How the Bottom Fell Out of the Speyers’ New Vision for Stuyvesant Town

Shortly after 9 a.m. on October 17, 2006, Rob Speyer, the strong-jawed 37-year-old future co-CEO of Tishman Speyer, called his father, Jerry, the company’s other co-CEO, on his cell phone and announced, blearily but proudly, that after fourteen hours of negotiations, the biggest real-estate deal in American history had been signed. Tishman Speyer, along with BlackRock Realty, had agreed to buy Stuyvesant Town and Peter Cooper Village, a sprawling 80-acre complex on the East Side of Manhattan, for a record $5.4 billion from MetLife, which had developed it with the help of Robert Moses and owned it since the Second World War.

By design, the deal was a changing of the guard, both for Tishman Speyer and for Manhattan. Though Rob Speyer had over the years taken more and more of a role in the company, the Stuyvesant Town transaction was an enormous moment for him. His father, a legendary New York City macher and a close Bloomberg ally, made a concerted effort to cede the spotlight to his son—his first visit to the complex was deliberately made at night, out of sight of the press. The Times called it Rob’s “very public introduction.”

Rob and his father saw the deal as taking place at a time of demographic transition in Manhattan. They had a very specific idea of the kinds of people who would be populating the new city. Stuyvesant Town and Peter Cooper Village—known as Stuy Town by most residents—were gargantuan symbols of the old city. Finished in 1947, the mammoth housing development had represented a kind of New Deal for returning veterans, and a sign of the power of government and corporate America to make the city hospitable to a rising generation. The Gashouse District, which Moses called a slum and the 11,000 residents who lived there called a neighborhood, was bulldozed to make way for the complex’s construction on the far east flank of Manhattan, from 14th Street to 23rd Street. Over the years, it has become one of the last bastions of the middle class in Manhattan, a distinctly unglamorous if verdant oasis—actual lawns, actual trees—of redbrick high-rises, where the traditional real-estate rules in the rest of the city didn’t seem to apply. The average rent-stabilized two-bedroom, if you were lucky enough to get one, could be had for $1,400 a month. Stuy Town was the kind of place where the children and grandchildren of immigrants ended up. Heavily Jewish, Irish, and Italian (blacks, shamefully, were excluded until the sixties), populated by teachers and government workers, MetLife employees and policy holders, among others, it was a city unto itself, with 25,000 residents and an emphasis on family. The complex has always had a pronounced civic ethos—as befits a place where many civil servants reside—that has given birth to such thinkers as Times columnist David Brooks and Obama strategist David Axelrod. With its workaday high-rises, it was the most modest of Utopias—an entire middle-class suburb miraculously set below 23rd Street on the East Side.

But by 2006, the sun seemed to be setting on the middle class in Manhattan. The blasting real-estate scene gave a whole new meaning to “market rate” apartments, and fewer and fewer people in the city believed in rent stabilization as a core value. The complex seemed a kind of anachronism—and, to the Speyers, a huge opportunity. To start with, the phrase “80 acres of Manhattan” is, to real-estate men like Rob Speyer and his father, a talismanic incantation. But it was more than just the acreage. Rob had a vision. He believed that by adding amenities and remodeling apartments—and forcing out longtime tenants who held on to their apartments in violation of rent-stabilization law—they could make Stuy Town hospitable to the new armies that were increasingly populating Manhattan, the recent college graduates with jobs in marketing and finance who worked long hours and wanted a full-service experience (including even a putting green).

“When we first looked at the property, we thought there were quality-of-life issues that made it less desirable than other Manhattan properties,” says Rob Speyer. “Access to public transportation was a challenge, so we introduced a trolley. There were few entertainment options, so we created an event series. We tried to improve a stark living environment, so we planted trees and we invested in a health club,” among other amenities. There are a passel of social programs—football parties, ski trips, margarita parties—that bring to mind some humongous cruise ship moored in the East River. The idea is that no one should come home from their new job and be lonely, if they don’t want to be.

