Tishman and Blackrock Face Foreclosure From Hell

Stuyvesant Town and Peter Cooper, a sprawling complex between the East Village and Gramercy Park neighborhoods in Manhattan, has 11,200 apartments.

Image: Reuters/Shannon Stapleton

It was 2006, the dizzying height of the real estate market, when Tishman Speyer decided to go for it and execute not only the biggest single-property transaction ever in New York or the United States, but in the world.

Tishman Speyer teamed up with BlackRock Realty to buy the massive Peter Cooper Village-Stuyvesant Town development from MetLife for $5.4 billion. Tishman and BlackRock each injected $112.5 million of their own equity into the transaction. It was like a home buyer teaming up with a partner to buy a two-family house, in which each party made a 2.5 percent down payment.

Tishman and BlackRock planned on renovating apartments at the 80-acre complex, long a subsidized haven for middle-class renters in New York, and raising rates to market level. The concept was that higher rental income would be sufficient to carry the huge debt load, with some left over, of course. The strategy began to sour as property prices plunged following the bursting of the real estate bubble. The site has lost an estimated $3 billion in value. And in October, the New York court of Appeals in Albany ruled that the owners had improperly raised rents on 4,350 apartments, tightening the economic pressure on Tishman and BlackRock to an even greater level.

The partnership finally succumbed to that pressure this month, missing a $16.1 million debt payment on January 8. It announced today that it would turn over control of the property to its creditors, a group led by Winthrop Realty Trust, who said they may foreclose on the asset. It would be the second-largest default in the history of commercial real estate, after the $4.1 billion default of Extended Stay America in 2009.

When a home buyer defaults on a mortgage and faces foreclosure, the economic consequences can be devastating. Credit ratings go through the floor and the ability to borrow can be compromised for years to come. But foreclosure doesn't seem to carry the same stigma when a large commercial developer hands over the keys. “It’s just unfortunate that we hit this boomerang on this deal,” Jerry Speyer said in a December interview with Bloomberg news. “But is this deal going to change the reputation of Tishman Speyer, or what people think of either Rob or myself? I don’t think so, honestly.”