Tishman Speyer Properties was dealt a huge setback yesterday after the state’s highest court ruled that the real estate giant improperly raised rents on thousands of rent-stabilized apartments at the sprawling Stuyvesant Town-Peter Cooper Village apartment complex on Manhattan’s East Side.
The stunning 4-2 decision by the state Court of Appeals, which was cheered by renters and jeered by landlords, could result in millions of dollars in damages and rent refunds to tenants who’ve seen their rents skyrocket as landlords sought to bring rents closer to market rates.
The ruling could also push some landlords, including Tishman, to walk away from properties whose values have sunk in the wake of the uncertainty surrounding the rent-hike issue.
For Tishman boss Jerry Speyer, the ruling is especially damaging, as the complex has lost half its value since he orchestrated a record $5.4 billion purchase of the 80,000-unit property in 2006 using scores of investors, including the Church of England, pension-fund giant Calpers and money-manager BlackRock. Just yesterday, an estimate pegged the complex’s worth at $1.98 billion.
But Tishman’s most immediate concern is its $3 billion mortgage on the property, which was close to default even prior to the ruling. The owners have been quickly depleting cash reserves set aside to pay for things like mortgage interest, and yesterday’s ruling blocks Tishman from raising the money it needs to replenish those coffers.
“This could be the last straw for Tishman,” said Steve Kuritz, a property analyst with real-estate research firm Realpoint. He said the real-estate giant may get fed up enough with the troubled property to simply “turn over the keys.”
The court’s majority ruled that Tishman improperly raised rents beyond allowable levels on some 4,000 rent-controlled apartments while at the same time collecting city tax breaks for property renovations. The ruling, which upholds a March decision by a lower court, could impact the owners of as many 80,000 apartments across the city.
Tenants yesterday cheered the ruling, calling it a victory for middle-class housing.
“This is an impressive victory for the taxpayers of this city and for the tenants of Stuyvesant Town,” said New York City Councilman Dan Garodnick, who lives in the complex.
Overshadowing the celebratory mood, however, were concerns about what will happen to the property and to tenants if Tishman was to jump ship.
“I don’t want this turning into, quite frankly, a housing project,” said Jonathan Turkel, an attorney who has lived in the complex for 30 years. Tenants like Turkel say they suspect cuts to services like security and maintenance have already been made as a result of the economic downturn.
Tishman officials declined to comment on their next step, but a person close to the deal said they are still discussing their options.
“They thought they would win, to be honest,” this person said.
The tenants have discussed buying the property if it became available, but no concrete plans have been set and it’s unclear whether they could get the financing, especially given the tough lending environment.
A more likely scenario, experts said, is that wealthy investors with loads of cash stored up in distressed real-estate funds will begin sniffing around the property.
Meanwhile, the city’s landlords say they want guidance on what the ruling means for them, as they fret about being bombarded with lawsuits from tenants seeking rent refunds. The Court of Appeals refused to rule on the question of refunds and damages.
As part of the high court’s ruling, the case will be booted back to the State Supreme Court, where some of the questions should be answered.