The Speyers were not the only ones to think of real estate in these terms. Late in the bubble, many developers marketed new buildings not merely as places to live but as “lifestyle communities,” a sort of cross between a hotel and spa. In reality, these new developments were basically dorms catering to the thousands of young, recently transplanted professionals who would shuttle from work to their personal trainer to dinner at Ono. Buildings like André Balazs’s William Beaver House in the financial district seemed to promise a kind of post-frat lifestyle where every moment not spent at work was spent cocktail in hand amid nonstop hilarity.

With its stolid high-rises and families and fixed-income old people, Stuyvesant Town seemed at first glance an odd addition to the postgrad-playpen vision of the city. But its campuslike scale and greenery were unique—irresistible in their way. And the Speyers planned to spend $150 million on new amenities and upgrades.

The deal was also a sharp detour for the Speyers. Tishman Speyer had very rarely owned or operated residential property in New York, and acquiring a rent-stabilized development as complicated as Stuy Town was an audacious play in a cresting market. Historically, developers had steered away from buying rent-stabilized properties. Making money by converting units to market rate is a painful, drawn-out proposition in a city with a fierce pro-tenant lobby, and with a property as legendary for its stubborn New York values as Stuy Town. But by 2006, the real-estate markets that the Speyers had heretofore focused on was showing signs of peaking. Shrewdly, in the first half of 2007, they unloaded much of their portfolio at historic levels, selling some $10 billion worth of property. For the Speyers, rent-stabilized property looked like an opportunity—the last bargain.

Like so many of the deals completed at the market’s peak, the financial assumptions underlying Tishman Speyer’s bid were aggressive, assuming steadily rising rents. The buildings at Stuy Town and Peter Cooper Village were 73 percent rent stabilized, and making the deal profitable would require the messy public-relations exercise of ferreting out illegal rent-stabilized tenants. The real linchpin of the plan, they say, was to dramatically increase the rents for apartments on the open market. At the time of the purchase, the rents for the properties covered only 58 percent of the debt. The deal assumed that income from the two properties would triple by 2011. The deal also assumed that over the next five years, Stuy Town and Peter Cooper Village would be worth nearly $7 billion—a 23 percent increase over its purchase price. “The assumption was the market would continue to go screaming up,” says Robert White, the president of Real Capital Analytics.

The thinking behind the Stuy Town bid was that Tishman Speyer could actually profit from a downturn. As the condo market suffered, owning a portfolio of multifamily rental buildings would be a hedge against a slowing sales market (people rent when sales decline, the logic goes). “The idea was the condominium market and the housing market were starting to soften, and we thought the multifamily business would be a great countercyclical bet,” Rob explains. (Around the same time, he also invested $250 million in the infamous $22.2 billion Archstone-Smith deal that was partly to blame for Lehman’s demise.)

Some who were involved diagnose a certain grandiosity in the Speyers’ pursuit of Stuyvesant Town. “Rob saw the potential for such glory in making this deal,” a former Tishman Speyer executive says. “It was not our core competence. The question wasn’t asked, ‘Should we do this?’ ”

But many of the most powerful real-estate families—the Lefraks, the Kushners, the Rudins, the Dursts—made similar plays for Stuyvesant Town and were disappointed not to get it. “If he hadn’t been at the company and had the talent,” says Jerry, “I would have done it myself.”

As it turned out, the economy went south far faster than anyone imagined. There is tenant unrest—the New York Post reported that a $40 million class-action lawsuit might be filed shortly—and the Speyers and BlackRock are spending considerably more per month to finance Stuyvesant than they bring in, in rent, and this burn rate has shrunk the reserve fund from $400 million to under $130 million. At this rate, the reserve fund is liable to be gone by the end of the year, meaning that the Speyers and BlackRock will have to raise more money, which will be difficult in this climate, to say the least. For the Speyers, who have been trying to refashion their image from property management to more of a glamorous, private-equity model, the very public foundering of their signature deal would be a significant blow to their ambitions.

