people came with it.

Wed, 05/14/2014 - 15:24 | 4760121 Freddie
Freddie's picture

Stuytown is a shit hole inside of a shit hole wrapped in a shit hole

It "ain't" that nice.  It is worse.

Wed, 05/14/2014 - 10:53 | 4758955 Ignatius
Ignatius's picture

I say cut a deal with the CIA and turn it into the World's largest crack house (I know I'm recycling an old 80s idea, but it seemed to work for some).  Cash flow, baby.

Wed, 05/14/2014 - 10:43 | 4758904 Hippocratic Oaf
Hippocratic Oaf's picture

This was such a total fuck up before to expect NY residents to pay higher for housing.

sad

Wed, 05/14/2014 - 11:13 | 4759024 JRobby
JRobby's picture

The rent is too damn high

Wed, 05/14/2014 - 10:41 | 4758888 spekulatn
spekulatn's picture

It would appear that we have once again reached peak credit, peak real estate bubble, and peak extraploated exuberance all over again.

 

Yea but it keeps "us" busy and is a whole lotta fun.

(sarc off)

Wed, 05/14/2014 - 10:42 | 4758898 FLHRS
FLHRS's picture

All that freshly printed money needs to go somewhere.

Wed, 05/14/2014 - 11:08 | 4759003 CPL
CPL's picture

Money doesn't mean much to Stuy Town.  It's actually got a function.  Reasonably priced housing for people that live and work in NYC for the Megabucks uptown.  

However Stuy Town is an interesting case study.  It's tenants are incredibly organised plus they've got that neighbourhood spirit people look for in a big place like NYC. 

Example; When the hurricane swamped NYC, it was one of the local communities that actually had their shit together to help manage day to day operating fundementals.  Brave folks walked up hundreds of flights of stairs to check in on people that needed a hand. Men and women organised themselves to help clean up.  Drinking water and supply management happened nearly instantly.  BBQ's to get cooking done.  From the news articles I read during the time, it seemed like everyone in the area decided to take a break and go camping in the city.  It stuck out like a gem in a bed of gravel with the rest of the mess happening in NYC in the aftermath of Sandy.

What created the strength in that community?  Middle men. Lots of them.

https://indypendent.org/2013/08/17/fighting-landlords-stuy-town-detroit

http://www.crainsnewyork.com/article/20121016/real_estate/121019928/stuy...

http://gothamist.com/2006/09/26/i_have_seen_tha.php

The apartment blocks had been under enormous pressure for years by the developer power brokers in NYC to kick all the 'poor people' out so they could put yet another string of (now failed) loft concept condo's.  Every dirty trick in the book was pulled on them over the past 20 years to get them to move. 

Yet after the storm they were the last people standing with a firm grasp of the situation.  Versus the power broker developers that hung all their condo owners out to dry, along with the insurance companies by proxy.

Wed, 05/14/2014 - 10:51 | 4758909 buzzsaw99
buzzsaw99's picture

I would love a list of the major bond holders from that deal but I can probably guess.

...round up the usual suspects. [/Captain Renault]

Wed, 05/14/2014 - 11:55 | 4759250 Dark Space
Dark Space's picture

It's publicly available. I actually own a lot of them, but admittedly nowhere close to groups like Teachers (TIAA), ING for a few of its funds, Doubleline, Principal for a number of its funds, etc. Virtually all the exposure is owned by retirees through their pension plans and investments in various mutual funds. Are the usual suspects your parents and grandparents, or did you think it was a bunch of "evil" profiteers?

Wed, 05/14/2014 - 10:46 | 4758922 bobby02
bobby02's picture

If they couldn't ditch rent stabilization with Bloomberg in power, how do they figure to do with Comrade de Blasio at the helm? Playing with OPM is all good and well, but seriously?

Wed, 05/14/2014 - 10:46 | 4758923 buzzsaw99
buzzsaw99's picture

from fin.yahoo! The Federal Reserve warned it may need to take additional action to rein in banks' funding of corporate takeovers after observing continued deterioration of lending standards this year... [/laughing hysterically]

Wed, 05/14/2014 - 10:48 | 4758924 Rainman
Rainman's picture

CalPers will get back on this 3-legged horse and retrieve all of its half billion loss ! < snickers >

Wed, 05/14/2014 - 10:52 | 4758948 Sudden Debt
Sudden Debt's picture

WHO DOESN'T WANT TO OWN A PIECE A REAL ESTATE WITH RENT CONTROL ON IT!??!

