Big Deal

The $5 billion-dollar purchase of a middle-income renters' haven concerns housing advocates.

By Les Shaver

Based on the size of the deal, Lamberg estimates that Tishman and BlackRock would need about $3,000 to $4,000 a month per unit to cover their debt service for the properties. That means that more than a quarter of the residents at the 11,232 units at Stuyvesant Town and Peter Cooper Village should expect rent hikes, according to many affordable housing advocates. (This would affect the residents who live in market-rate apartments, not rent-stabilized units.)

The financial reality of the deal frustrates affordable housing leaders. “They pay outrageous prices, and now they'll have to raise rents to get a return for their investors,” says Conrad Egan, president and CEO for The National Housing Conference, an affordable housing advocacy organization based in Washington.

For others, the impending rent increases at the Manhattan properties is just a natural consequence of real estate economics. “When you get such a restriction on supply as they have in the New York area, it pushes the values of existing housing up and up,” says Ron Terwilliger, CEO of Trammell Crow Residential and founder of the ULI Terwilliger Center for Workforce Housing for the Urban Land Institute. “Unless there are government restrictions that maintain the affordability, the market forces will push them up.”

RENT HIKES So far, Egan and Terwilliger have been correct. New York Magazine reports that Tishman Speyer and BlackRock Realty have raised rents 25 percent on certain units at the property, and more hikes could be on the way. Tishman justifies these increases. “The rents at Stuyvesant Town and Peter Cooper Village are well within the market,” says Robert Lawson, spokesman for Tishman Speyer.

Others say the rent increases aren't that big of a deal. More than 75 percent of the residents in the complexes are in rent-controlled apartments, and Tishman has said publicly that it won't push out those renters who are living under rent stabilization. So, there are only two ways for such residents to be displaced: Their income rises and stays beyond $175,000 for two straight years—or they move out. Only then can Tishman raise prices on those apartments.

“There isn't likely to be any large displacement of people with moderate income because rent-stabilized units are only decontrolled if a renter's income is over $175,000 for two years,” says Neill Coleman, spokesperson for the New York City Department of Housing Preservation. “The number of people moving out of rent-controlled units in Peter Cooper Village and Stuyvesant Town is a very small number.”

As more units at Stuyvesant Town and Peter Cooper do stop being under rent control, though, affordable housing advocates fear it will become even more difficult for working people such as teachers, firefighters and policemen to afford to live in the pricey New York borough.

“Communities like Manhattan need to provide opportunities for those moderate-income working families who are the muscles and sinews of their communities,” Egan says. “Essential moderate-income working families are otherwise forced to travel long distances to work, with all the negative consequences of that.”

Others agree. “It could [cause relocations],” Lamberg says. “It's probably going to be gradual, but I'm sure it will do damage and be a loss of affordable housing to the city. These are people who have lived in the city forever. It's not what we want.”

HOLDING THEIR GROUND It's obvious that the renters at Stuyvesant Town and Peter Cooper don't want to see rent increases. They've fought for their homes from the beginning. During the sales process, they cobbled together a bid for the properties. They lost, but they're still fighting to keep the properties affordable. Right now, they're embarking on a lawsuit.

Stuart M. Saft, who represented one of the bidders for the properties (who also didn't win the bidding), noticed during his due diligence for his offer last year that Met Life previously had received the city's J-51 exemption, which provides real estate tax breaks for rehabs, for the properties. He argues that, since the old owner used these benefits to rehab more than 3,000 units, all of the units in Stuyvesant Town and Peter Cooper should remain under rent control for the next eight years, which is the amount of time until their J-51 tax breaks expire.

“It's a section of the law that's never been interpreted before, and we're either right or wrong,” Saft says. “My interpretation is that you can't have a J-51 benefit and remove a rent-stabilized apartment. Their position is that one has nothing to do with the other.”

Saft admits he only has a 50 percent chance of winning the lawsuit, “It [the suit] just came up now because of the sale,” he says. “It's a mechanism to keep the apartments affordable.”

Right now, litigation seems to be the only way for Stuyvesant Town and Peter Cooper Village to remain affordable in the short- and long-term. As Lamberg observes, the lawsuit “could delay the units from becoming high, high rent for years.”

Les Shaver is a freelance writer in Arlington, Va.

The Sares-Regis Group of Irvine, Calif., bought CityGate, a 241-unit apartment community in Denver from JPI for $38 million. The purchase is part of the buyer's goal to reacquire a large portfolio presence in Denver. The property is within walking distance of Coors Field and close to lower downtown and the city's central business district. Apartment Realty Advisors represented the seller; the buyer was self-represented.

ACTION ITEMS

HOW TO GET A RETURN ON A $5 BILLION DEAL

Once word leaked out that Tishman Speyer and BlackRock Realty paid $5.4 billion for Stuyvesant Town and Peter Cooper Village, people scratched their heads. No one knew how the buyers could make a realistic return on the huge apartment deal. While the answer to that question remains elusive, there are some theories on how the new owners might achieve their desired numbers.

Raise the rents. The quickest way for the new owners to turn a profit is to hike the rents on the market-rate units or on the affordable ones, once the residents in those apartments leave.
Develop the land. “The story with the properties is that there's a lot of open space and parking lot space that could possibly be developed for more market-rate uses,” says Carole Lamberg, executive director of Settlement Housing Fund, a nonprofit that owns and develops affordable housing in New York.
Convert to condos. Once a unit becomes destabilized under rent control, the owners also have the flexibility to turn it into a condo. Given Peter Cooper Village and Stuyvesant Town's prime location on New York's East Side, there's little doubt buyers would pay a lot to purchase a unit in such a desirable area.

Keywords:

Subject:: Apartments; Development; Affordable Housing; Sales; Business; Management; Projects; Condominium

State:: New York; Colorado; California

Location:: Denver-Aurora, CO; New York-Northern New Jersey-Long Island, NY-NJ-PA

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