The most optimistic predictions of when the deal might be profitable are the middle of the next decade, if not after. But in its assumptions and its current problems, Stuyvesant Town is emblematic of what was happening everywhere in the city at the top of the market—and what is happening after.

A few weeks after the deal closed, Rob called a meeting in his office with Al Doyle, Jim Roth, and Susan Steinberg, the leaders of the Stuyvesant Town–Peter Cooper Village Tenants Association. During the bidding for the property, the tenants submitted a $4.6 billion offer. Rob, a former journalist, knew he had a developing tenant problem, and he wanted to clear the air. “In another year, you guys will be happy how we turned things around,” Rob told the tenant leaders, according to Jim Roth. “We pride ourselves on service.”

The tenants were not so quickly persuaded. At bottom, what’s happening at Stuy Town is a culture clash, a version of what’s happened in gentrifying neighborhoods across the city. At Stuy Town, many see the Speyers as desecrating the old neighborhood, turning it into a theme park. There’s a heavy dose of nostalgia here that can seem odd to an outsider. “They turned this place into Sherwood Forest!” Al Doyle tells me, pointing to a copse of new trees when I meet him and Roth one bitterly cold afternoon in early December. “From my point of view, Jim and I have been here all our lives, we’re used to the lawns. I could take you over to where we used to ride the sled down. That’s what we’re used to. My taste is,” he says, motioning to another group of trees, “I just don’t like it.”

“They’ve turned many of these buildings into dormitories,” Roth complains (he isn’t joking; both NYU and the New School have taken space there), as we walk past the new glass-encased library. A half-dozen twentysomethings are reading at tables. From a distance, they seem to float inside the windows like a school of fish in an aquarium. Doyle and Roth point out places along the paths where they spent their time as kids. There were the fields where the Catholic kids from Epiphany School played, and the playground up the way was where the Jewish kids shot hoops. We pass by the giant Christmas tree Tishman Speyer installed at the center of the complex. In 2007, Tishman Speyer staged a lighting ceremony and invited a group of Stuy Town’s original tenants to attend. Roth just shakes his head. “It’s a PR deal. They try and make it look like nothing has changed,” he says. “They invite four or five original tenants, their kids, and their grandchildren. They’re portraying this lovely community-family atmosphere. That’s nice, but you look at the picture and you see those grandchildren? None of them will be able to live here. It’s a sham. They’re very good at it.”

Tishman Speyer executives believed their experience managing commercial properties would translate directly to running a massive residential community. “How hard can it be?” one senior Tishman Speyer executive mused in a meeting, according to a person familiar with the conversation. “It’s people in buildings. We do it all over the world.”

Possibly, Rob believed that his menschy, plainspoken man-of-the-people mien would serve him well dealing with tenants. But it’s been harder than it looked. One day this past fall, Rob visited the property to check on the progress of the renovations. Construction crews had recently finished landscaping the grounds. Rob ran into Doyle, the tenant leader, and asked him—“thinking we would finally have something that they would love,” as Rob later put it—what he thought about the new plantings. Doyle complained there were too many trees. “Who could have a problem with flowers, bushes, and trees?” Rob says. “I was flabbergasted.”

To fill unoccupied apartments, Tishman Speyer has been marketing Stuy Town on college campuses to lure recent graduates, who pack themselves by twos and threes into one- or two-bedroom apartments carved up by walls and screens. These residents seem much happier with their circumstances. “I bump into so many people I know all the time, people from high school and college,” says Jennie Berry, a recent Columbia grad who is an equities analyst at Bloomberg. Last spring, Berry moved from Murray Hill with her roommate to a divided one-bedroom at Stuy Town after her previous landlord hiked their rent by 20 percent. “We still have some ancient people living in our building,” she says. “But they don’t call the cops on us or anything.”

Attracting new residents hasn’t been easy. In the summer of 2007, when Tishman Speyer raised rents on the market-rate apartments to $3,055 for a one-bedroom, vacancies spiked from about 150 to about 800, according to sources familiar with the occupancy figures.

