Pay no mind to that elephant in the room...all is well - DFWstangs Forums
 
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post #1 of 21 (permalink) Old 10-14-2009, 10:11 AM Thread Starter
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Pay no mind to that elephant in the room...all is well

http://online.wsj.com/article/SB1255...o&mod=yahoo_hs

One of the biggest, most high-profile deals of the commercial real-estate boom is in danger of imminent default, say people familiar with the matter, signaling the beginning of what is expected to be a wave of commercial-property failures.

The sprawling Manhattan apartment complex known as Peter Cooper Village and Stuyvesant Town -- acquired for $5.4 billion in 2006 by a venture of Tishman Speyer Properties and a unit of BlackRock Inc. -- is running out of cash. As of the end of September, it had $33.7 million left of the $400 million in interest reserves set up to service its debt, according to the people familiar with the matter. At its current burn rate of about $16 million per month, the reserve could be depleted before the end of the year, the people said. Others have said the venture could avoid default until February.

The spokesman for Tishman Speyer declined to comment on behalf of the partnership.

The ownership, which includes a roster of high-profile investors from the Church of England to the California Public Employees' Retirement System, has no current plans to inject more capital into the venture, according to the people. Lenders who financed the deal first projected the complex's net operating income would triple to $336 million in 2011 from $112 million in 2006, according to Deutsche Bank AG. But net income is projected to be $139 million this year, according to Realpoint LLC, a credit-rating agency.

Investors who bought into the deal were confident that real-estate manager Tishman Speyer would be able to greatly boost profits by raising rents in Manhattan's sizzling apartment market. But today, the 56-building, 11,000-apartment property is suffering from a slowing New York economy, a lawsuit that has hindered the owner's ability to convert rent-controlled units to market rentals, and the debt load.

Realpoint estimates that the property is worth only $2.1 billion now, less than half of the purchase price. By that measure, all the equity investors and many of the lenders, including Government of Singapore Investment Corp., or GIC; Gramercy Capital Corp.; and SL Green Realty Corp., are in danger of seeing most, if not all, of their investments wiped out. Hartford Financial Services Group, which bought $100 million of the debt tied to the property, said it has "sufficiently reserved for ths asset in the first half of this year."

Some of the nation's largest institutional investors already consider their investment a failure. The $133 billion Florida State Board of Administration committed $250 million to the equity partnership in 2007. It now counts the value as zero. A spokesman for the pension fund declined further comment.

The failure of the high-profile investment also would further rattle the market for apartments, offices, hotels and other commercial property. The market this year has seen increases in loan delinquencies and property foreclosures, stoking worries that it will drag down the nascent economic recovery.

Commercial mortgage-backed securities -- the kind that financed a chunk of the Peter Cooper-Stuyvesant deal -- are high on the list of concerns. Some $700 billion worth of CMBS were issued during the boom years but they have never been tested by a protracted downturn.

The apartment complex was developed by MetLife for returning World War II veterans and remained a middle-class bastion even as rents in other parts of Manhattan skyrocketed. New York's strict regulations prevented the owners from raising rents.

But New York rent rules were eased over the years. When the Tishman/BlackRock venture purchased the property from MetLife in late 2006, the new owners predicted they would be able to convert thousands of protected apartments to higher market rents.

These projections convinced Calpers and the pension funds of several other states to make large equity investments in the deal. Meantime, the Tishman/BlackRock venture put a $3 billion first mortgage on the property and another $1.4 billion of so-called mezzanine debt.

The new owners ran into a slowing economy and resistance from tenants that battled to block rent increases. In one of their most successful challenges, tenants groups filed a lawsuit charging MetLife and the new owners with improperly converting rent-regulated units while receiving tax benefits from the city. The appellate division of the State Supreme Court in March ruled in the tenants' favor. The state's highest court is expected to rule on an appeal this month.

But even a victory by the Tishman/BlackRock partnership likely won't save the deal from a default. One indication: a "special servicer" is in the process of taking over the deal's CMBS debt, say people familiar with the matter. Special servicers are experts in dealing with troubled loans. The transfer to the special servicer, CW Capital, could occur as soon as this month, the people said.