Wed, 05/14/2014 - 11:12 | 4759021 NihilistZero
NihilistZero's picture

If civil society in America takes a few steps back I can't think of a place I'd rather NOT be than New York City.  Over 10 million people crammed into tight infrastructure.  The combination of the fascist oligarchs using the militarized police to try and maintain control to the criminal class declaring open warfare on everyone would be hell on earth.

Wed, 05/14/2014 - 11:14 | 4759032 JRobby
JRobby's picture

Perfect place for "The Joker"

Wed, 05/14/2014 - 12:21 | 4759373 NihilistZero
NihilistZero's picture

No doubt.  He's my Avatar because I know I have it in me to be "that guy".  But I never WANT to be "that guy".  The darkness exits within us all, some more so than others...

Wed, 05/14/2014 - 11:29 | 4759112 RaceToTheBottom
RaceToTheBottom's picture

Plus all that Financial power so close, wielding so much power against the serfs.

 

Wed, 05/14/2014 - 11:29 | 4759117 Disastra
Disastra's picture

not rent controlled but rent stabilized

Wed, 05/14/2014 - 10:52 | 4758952 Fix It Again Timmy
Fix It Again Timmy's picture

Hauling up the nets for a fresh catch of "suckers"...

Wed, 05/14/2014 - 10:55 | 4758962 semperfi
semperfi's picture

I got $20 that says China buys it...

Wed, 05/14/2014 - 10:58 | 4758980 homiegot
homiegot's picture

I don't know about you, but I love paying as much as possible for something.

Wed, 05/14/2014 - 10:59 | 4758984 RaceToTheBottom
RaceToTheBottom's picture

Must be banking on going condo....... LOL :)"

Wed, 05/14/2014 - 11:03 | 4758996 youngman
youngman's picture

I bet the new Mayor buys it..he is looking for some low income housing....Blasio blocks they could call it....

Wed, 05/14/2014 - 11:03 | 4758997 cassotto
cassotto's picture

it dont get any uglier than Stuyvesant Town

looks a lot like Co-op City in the Bronx

Wed, 05/14/2014 - 11:05 | 4758999 Seasmoke
Seasmoke's picture

Make it a casino. Cuomo is putting a casino in every town in NY. 

Wed, 05/14/2014 - 11:15 | 4759026 Cthonic
Cthonic's picture

If the residents knew what was good for them, there would be a continuous, well-publicized crime spree or riots occurring there from now until deal closing.  mayhem -> lower price -> lower rent

Wed, 05/14/2014 - 11:27 | 4759107 Youri Carma
Youri Carma's picture

American Homes Beats Blackstone With Low Rental-Bond Yields
13 May 2014, by Jody Shenn (Bloomberg)
http://www.bloomberg.com/news/print/2014-05-13/american-homes-beats-blackstone-with-lowest-rental-bond-yields.html

Wed, 05/14/2014 - 11:28 | 4759113 Disastra
Disastra's picture

The deal is actually very cheap on a gross rent multiplier and price per units basis, 13x and 420k respectively.

Moreover, the NOI margin at the property is 50% and mor normalized is 65% reflecting $50mm of upside in NOI that a sophisiticated operator like Fortress will be able to extract.

In place NOI is $180mm reflecting a 4% cap rate in in-place.

NYC multi is safer the 10YT as you have diversified borrower base and inflation hedge through annual leae resets.

 

Fortress will do well even at this value.

Wed, 05/14/2014 - 11:30 | 4759119 Spungo
Spungo's picture

11k units? How much is the rent in each one? Let's say $3000 per month. 3k x 11k = 33 million per year in revenue. At a price of 4.7 billion, that would put the revenue to assets somewhere around 0.7%. 1% if I round up. wtf mate. 

This is what a good REIT's numbers look like:
https://www.google.ca/finance?q=TSE%3ABEI.UN&fstype=ii&ei=DYtzU7DSCYatiA...
0.46 billion revenue on 5.9 billion assets. 

