America's Most Expensive Real Estate Deal Goes Bust

It’s official: the biggest real estate deal of all time has gone bust. Tishman Speyer Properties and Black Rock Realty have surrendered Stuyvesant Town and Peter Cooper village, two sprawling Manhattan housing complexes they bought for $5.4 billion for in 2006. This comes as no surprise to residents, real-estate watchers, and economists who have been awaiting the implosion of plans to turn the rent-stabilized haven for middle-class New Yorkers into another condo complex for young investment bankers.

• Developers Got Pummeled by NYC Tenants’ Laws and a Tanking Market, Gabe Sherman explained last year in New York:

"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."

• What Else Did You Expect? asks a letter issued by the Stuyvesant Town-Peter Cooper Village Tenants Association in early January, after the developers defaulted on the $16 million payment. “The news is… the sad, but inevitable result, of a predatory and speculative business plan designed to drive out long term tenants of a stable, middle-class community. The default is the first step in what will likely be a long legal process.”

• Not Much to Explain—This Deal Was Just 'Colossally Stupid,' scoffs Yves Smith at Naked Capitalism. “The acquisition of the 11,000 apartment complex known as Peter Cooper Village and Stuyvesant Town was a classic example of peak of cycle excess.” The $5.4 billion price tag was based on projected rather than actual rentals, Smith explains, and investors (stupidly) did not foresee the roadblocks Manhattan’s "tenant-friendly housing regulations" would pose to developers’ attempts to overturn rent stabilization.

• Stuy Town Explains the Residential Housing Crisis and Heralds a Commercial One, Megan McArdle argues in the January/February issue of The Atlantic. Comparing commercial investors to residential ones, McArdle writes that the Stuyvesant players weren’t "shady subprime lenders or naive kids. Tishman Speyer has been in the real-estate business for decades, and the investors who trusted the firm with their money are sober institutions like the Hartford Financial Services Group and the California Public Employees’ Retirement System." So why the foolish deal? “Game theorists often speak of the ‘winner’s curse’: the tendency of auctions to be won by the people who are the most delusionally overoptimistic. It’s an apt description of what seems to have happened. Not just to the Tishman group, but to America."