By Sabina Mollot
The biggest flop of New Yorkʼs real estate boom was yesterday hailed as the biggest win for its working class.
Announcing that investment firm, Blackstone and Canadian hedge fund, Ivanhoe Cambridge will pay $5.3 billion for the 11,200-apartment Stuy Town Peter Cooper Village apartment complex, Mayor Bill de Blasio crowed, “This is the mother of all preservation deals.
“This is the one we talked about from day one, to unmake the mistake from a decade ago. It’s a very gratifying day.”
Nearly six years after Tishman Speyer walked away from Stuyvesant Town after defaulting on loan payments on a $5.4 billion deal to buy it, de Blasio, along with other elected officials, tenant leaders and Jon Gray, Global Head of Real Estate for Blackstone, cheered the new sale as a win for tenants and the city at a press conference inside Stuyvesant Town’s First Avenue Loop.
According to the mayor’s office, the deal will prevent the loss of what had been a rate of 300 affordable apartments each year.
Under the deal, tenants at the affordable units will be able to remain in place, but when they move, new tenants moving in will have restricted rents if they meet certain income requirements.
Of the 5,000 affordable units, 4,500 will be rented to households earning no more than $128,210 for a family of three, and the remaining 500 apartments must be rented to families earning no more than $62,150 for a family of three. None of those tenants will pay more than 30 percent of their income in rent.
Along with ensuring the apartments that are currently affordable remain that way, so-called Roberts tenants — residents who are currently in renovated apartments paying higher rents — will get five additional years of another kind of rent protection.
When the J-51 tax abatement program expires in 2020, their apartments will no longer be rent-stabilized. Under the agreement, rent increases for those 1,400 tenants would be capped at five percent a year for five years. Blackstone has also promised not to build on the property’s open spaces.
Despite the price paid — a whopping number, despite being $100 million less than Tishman Speyer et al paid for the complex in 2006 — Gray said tenants shouldn’t fear that the switch in ownership will lead to a replay of a desperate landlord trying to oust low-rent-paying tenants.
“This is a very different situation from, back then,” said Gray. “We’re taking a longterm approach to this asset. We have clear rules about affordability. The fact that we signed an agreement with the city of New York with input from the Tenants Association, which obligates us to do certain things makes us very different from the situation back then.”
Gray said the amount the company is borrowing to finance the deal is only 50 percent of the cost, “which, in context with buying a house, 50 percent is very low leverage,” he said.
He also said he expected that the rental market in Manhattan would remain strong.
“We expect continuity,” Gray told reporters during the press conference. “The market is tight. There is a shortage of apartments in New York City. That puts upward pressure on rents. That’s why we are interested in New York City, but we don’t expect any dramatic changes.
“It is a tremendous honor and responsibility to become co-owners of Stuyvesant Town and Peter Cooper Village. We intend to own Stuyvesant Town and Peter Cooper Village on behalf of our investors for many years to come.”
Blackstone Group LP is the world’s biggest alternative-asset manager. This summer, it raised $15.8 billion to invest in global real estate.
According to Bloomberg News, the firm collected more than 90 percent of the pool, its eighth fund for global property, from institutions in about four months. The remainder was raised from individual investors.
New York-based Blackstone has already committed 20 percent of the fund to deals, including $14 billion for real estate assets being divested by General Electric Co., and nearly $4 billion to buy Strategic Hotels & Resorts Inc. In July, the firm acquired a 25-building apartment portfolio from the Caiola Family for$700 million and it increased its presence in the boroughs, snatching up Sky View Parc for $400 million in Flushing in June.
But even though company’s seven previous global property funds have doubled their invested capital, the city isn’t taking any more chances of Stuy Town.
Deputy Mayor Alicia Glen told reporters that if the market does go south and things don’t go the way Blackstone envisions, even if the company sells the property, the next owner would be bound by the same terms Blackstone has agreed to.
In exchange for preserving affordability, the new owners will not have to pay transfer taxes, saving them about $140 million, and they won’t have to pay a $75 million mortgage tax.
This arrangement also saves tax payers money, Glen said, by offering a one-time exemption instead of an ongoing abatement. “Normally with an affordable housing project, the owner gets a break on taxes every year,” she said.