Andrew Bary reports on the status of the $5.4 billion purchase of Stuyvesant Town in New York:
Rental income at Stuyvesant Town/Peter Cooper Village last year fell to $108 million from $112 million in 2006, owing in part to slower-than-anticipated conversion of apartments to market rents…
When the new landlords arranged the financing in 2006, they projected that rental income would triple, to $336 million, by 2011.
It never made much sense that rental income would rise so much, not when it’s so hard to evict existing tenants and convert their rent-stabilized apartments to market rate. (If it was easy, the previous owner, MetLife, might have done it more often.) But that rental income actually fell between 2006 and 2007?
It’s not just Stuy Town, either, where investors seem to be shocked and surprised at the fact that rent-stabilized tenants aren’t simply evaporating into the Great Beyond. Here’s an eye-popping graphic from Bary’s story:
As Bary concludes:
Investors in some of New York’s largest apartment projects face hefty losses because, while most rents in these complexes remain under control, lending standards were out of control in 2006 and 2007.
Dear John Thain then picks up the story, and finds that a large chunk of the Stuy Town debt is held by Fannie Mae and Freddie Mac — companies which are meant to make housing more affordable, not to bet on projects which require rents to treble.
In any event, the finance wizards have clearly fallen on their faces here, while the winners of this battle are the tenacious New Yorkers staying in their rent-stabilized apartments.
The biggest winner of all, of course, to the tune of $5.4 billion, is Met Life, the former owner of Stuy Town. Way to sell at the top!