In the old days in New York City—the good old days, to many at Stuy Town—a rent-stabilized apartment was an asset not to be parted with, no matter how much your income happened to be or where you spent most of your time. For years, some of Stuy Town’s residents had skirted the rent-stabilization laws, keeping their apartments as pieds-à-terre while they lived elsewhere. (One Michigan newscaster, Jeff Varner, the former Survivor contestant, kept his place for nearly a decade after he moved.) MetLife, the previous owner, practiced a largely hands-off approach to managing the property, for fear of inciting a public-relations debacle. But that’s not an option for Tishman Speyer.

At the weekly staff meetings at the on-site management office, the most important question was, How many rent-stabilized apartments had been recovered? “You would get a daily e-mail if they got a unit back,” a former employee explains. Rob’s team had developed a two-part strategy for making the Stuy Town deal work. They would remove tenants who were illegally occupying rent-stabilized apartments, at one point employing three different law firms in the effort. Tishman Speyer has issued 1,009 nonrenewal notices, totaling 12 percent of the rent-stabilized leases.

At one of the meetings, in December 2006, Adam Rose, the co-president of Rose Associates who was managing Stuy Town’s operations at the time, set off alarms among the group when he told them it would be realistic to recover just 8 percent of the rent-stabilized apartments in the first year, which was almost double the historical average. The business model, however, called for a much higher turnover rate. “That’s not what our pro forma says,” one analyst interjected over the speakerphone, according to a person in the room. Rose, who had been managing the property since 2002, held his ground, saying double-digit turnover was an impossibility no matter what number the analysts had plugged into their spreadsheets. Another person familiar with the exchange says Tishman Speyer quickly revised the number of apartments they could convert to market and lowered their projections accordingly.

Soon, word of Tishman Speyer’s aggressive tactics leaked out to tenants. In one staff meeting not long after the deal closed, executives discussed how they could tailor services to cater to the market-rate tenants, according to a person who was present. Counters Tishman Speyer spokesman Steven Rubenstein: “This is one community, and it is our firm policy to treat everyone the same way.”

Legal battles are constantly raging. Critics say that Tishman Speyer’s net ensnares tenants who are living legally in their apartments. Colby Feller, who was laid off from his tech job at Pfizer last year, had been living at Peter Cooper for eight years when Tishman Speyer notified him in October that it would not be renewing his $1,000 lease. His father, Bruce, was an employee of MetLife who had lived in Peter Cooper since 1984, until he retired to Long Island several years ago. Colby had been on the lease since 2000. Over the summer, Bruce wrote to Tishman Speyer explaining that he was no longer living in the apartment and that his name should be taken off the lease. Tishman Speyer never responded to that letter, instead issuing nonrenewals to both father and son, citing a nearly seven-year-old New Orleans address that Colby maintained for just several months after college. Colby, who was out of work when he got the notice and was unable to pay for the legal fees, didn’t know what to do. Bruce and Colby turned to James B. Fishman, a tenants’-rights lawyer, for legal advice. Within twenty minutes of Fishman’s first e-mail, David Skaller, the lawyer representing Tishman Speyer, wrote back that they would allow Colby to keep the apartment.

“They’re just throwing darts to come up with these people,” says Fishman, who has been handling dozens of cases on behalf of residents like the Fellers. “The general view that rent-regulated tenants are freeloaders, that’s the starting point—they’re getting something they don’t deserve. If you have that mind-set, it’s easy to say, ‘Who cares if we drag these people through litigation?’ ”

“We take every complaint seriously,” Rob says. “The question we sometimes have is, ‘When is the complaint real, or when is the person using nonsubstantive complaints to advance an agenda?’ ”

Whatever the case, Tishman Speyer hasn’t been able to recover as many apartments as it had anticipated. Tenants like the Fellers have reportedly fought off more than 50 percent of the cases brought against them. “Stuy Town is the quintessential rent-stabilized apartment filled with well-educated old Jews, and you shouldn’t fuck with them,” says one affordable-housing advocate. “What the hell were these guys thinking?”