Wed, 05/14/2014 - 12:04 | 4759290 jackstraw001
jackstraw001's picture

3k/mo x 11k units x 12mo = 396mm annual revenue.

Wed, 05/14/2014 - 12:40 | 4759470 Disastra
Disastra's picture

Spungo you are an absolute moron you should leap off stuytown building 6

Wed, 05/14/2014 - 15:23 | 4760055 Omen IV
Omen IV's picture

The average monthly rent is much closer to $1,000 than it will be to $3,000 for some time - getting  the people out was the problem last time (ran out of cash for interest) and that was Tishman Spier - who have a lot of experience except for the kid at the time who wanted to be daddy

so how do you get them out - sure some illegal sublets but that is a long term pitched battle in discovery

people would marry just for the apartment rights and then get a divorce - there are a lot of chicks would would marry a guy 80 years old you can believe it

further there are a lot of lawyers in the complex retired at leat 100with nothing to do but drive someone crazy - in a four story building you can create havoc and get them out 10,000 units scale works the other way - they got you - fortress i think is chicago based  so they have less appreciation for the game and see mostly numbers

Jerry Speyer was a serious guy so whoever they got it should be interesting

 

Wed, 05/14/2014 - 15:57 | 4760296 safe as milk
safe as milk's picture

actually, you won't get very many of them out because they aren't stupid greedy pigs like their landlord. they know the rent laws and understand their leases. stuy town was built by an insurance company as middle class housing so no landlords were ever harmed by the rent stabilization laws here. the reason the building is rent stabilized is because the previous landlord took tax abatements and voluntarily entered into the rent stabilization system. look up j-51, if you don't believe me. the reason the last landlord went bankrupt is because they based their projections on being able to scare the existing tenants out with legal hocus pocus. i'm not in stuy town but i'm in another project that left a housing program. my landlord, lawrence gluck,  made up a bs case against me claiming i was an illegal sublet and tried to evict me. my lawyer kicked his ass. so did my neighbor's lawyers. the only guy on my floor that they scared out was an unstable troubled man who lived alone and talked to himself. these pricks make their living by preying on the weak and old.

since, the new landlord has a more realistic view of what his rent roll will be, it's much more likely that he will be able to pay his mortgage and this will all work out fine for everyone.

Wed, 05/14/2014 - 11:34 | 4759141 tommylicious
tommylicious's picture

This is so damn funny.  Can't believe that piece of shit is back in action.

Wed, 05/14/2014 - 11:54 | 4759243 Kreditanstalt
Kreditanstalt's picture

Rent control is a form of state theft of private capital, so actually I wish them luck in either removing the freebie tenants or in getting controls overturned...or something...

Wed, 05/14/2014 - 13:19 | 4759625 Cthonic
Cthonic's picture

+1 regarding rent control, yet in this case it was originally built on property that was seized under eminent domain in the name of 'urban renewal', and the public private rabbit hole only goes deeper from there.

Wed, 05/14/2014 - 12:21 | 4759372 jimcg
jimcg's picture

If Gerry Guterman gets his hands on it he will either find a way to make money with it or dump it back to the banks....rinse, wash, repeat.

J

Wed, 05/14/2014 - 12:40 | 4759474 Disastra
Disastra's picture

Stuytown Summary

         

Price Per

 

Units

11,298

$416,003

 

Buildings

56

$83,928,571

 

Residents

25,000

$188,000

 

Acres

80

$58,750,000

 

Gross SF

12,064,341

$390

         

2013 Rev.

$357,000,000

13.2x

Gross Rent Multiplier

2013 Exp.

$179,000,000

   

2013 NOI

$178,000,000

   

Margin

49.9%

   

Normalized Margin

65.0%

   

Normalized NOI

$232,050,000

           

Fortress Offer

$4,700,000,000

   

Cap Rate on 2013 NOI

3.8%

   

Cap Rate on Normalized NOI

4.9%

   
Wed, 05/14/2014 - 13:27 | 4759660 Spungo
Spungo's picture

The cap rate is a bit low but it's reasonable. Not a terrible investment. Definitely not in the same ballpark as Twitter.

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