Once that happens, the special servicer likely will try to negotiate with the partnership to restructure the debt.

Major players in these talks will likely be Fannie Mae and Freddie Mac, which together own more than $1.5 billion of the most highly rated, triple-A slices of the CMBS debt, according to people familiar with the matter. They would likely benefit from a fast foreclosure because, as senior lenders, they would be paid back first.

A Fannie representative declined to comment. A spokesman at Freddie confirmed its holding of the debt. "We don't expect to incur any losses on these securities," he said.

Another big player in the restructuring talks could be Singapore's GIC. The fund owns a $575 million mezzanine loan backed by the property, according to people familiar with the matter. Also, GIC owns about $100 million to $200 million in equity, the people said.

Both investments might be wiped out unless GIC maneuvers to have more influence in the loan workout process, possibly by buying more senior debt. GIC declined to comment.
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post #2 of 21 (permalink) Old 10-14-2009, 10:15 AM
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LOL @ real estate investors.
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post #3 of 21 (permalink) Old 10-14-2009, 10:24 AM Thread Starter
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Originally Posted by Hass View Post
LOL @ real estate investors.
Real estate is a great investment. But you can't pay $5 billion dollars for an apartment complex and expect things to turn out well. Even if it does have 11,000 units and is in NYC.
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post #4 of 21 (permalink) Old 10-14-2009, 10:29 AM
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lmao maybe we can get them a bailout! uncle Obama has plenty of american taxpayer moneys

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post #5 of 21 (permalink) Old 10-14-2009, 10:35 AM
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I'm not fond of Venture Capitalists and some of their tactics after buying up things.
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post #6 of 21 (permalink) Old 10-14-2009, 11:04 AM
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Originally Posted by AL P View Post
Real estate is a great investment. But you can't pay $5 billion dollars for an apartment complex and expect things to turn out well. Even if it does have 11,000 units and is in NYC.
Hell...how many people can afford the rent when they're taxed at 51%??

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post #7 of 21 (permalink) Old 10-14-2009, 08:16 PM Thread Starter
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Hell...how many people can afford the rent when they're taxed at 51%??
I'd bet the majority of the people who live in these apartments don't pay a dime in taxes.

Btw, I dumped all my Gramercy Capital (GKK) today, I'm not sure how they are carrying this loan on their books but I am going to try to find out.
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post #8 of 21 (permalink) Old 10-14-2009, 08:37 PM
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It shows up as an asset until they default or foreclose...

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post #9 of 21 (permalink) Old 10-14-2009, 08:49 PM
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Originally Posted by AL P View Post
Real estate is a great investment. But you can't pay $5 billion dollars for an apartment complex and expect things to turn out well. Even if it does have 11,000 units and is in NYC.
That is nearly 500k per unit. Unless they each rented at 6k per month there is no way in hell to make money on the property.
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post #10 of 21 (permalink) Old 10-18-2009, 06:53 AM
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I live in Manhattan's upper west side, and am familiar with this property. Its situated neigboring the lower east side, and its kind of a gritty neighborhood.

I'd say that most apartment seeks aren't seeking out this area, combine that with economic retraction and its pretty obvious why its failing.

I was actualy in a bar a couple of weeks ago down there, and noticed all the sinage they have prmoting low rents, property features, etc. of that place. I'm sure someone could negotiate a good value if they wanted to move in there.


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post #11 of 21 (permalink) Old 10-18-2009, 08:59 PM Thread Starter
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It shows up as an asset until they default or foreclose...
No, they can voluntarily write it to zero. Once they know they aren't going to collect, then the rules of accounting would probably say they had to write it to zero.
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post #12 of 21 (permalink) Old 10-23-2009, 02:57 PM Thread Starter
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They lost in court:

Rent asunder in NYC

The value-creation hopes of Tishman Speyer and BlackRock were dashed yesterday when a court found they improperly raised rents on rent-stabilised properties at a landmark New York complex. This is big news for New York real estate and very bad news for Tishman and BlackRock.

