It was the most expensive real estate deal in U.S. history. Now it's poised to become one of the biggest flops.
At the height of the real estate bubble in 2006, an investment group led by New York City real estate firm Tishman Speyer Properties and BlackRock Realty Advisors paid $5.4 billion for a pair of gigantic Manhattan apartment complexes known as Stuyvesant Town and Peter Cooper Village.
Click here for more background on the original purchase. In addition to the bubble collapse that has devastated so much of the real estate market, this particular deal has been hampered by lawsuits from tenants resisting the new owners' conversion to higher priced units:
Tenants fought back, conversions happened much slower than expected and a state court ruled Thursday that about $200 million in the company's new rent increases were improper.
The AP article speculates on foreclosure possibilities. The bottom line is that a court's proclivity to limit rent may partially contribute to history's most costly foreclosure. If you are thinking "so what?" consider the following:
Some of the biggest equity investors in the deal are public pension funds that manage retirement system benefits for millions of government employees.
Florida's State Board of Administration had put $250 million into the project. It has already written off the entire investment as a loss.
California's two largest government pension funds, the California Public Employees' Retirement System and the California State Teachers Retirement System, invested a combined $600 million. CalSTRS has also already written off its $100 million stake.
The real estate bubble will affect everyone, even those who did not know that they were participating. The consequences in this case are being aggravated by rent limits being imposed by the courts.
Stuyvesant Town and Peter Cooper Village (New York Times photo)