“What happened, candidly, was we overstepped a bit,” Rob says, speaking about the efforts to raise Stuy Town’s rents to luxury levels. It’s just before noon on a day in early December, and Rob is seated on a low-slung bench in the second-floor lounge of the Soho Grand Hotel, explaining how they’re planning to make the Stuy Town deal pull through. Jerry sits by his side. Both are wearing dark suits, and Jerry’s jacket is accented by a fine white pocket square. On his left wrist, he wears a whimsical Mickey Mouse watch, a tiny puncture in his formality. “In any business, you look at your inventory, you price your business to move your inventory,” says Rob. Last year, vacancies declined, as Tishman began offering incentives like a free month’s rent, no security deposit, and $1,000 American Express gift cards for recruiting new tenants. “We worked off the inventory very quickly in early ’08,” Rob says.

Succession is much on the mind of Jerry Speyer. “I can tell you really simply. Rob did the deal,” he says. Rob fidgets slightly in his seat, in a way a child does when a parent defends him in public. “He did an outstanding job in wrestling it down to the ground and making it ours.”

As a general principle, the Speyers do not talk to the press. As a business-school student, Jerry had wanted to be a merchant banker. He abandoned finance for real estate, but his preference for the discreet exercise of power remained. Jerry served as chairman of the New York Federal Reserve, currently sits on the boards of Carnegie Hall and MoMA, and is a chair emeritus of Columbia. He was influential in Mayor Bloomberg’s campaign to seek a third term. Jerry’s power, to a large extent, is that many New Yorkers don’t know how powerful he really is.

In this regard, son has emulated father. While names like Trump and Kushner appear regularly in “Page Six,” Rob has preserved a low profile and is already burnishing his civic credentials, chairing the Mayor’s Fund to Advance New York City, for example. (It also helps that Steven Rubenstein, Rob’s publicist and close childhood friend, does an effective job of shielding him from reporters.) In November, Rob married Anne-Cecilie Engell, a beautiful 32-year-old Danish marketing director, in a small family ceremony at the couple’s Soho loft. The wedding was marked only by a brief announcement in the Times. Rob is different from his father in at least one way. Unlike Jerry, who has a paunch from one too many business lunches, Rob maintains a wiry frame from regular yoga workouts (“Defintely no fries,” he said as we ordered lunch). At one contract signing, he pulled out two cans of Red Bull.

By all accounts, Rob and Jerry maintain an intimate working relationship. Their offices on the seventh floor of 50 Rockefeller Center are connected by a conference room. As co-CEOs, they each maintain a veto power and can override the other’s ruling, though they have never done so. “It’s like one can finish the other’s sentence,” says Sandy Lindenbaum, an attorney with Kramer Levin who often represents Tishman Speyer. But Jerry isn’t afraid to remind his son of his station. In 2004, Rob successfully raised $100 million from the New York City employees’ pension fund. In a meeting at Comptroller Bill Thompson’s office after the deal closed, Jerry ribbed Rob on making the deal. “I wouldn’t have agreed to those terms,” Thompson recalled Jerry saying with mock indignation.

Rob almost didn’t follow his father into the family business. He fell into journalism after turning down a Marshall scholarship to study at Oxford upon graduating from Columbia in 1992. He spent a year as a reporter at the New York Observer, then jumped to the Daily News. At the News, Rob worked as a general-assignment reporter, covering crime and politics and whatever other stories editors threw him onto. “He was smart, he was cocky, he was young,” says former metro editor Richard Esposito.

In a newsroom dominated by blue-collar sensibilities, reporters were intrigued, and skeptical, that an heir to one of the city’s great fortunes was slumming with them. “I remember once he came into work with a woolen toggle coat, it looked like something out of Burberry, and we were all giving him shit about it,” recalls Corky Siemaszko, a veteran of the News’ rewrite desk. But Rob distinguished himself as a resourceful reporter (he scored the first post-trial interview with O.J. Simpson by staking out a Florida golf course). By 1995, Rob decided to leave newspapering. It was about this time that the real-estate business was coming out of a deep slumber following the 1991 recession. Rob joined Tishman Speyer in 1995.

