Stuyvesent Town

1. From the vantage point of 2006, was the investment a reasonable risk? For this question, you may want to also consider whose money was ultimately at risk.

Tishman’s acquisition of the complexes in Stuyvesant Town-Peter Cooper Village is the largest deal in American real estate history, and it seemed to be a glory for Tishman Speyer at first.

From the vantage point of 2006, I would say the investment was a reasonable risk but a little risky. In 2006, the market was performing well and everything looked so good. With rents and condominium prices skyrocketing in 2006, the real estate market seemed to be promising. Also at that time, the capital moved fast and the cost of money was cheap.

The sponsor, Tishman Speyer and BlackRock only put 250 million into this multi billion deal. The sponsor raised another 1.6 billion equity and got a total loans of 4.4 billion. So compared with the total investment, the sponsor actually put in a small amount of money. The mortgage of this deal was packed into CMBS and sold to investors. So for the sponsor, the risk is reasonable.

2. As noted earlier, the project defaulted on its financial obligations in January 2010. What do you believe were the primary drivers that caused the project to default? Please note which drivers you think were more or less responsible for the default. To what extent, if any, did the credit crisis affect the owner’s default or limit the owner’s options?

First, as we know, the base of evaluation is the cash flow from tenants, and Tishman Speyer needed to increase the rental to support the appraisement. In fact, 73% of the apartments are rent-stabilized so if Tishman Speyer wanted to increase the rental, the company would encounter troubles. The truth is, it did. As discussed in the reading material, the Tishman would need to dramatically increase the rental because at that time, the rent income only cover 58% percent of the debt. It’s obviously economical infeasible and in turn prove that the...