Zoe Hughes
When nine tenants of Stuyvesant Town and Peter Cooper Village filed a lawsuit against their landlord claiming they were improperly converting rent-stabilised properties, the owners warned there would be “dire financial consequences” if the court sided with the plaintiffs.
Now, 24 hours after New York’s highest court found that Tishman Speyer and BlackRock Realty Advisors, and the residential complex’s previous owner MetLife, had actually been wrongly converting rent-stabilised properties into luxury, market-rate apartments while at the same time receiving certain city tax credits, the implications of the ruling are expected to be immense.
As one dissenting judge said in the verdict: “While it is true that dire predictions often prove to be mistaken, this is not always the case just because it usually is. After all, the Trojans would have done well to heed Cassandra. And you do not have to be gifted with her powers of prophecy to foresee significant, if not severe, dislocations in the New York City residential real estate industry as a result of [this] decision.”
During the height of the residential real estate bubble, numerous private equity real estate firms – as well as other property investors – targeted New York’s rent-stabilised multifamily market eyeing the potential rent gains that conversion could provide.
The idea was that as rent-stabilised tenants vacated properties, the units could be re-leased at much higher market rents. When the Stuyvesant Town deal closed in 2006 with a staggering $5.4 billion price tag, average rents at the 11,227-unit complex were $1,721 a month taking account of both regulated and non-regulated rents.

However, the average asking rent in the surrounding area at the time was $3,383, according to real estate research firm Reis.

That same year, Rockpoint Group and Stellar Management also bought the 1,230-unit Riverton apartment in Harlem for $130 million, later refinancing the deal and taking out a $225 million loan. Around 90 percent of the units were rent-stabilised at the time of the transaction in 2006, with plans to convert roughly half to market rates. That deal has since been foreclosed on, and, according to CMBS data provider Trepp, has undergone an appraisal reduction of $122 million.
And it is appraisal values that could be one of the major consequences of yesterday’s ruling. There is already market speculation that Tishman’s Stuy Town deal, as it’s known, has already lost $3 billion in value following the real estate market slump and the owner’s inability to convert rent-stabilised units quickly enough. Yesterday’s decision will add pressure to those declining values and income, and not just for Tishman.
The problem is that the ruling doesn’t provide a definitive answer as to what happens next and who is on the hook for all this? Will Tishman, BlackRock and MetLife be forced to pay back $200 million in back rent to tenants? Will it only apply going forward? Will the owners be liable for hundreds of millions of dollars in damages? And will it be applied more widely to other landlords in New York City?
The ruling relates directly to landlords that deregulated while at the same time collecting a tax credit that encouraged capital improvements.

However, it strikes at the heart of the business model adopted by Tishman, and the likes of Rockpoint. A research note by Citi in August 2008, showed more than 20 CMBS loans with the same rent-stabilised conversion business model could be candidates for surprise default based upon their underwriting and financial performance.
In all likelihood, this issue will be tied up in legal red tape for months, if not years to come. It is now the job of a lower New York court to work through the fine details of damages, and we can no doubt expect appeals along the way.
What is certain is things haven’t become any more clearer since yesterday morning. As the dissenting judge concluded: “Thirty-five years ago [the courts] described the rent laws as ‘an impenetrable thicket, confusing not only to laymen but to lawyers’. The thicket has only grown denser since then.”
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post #13 of 21 (permalink) Old 10-31-2009, 06:27 PM
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http://www.bloomberg.com/apps/news?p...03Rw1_g&pos=10

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Billionaire investor Wilbur L. Ross Jr., said today the U.S. is in the beginning of a “huge crash in commercial real estate.”

“All of the components of real estate value are going in the wrong direction simultaneously,” said Ross, one of nine money managers participating in a government program to remove toxic assets from bank balance sheets. “Occupancy rates are going down. Rent rates are going down and the capitalization rate -- the return that investors are demanding to buy a property -- are going up.”