For Jerry, Rob’s was a welcome arrival. New York real estate is a business dominated by bloodlines: clans like the LeFraks, Rudins, Dursts, and Trumps. Tishman Speyer was founded, and remains, a tightly controlled family business (Rob’s older sister, Valerie Peltier, is a Tishman Speyer employee; his stepmother, Katherine Farley, is an executive in charge of the firm’s emerging-markets division). The company’s roots date to the nineteenth century, when Julius Tishman first built tenements on the Lower East Side. The enterprise flourished and was inherited by his grandson, Bob Tishman. In 1963, while attending Columbia Business School, Jerry married Bob’s daughter, Lynne Tishman. Three years later, Jerry took a job as an assistant to his father-in-law. Like his father, Rob joined the company at the bottom. At first, he was assigned to the leasing department. By 1998, Rob was given his first break: He was put in charge of a development project at 222 East 41st Street that was difficult because of zoning reasons. According to Sandy Lindenbaum, the lawyer who represented Tishman Speyer in the rezoning effort, “Rob said, ‘I know this is complicated, but I want to go to meetings with you, even if you don’t think you need me at the meeting. I want to go, because I want to learn.’ ”

Rob was handed more acquisitions. In 1999, he led a team that bought Colgate’s headquarters at 300 Park Avenue in a $225 million deal. Rob devised a plan to retrofit the building’s garish pink exterior with bigger windows and a modern aluminum skin. Today, one source said, the property has been appraised at $1 billion.

In January 2004, he bought the Philip Johnson–designed Lipstick Building at 885 Third Avenue for $230 million. In November 2004, he snapped up the former New York Times Building for $175 million (he flipped it two and a half years later for $525 million). Rob’s ascent through the Tishman Speyer ranks coincided not only with the expanding real-estate bubble but also with a time of generational transition for the city’s leading real-estate families and the arrival of a new player in town: Jared Kushner, the 28-year-old scion of disgraced New Jersey developer and political donor Charles Kushner. Industry observers couldn’t help but note a potential rivalry. “You had a situation where both fathers wanted their sons to come out,” says one senior real-estate executive. “In the case of Kushner, it was a chance to redeem himself and have his son rise above his [father’s] problems.” In March 2005, Charles Kushner was sentenced to 24 months in jail for tax violations and his attempted plan to blackmail his brother-in-law by hiring a prostitute to seduce him while being videotaped. With his father behind bars, Jared was installed to run the family’s real-estate empire. While still a joint law-M.B.A. student at NYU, he bought the New York Observer for $10 million and began landing in “Page Six” with girlfriend Ivanka Trump.

In reality, Jared’s public profile far exceeded his clout within the Kushner family. “Lets face it, Charlie is a strong-willed guy who is extremely focused on what he wants,” one top commercial broker who deals with the Kushners says. “Behind the scenes, it’s really Charles.”

With its stolid high-rises and families and fixed-income old people, Stuyvesant Town seemed an odd addition to the postgrad-playpen vision of the city.
By the fall of 2006, the Kushners wanted to grab a signature Manhattan property. After a failed bid to acquire 1211 Sixth Avenue for more than $1 billion, the Kushners set their sights on 666 Fifth Avenue. The problem was, the building wasn’t really for sale.

In October 2006, Jared placed a call to Rob. He had heard Tishman Speyer might be willing to sell a portion of their investment in 666 Fifth, but he wanted to buy the property outright. He bid $1.8 billion. On December 6, 2006, Jared and his team arrived at the offices of law firm Schulte Roth for the all-night negotiations. As dawn approached, Rob’s brokers directed Jared to wire a nonrefundable deposit of $100 million to Tishman Speyer’s account. When asked for the money, Jared stalled; he had only $50 million available and would need an extra day to transfer the full amount. “We’re going to get the money together,” Jared said.

