Stuyvesant Town gets TKO-ed: GIC’s US$575 million goes down for the count

It’s official: Stuyvesant Town is in default. (or according to the press agent for Tishman Speyer, “…not in default”, which makes you wonder what it takes for a default to be called a default nowadays). Well, you be the judge: according to the S&P financial dictionary, a special servicer is ‘responsible for managing all delinquent loans upon a specified stage of delinquency as well as directly performing loss mitigation functions.’ But then these are the same guys that gave out AAA like a 5-dollar hooker on a Saturday night, so we can never be too sure.

Anyhoo, given that the property is now worth US$1.8 billion (according to Fitch’s latest estimates), and we (the citizens of Singapore) helped to fund the purchase at US$5.4 billion, we is pretty much chao tar (as it is technically called by savvy financiers in Singapore Pools). When the complex is sold, first in pecking order are ’something with massive haircut’ to the main bondholders – Fannie Mae and Freddie Mac (!), followed by ‘nothing’ to GIC and Church of England.

From Bloomberg “Tishman Nears Restructuring, Sale of Stuyvesant Town”

Tishman Speyer Properties LP and BlackRock Realty, the owners of Manhattan’s Stuyvesant Town- Peter Cooper Village, moved closer to restructuring $3 billion in debt on the apartment complex as the property verges on default, Fitch Ratings said.

The companies turned the loan over to mortgage servicer CW Capital on Nov. 6, Fitch said in a statement. Fitch said the property doesn’t produce enough income to pay the debt and a reserve fund probably will be depleted by year-end. A sale is more likely than a restructuring because the complex has lost so much value, said Kevin O’Shea, managing partner and head of the real estate practice at the law firm Allen & Overy.

“We requested that the joint venture’s loan be moved to special servicer in order to facilitate negotiations on a restructuring of the debt load,” said Bud Perrone, a Tishman Speyer spokesman. “The loan is not in default.” (Comment: he’s lying)

The biggest holders of the securitized mortgage are Fannie Mae and Freddie Mac, the government-owned home-loan finance companies. Freddie Mac has said it doesn’t expect to lose money on the bonds backed by the property. Tishman Speyer and BlackRock paid $5.4 billion for Stuyvesant Town in November 2006, near the top of the market, in the biggest deal in New York residential real estate history. They counted on increasing rents but were blocked by a tenant lawsuit and rising costs. Since 2007, U.S. commercial property values have fallen about 40 percent and apartment rents declined nationwide. The drop in prices and the credit freeze have made refinancing many loans impossible.

Wiped Out

Stuyvesant Town’s worth has plunged to $1.8 billion, according to Fitch. This means that all the investors besides the senior bondholders are probably wiped out. BlackRock has written down the investment to zero, said spokesman Brian Beades. On a conference call on Oct. 20, BlackRock Chief Financial Officer Ann Marie Petach said the writedown occurred “last year.”

Transferring a loan to a servicer means “the occurrence of a default is considered to be imminent,” said O’Shea, who represented the lenders in foreclosures of Boston’s John Hancock Tower and New York’s Sheffield57 condominium.

A loan modification is far less likely in this case, said O’Shea.

“The borrowers’ equity is currently so far underwater, there’s not much point in extending the loan in the hopes that the market will recover quickly enough to service or repay the debt,” O’Shea said. “You’d probably be just delaying the inevitable.”