Dutch Treat

If Peter Stuyvesant were alive today, what would he think of the failed $5.4 billion buyout of Stuyvesant Town and Peter Cooper Village in New York?

Image: Portfolio.com, designed by Sean Driscoll

Now that Tishman Speyer and BlackRock Realty have conceded the failure of their record $5.4 billion buyout of the massive Stuyvesant Town and Peter Cooper Village development in New York City, distressed-asset investor Wilbur L. Ross may be interested in leading an acquisition of the 80-acre residential complex.

Ross is teaming up with New York land baron Richard LeFrak. "We are not really capital constrained, so we can put up whatever is needed. We’re prepared to go all the way," Ross, 72, told Bloomberg News. If Tishman and BlackRock are facing the mother of all real estate foreclosures, Ross and LeFrak stand ready to benefit from what may be the world's biggest fixer-upper.

Their interest surfaced one day after Tishman and BlackRock, who missed a $16.1 million interest payment earlier this month, announced that they would turn control of the property over to creditors, who include Winthrop Realty Trust, Fannie Mae, and Freddie Mac. The creditors are mulling their options, which include foreclosing on the property. It would be the second-largest default in the history of commercial real estate, after last year's $4.1 billion flameout by Extended Stay America.

Tishman and BlackRock put a mere 5 percent downpayment on the property in 2006. The highly leveraged deal ran into trouble as property values fell. The site is worth an estimated $1.8 billion today. That endgame began last October, when the New York Court of Appeals in Albany ruled that the owners had improperly raised rent on some apartments. That ruling destroyed the model for the deal, which relied upon upgrading the apartments and raising rents to market value. The site has been a subsidized rental haven for middle-class New Yorkers since it was built in the 1940s. It was named for Peter Stuyvesant, the last Dutch governor of New York, and Peter Cooper, an early New York industrialist of Dutch ancestry.

The wait for an apartment at the site can take years. The apartments feature amenities like parquet floors and are situated on the East Side between the Gramercy and East Village sections of Manhattan. Even with a subsidy, a three-bedroom unit can cost as much as $3,700. They were built with school teachers and bus drivers in mind, but there are plenty of affluent New Yorkers, from lawyers to, rumor has it, a federal judge, who hold onto their subsidized pads.

Ross has tried many businesses in his career, turning around failed assets in steel, coal, telecom, textiles, and more. A former Rothschild banker, Ross has turned his attention to community banks of late. Last summer, Ross bought assets of BankUnited in Florida.

Now Ross may get a chance to try his hand at New York City landlord. He may be required to learn an entirely new set of skills, such as cleaning the trap below the sink or settling disputes about noisy TVs. The job will come with some real perks, though. If nothing else, he is guaranteed a high spot on the waiting list for an apartment at Stuy Town-Peter Cooper Village.

Can the deal work? The courts have foreclosed upon the fantasy of gentrifying Stuy Town and Peter Cooper. But if the property can be purchased now while prices are low, Ross and LeFrak could benefit from a rare bargain in New York real estate.