Scott Latham, a Cushman & Wakefield broker representing Tishman Speyer, was furious. “This isn’t the way we do deals in New York!” he shot back. “We don’t need excuses that you’re trying to pull together money from five or six places.”

The tension mounted. If word leaked out that the deal was falling apart, it would damage Tishman Speyer’s chances with other bidders.

Calmly, Rob motioned to Jared, and the two left the room. In the hallway outside the conference room, Rob explained to Jared that the money needed to change hands now. “I’m not giving you 50 million dollars of my own money because I’m bullshitting you,” Jared told Rob. “You have to trust me.” Rob and Jared came to terms, and later that morning, a deal was signed.

“Rob and I are both lucky to have had great mentors,” says Jared. “Both of us would be content accomplishing a fraction of what our fathers have done.”

The sale of 666 Fifth Avenue kicked off a furious spate of sales for Tishman Speyer. Rob believed the commercial market was overheating. In the first half of 2007, Tishman Speyer sold $10 billion worth of properties, including some $3 billion in New York real estate alone. “We made a decision to sell most of our mature assets,” Rob says.

Rob’s ascension to co-CEO arrived in June 2008. In March, the MTA had awarded Tishman Speyer the rights to develop the 26-acre West Side rail yards, a billion-dollar deal. “My first job was working on what was then the new Madison Square Garden,” says Jerry. “You can imagine how I felt when Rob told me we were going to be the developers.”

But soon the talks with the MTA sputtered. Rob and his team reportedly sought to write a provision into the deal that would waive any lease payments until the land was rezoned, a process that could take several years; the MTA wanted money right away and wouldn’t budge. After an all-day meeting with Tishman Speyer’s management committee, Rob was prepared to sign the deal. But around 4:30, when he showed up at the office of Gary Dellaverson, the MTA’s chief financial officer, his heart seized. “It wasn’t the right deal for us,” Rob recalls. He asked Dellaverson to delay the meeting.

Rob hustled back to his office and called Jerry out of a meeting. Father and son went for a walk, which turned into a six-hour soul-searching ramble through the city, ending up at 3 Guys Restaurant around midnight. They sat down and ordered tuna sandwiches. “You know how much I want to do this deal,” Jerry said to Rob, “but I also recognize you’re going to be stuck with this for a long time, and you have to make a decision, so whatever you decide is what we’re going to do.”

Rob listened and then put down his sandwich. He told his dad they couldn’t do the Hudson Yards deal. “That was a tough moment,” Jerry remembers. “I thought it was a really gutsy decision. At that moment, I decided Rob should be the guy.”

Making succession official has meant Jerry needed to recede into the shadows. “You don’t often see the two of them together,” says a city official. “That has the ability of undermining Rob, and everyone just talks to his dad.”

In July 2006, when MetLife announced it would be listing Stuy Town, the market was speeding along. A bidding war broke out among more than a dozen suitors, including the city’s real-estate moguls, the Rothschilds, and the prince of Qatar.

Early on in preparing his bid, Rob learned that Larry Fink, CEO of BlackRock, was planning his own bid. During a meeting on an unrelated deal, Rob and Fink decided to team up and bid jointly. Each brought mutually beneficial skills to the deal: BlackRock had a global network of investors to tap, and Tishman Speyer would manage the property. Early on, Fink made it clear he wanted little to do with the day-to-day running of Stuy Town. Touring the complex shortly after the deal closed, he grew agitated when an elderly lady approached and peppered them with questions about their plans for the property. “That’s exactly why God invented Tishman Speyer,” Fink quipped, according to a person present.

News that Tishman Speyer was awarded the Stuy Town deal rankled competitors. Rumors swirled that MetLife had arranged a “handshake deal” with Tishman Speyer prior to the auction. Another bidder said that Tishman Speyer made concessions at Stuy Town that no one else seemed willing to make. “We kind of saw that this was something these guys wanted to own no matter what,” a rival executive says.