My 401K is now a 400K (was 301K)
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post #14 of 21 (permalink) Old 10-31-2009, 08:15 PM
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Originally Posted by AL P View Post
I'd bet the majority of the people who live in these apartments don't pay a dime in taxes.

Just to clear up a little misconception about taxes.

You, the consumer, pay all of the taxes levied on all corporations.

The corporations may write the check, but you pay for it in the end, by way of higher prices.

So don't ever let any one tell you that some rich fat cat, or corporation pays all the taxes.



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Honor is not holding your hand out for something you did not earn.
Honor is not forcing your ideas, or belief on others.
Honor is not something given to you by way of job, or title.

Honor is learned, earned, practiced and respected by all decent men and women.
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post #15 of 21 (permalink) Old 10-31-2009, 08:36 PM
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Originally Posted by tazz007 View Post
Just to clear up a little misconception about taxes.

You, the consumer, pay all of the taxes levied on all corporations.

The corporations may write the check, but you pay for it in the end, by way of higher prices.

So don't ever let any one tell you that some rich fat cat, or corporation pays all the taxes.
Hmmm, I wonder how the relative elasticities of supply and demand would play into the actual bearer of the tax incidence. Oh wait, this is dfwstangs...
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post #16 of 21 (permalink) Old 10-31-2009, 09:13 PM
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Stuyvesant, as in Bedford-Stuyvesant Brooklyn? LOL Who the fuck would build a nice building in that hood?

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post #17 of 21 (permalink) Old 10-31-2009, 11:29 PM
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Post 15 should elicit just a touch of the ouch....
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post #18 of 21 (permalink) Old 11-01-2009, 12:17 AM
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But the ruling is really just about taking the tax credits AND trying to raise the rent. If they had left the tax credits on the table nobody's got a case. When the article suggests that it threatens the 'business model', then it is pretty clear that the business model doesn't work without the tax credits paid by the citizens of NY. Somebody either didn't do their homework on the original business plan or thought they could buy their way around the law. Whupsie!
Good businessmen read the fine details, don't think for a minute that they weren't aware of the conflict and risk.

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post #19 of 21 (permalink) Old 11-01-2009, 09:32 AM
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Couldn't have said it better myself. Just remember its the enterprising individuals that employees 99.9% of the followers in this country.

Quote:
Originally Posted by tazz007 View Post
Just to clear up a little misconception about taxes.

You, the consumer, pay all of the taxes levied on all corporations.

The corporations may write the check, but you pay for it in the end, by way of higher prices.

So don't ever let any one tell you that some rich fat cat, or corporation pays all the taxes.

My 401K is now a 400K (was 301K)
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post #20 of 21 (permalink) Old 11-01-2009, 09:33 AM
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Originally Posted by TheAsp! View Post
But the ruling is really just about taking the tax credits AND trying to raise the rent. If they had left the tax credits on the table nobody's got a case. When the article suggests that it threatens the 'business model', then it is pretty clear that the business model doesn't work without the tax credits paid by the citizens of NY. Somebody either didn't do their homework on the original business plan or thought they could buy their way around the law. Whupsie!
Good businessmen read the fine details, don't think for a minute that they weren't aware of the conflict and risk.
So you forecasted the down turn of the economy?

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post #21 of 21 (permalink) Old 11-01-2009, 10:13 AM
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Hmmm, I wonder how the relative elasticities of supply and demand would play into the actual bearer of the tax incidence. Oh wait, this is dfwstangs...
Why wonder? The answer is S.O.S. (Same old shit.)

The tax to the manufacture is calculated into the price of the product, just like the price of labor and cost of manufacturing is.

So if this cap and tax crap is passed. What will happen to everything you buy?
That's right, boys and girls, the price of everything will go up, because the manufactures price on electricity will go up. This is called passing on the cost to the consumer. Just like they pass on the total tax to them, on to you.

This is all assuming any manufacture will even stay in the U.S. after they pass the cap and tax global warming carbon B.S.



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Honor is not holding your hand out for something you did not earn.
Honor is not forcing your ideas, or belief on others.
Honor is not something given to you by way of job, or title.

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