John Petro

Building Owners Surrender After Failed Business Model

Renters might finally be seeing some justice in New York City. First, Tishman Speyer will surrender Stuyvesant Town and Peter Cooper Village to its creditors. The company famously bought these properties and their 11,200 rental apartment four years ago for $5.4 billion.

Tishman Speyer knew that the rents collected from the buildings, in which a large number of apartments are rent-regulated, would not cover the massive mortgage payments. But the company had a plan: aggressively deregulate apartments and introduce dramatic rent increases. Basically, Tishman Speyer planned on running families out of their homes.

Luckily for New York City, the company was not able to displace as many residents as it had projected and the company faced default on its loans. Now we can only hope that a responsible real estate company will step forward and keep these apartments affordable.

Across the city other buildings have experienced a similar fate. Investors bought buildings with hopes of turning out long-time rent-regulated tenants, increasing the rent, and making a handsome profit. However, as this business model turned out to be untenable, building owners have neglected their properties and tenants have suffered from deteriorating building conditions.

But the city has come up with some innovative solutions for stabilizing these buildings. Under the guidance of Housing Preservation and Development Commissioner Rafael Cestero, the city will leverage $750 million in capital to lend to responsible real estate companies to gain ownership of distressed properties across the city. Properties would then be maintained as affordable housing.

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Posted at 6:14 PM, Jan 25, 2010 in Urban Affairs
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