Like so many of the transactions of that vintage, virtually all of Stuy Town’s debt—and risk—was packaged and sold off as bonds to investors. In what would become the Manhattan version of the subprime-mortgage crisis, the Stuy Town deal was financed with 80 percent leverage. According to people with knowledge of the deal’s structure, Tishman Speyer contributed $56 million of its own money to the $5.4 billion purchase price and didn’t use any of its other properties as collateral. “Jerry is a lover of nonrecourse debt and other people’s money. He liked deals where he could contribute sweat equity,” one real-estate investment banker says. “They have so little money in, and they make so much in management fees, they have nothing to lose when it goes under,” a former Tishman Speyer staffer said.

The financing for the Stuy Town deal was facilitated by a fast-talking Wachovia banker named Rob Verrone. During the bubble years, Verrone became a symbol of the risk-taking that helped inflate the Manhattan market, and in real-estate circles he was dubbed “Large Loan Verrone.” From his table at San Pietro, Verrone held court and pitched Wachovia’s commercial-lending division to real-estate magnates like Donald Trump and Harry Macklowe. Verrone raised more than $4 billion for Stuy Town. Another $500 million came from Merrill Lynch.

The game was really one of hot potato. Wachovia put $1 billion of the bank’s money into the Stuy Town deal, but the neat trick was that Wachovia sold the debt to investors. Hundreds of millions of dollars of Stuy Town’s equity is actually held by a Korean investment fund and CALPERS, the giant California retirement fund, among others. Wachovia also bundled Stuy Town’s $3 billion mortgage in a $7 billion bond offering. Another $1.4 billion tranche of financing, known as “mezzanine debt,” is held by investors including the real-estate firm SL Green and the government of Singapore.

But in early January 2007, Wachovia executives were nervous. The Stuy Town deal had closed, but the Wachovia bankers had yet to sell all of the $1 billion of the bank’s investment in Stuy Town to investors. Tom Wickwire, a mild-mannered banker who ran Wachovia’s real-estate division, called a meeting with Tishman Speyer to make sure everyone was onboard to sign up investors who could take the equity off Wachovia’s books. “We were concerned,” a former senior Wachovia executive said. “We held the risk.”

Rob Speyer and Paul Galiano, a Tishman Speyer senior managing director, joined Verrone aboard Wachovia’s Challenger jet and flew down to Charlotte. The executives gathered in a conference room and went over lists of potential investors. Rob assured the Wachovia bankers that Tishman Speyer would tap their network of investors and help move the bridge equity off Wachovia’s books. Afterward, Rob and Galiano hopped the Wachovia jet for the short flight back to Teterboro. Just as the plane was landing, the pilot pulled the jet back into the air, nearly clipping a helicopter. Passengers were told that the brakes had malfunctioned and they would need to divert to Newark to make an emergency landing. They were told to tie down any loose objects in the cabin and cinch their seat belts. Rob braced himself for the rough landing—but the plane managed to stop safely on the runway in Newark.

It was a scary time—but there are liable to be more of those. “This moment is scarier than post-9/11,” says Brian Ray, a former Tishman manager, about the real-estate market. “You don’t know what anything is worth anymore. Nine-eleven was scary, but the sun still went up in the east and went down the in the west. Today, it’s like, Where is this going?”

Stuy Town, says one industry observer, is “too big to fail.” But Tishman Speyer is struggling to make its numbers. The company has stopped renovating apartments and has recently laid off 5 percent of the Stuy Town staff, say sources. Default cannot be discounted as a possibility, and in that case, investors would have to get into a room and sort out a meltdown. “This has never been tested before,” says a senior real-estate investment banker. Last week, when Rob was asked if he regretted doing the deal, he hesitated for a long while. But then the optimism of the real-estate man returned. “It is a very challenging market,” he said. “But we still believe in this property long-term.”

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