Arlynne Miller has been disgusted by changes at Stuyvesant Town/Peter Cooper Village in recent years, ranging from a falloff in building maintenance to the installation of a ice-skating pond that residents must pay to use.
But there’s hope. Ms. Miller said she’s excited by plans for tenants to team up with a deep-pocketed Canadian firm to buy the rent-regulated complex and turn it into affordable condos.
Will she buy her apartment?
“It depends on the terms,” said Ms. Miller, a 35-year resident of the complex, which stretches along the East River all the way from East 14th to East 23rd streets.
It’s a common refrain among the complex’s 25,000 residents. The unprecedented effort to transform the enormous complex into affordable condos kicked off last week, when the tenants joined forces with Brookfield Asset Management in an effort to buy the historic property, which has about 11,000 units. But given that a concrete plan has yet to be developed, the biggest question—how much?—remains a total mystery.
LONG AND WINDING ROAD
Determining that figure and sorting out myriad other details promises to be a long, arduous task, since any plan must satisfy the differing goals of various tenants and financial backer Brookfield—not to mention CWCapital, which now controls the property.
“The project seems fraught with problems,” said Ronald Kremnitzer, co-chair of the real estate practice at law firm Pryor Cashman. “How are they going to balance out the needs of those varied groups to come up with a bid?”
For openers, the partners have pledged that tenants won’t be evicted if they want to continue to rent. The greater the number of renters, the lower the size of the bid. And it remains to be seen just what price tenants will be willing to pay if they want to buy their apartments.
Further complicating matters, tenants are considering a two-tiered pricing structure, with a deeply discounted rate for buyers who’d agree to limit their profit when they eventually sell, and a somewhat higher insider rate without a cap on the resale price.
Meanwhile, Brookfield will have to figure out if it can make a healthy profit based on the tenants’ decisions.
Another wild card: the amount of back rent that is owed to some tenants because of a 2009 court ruling stating that the properties’ former owners violated the law by deregulating units while receiving tax breaks. A tenants’ lawyer calculates that they may be owed $200 million. Various parties are hammering out the final figure, which will have a bearing on how much the bidders are willing to pay.
BUYING IN AT 75% OFF
There’s already been a resurrection of a competing plan for the conversion of the property. Last week, a joint venture of investment firm Westwood Capital and developer Gerald Guterman, who was known for co-op conversions in the 1980s, sent tenants a letter reiterating a detailed proposal made last year. Under that plan, tenants would pay about $175 per square foot for their apartments—a quarter of the estimated market value of $700 per square foot.
“We would still love to do this deal,” said Daniel Alpert, managing partner of Westwood Capital. “Our plan makes sense for tenants.”
Sources close to the tenants said the residents and their advisers don’t believe that partnership has the financial backing to complete a deal—a claim that Mr. Alpert denies.
Ultimately, CWCapital will decide which, if any, bid is best. To date, it hasn’t even signaled a desire to sell.
CWCapital took control in late 2009 after the former owners, Tishman Speyer Properties and BlackRock Realty—which bought the complex in 2006 for a record $5.4 billion—defaulted on loans. CWCap-ital represents the bondholders of the $3 billion first mortgage, and some have suggested that bidders would have to offer at least that amount to tempt the company. However, Standard & Poor’s estimated the value of the complex at $1.8 billion two years ago.
“We have to deliver a bid that is the best when [CWCapital] assesses the risk of any others,” said Barry Blattman, senior managing partner at Brookfield, adding that it is too early to speculate on the size of a bid.
If bondholders think the figure too low, they may opt to hold out for a better price down the road once the economy is stronger, say industry experts.
There’s one more hurdle that some say may be the highest of them all.
“The biggest challenge that I see to a deal is that it would be awfully hard to raise debt for such a large transaction,” said Ted Hunter, chairman of the real estate department at law firm Lowenstein Sandler.