Huge land deal in Manhattan

October 18, 2006|By BLOOMBERG NEWS

NEW YORK -- Tishman Speyer Properties LP, the owner of New York's Rockefeller Center, and BlackRock Realty won the auction yesterday to buy MetLife Inc.'s Peter Cooper Village and Stuyvesant Town, Manhattan's largest apartment complex, for $5.4 billion.

The buyers plan to keep the apartments as rentals, said Robert Speyer, Tishman Speyer managing director. The 80-acre, 110-building, 11,200-unit complex is home to generations of teachers and firefighters, lawyers and Wall Street workers. Three-quarters of the units are rent-regulated, and residents were concerned that a new owner would convert them to condominiums they couldn't afford.

"It's important to note that there's going to be no abrupt shift in what Peter Cooper Village-Stuyvesant Town is going to look like," Speyer said. "We actually have no intention of pursuing a condominium conversion."

Tishman Speyer and BlackRock, both of New York, are buying the biggest residential property in the most expensive market in the United States as rental vacancies fall and condo prices rise.

MetLife, the biggest U.S. life insurer, has been selling Manhattan property since last year, when it paid $11.8 billion for Citigroup Inc.'s Travelers Life & Annuity insurance business. MetLife sold its namesake building at 200 Park Ave. to closely held Tishman Speyer in April of last year for $1.72 billion.

Rent-regulated buildings, which "were once a stepchild, are now prized assets" because rents "can only go up," said Richard S. Le- Frak, a billionaire real estate tycoon and president of the LeFrak Organization, which bid on the properties.

"This is just a rare, rare opportunity" to buy 80 acres of Manhattan, said Robert White, president of Real Capital Analytics Inc., a New York real estate research company. "Also, we're in a period where a lot of real estate investors are flush with cash, so billion-dollar deals are not so uncommon anymore."

MetLife built the complex six decades ago, partly by buying land in what was then known as the Gashouse District. The complex has 15 playgrounds and numerous parks and green areas.

Tishman's bid works out to an average price per apartment of $482,143.

MetLife's shares rose 29 cents to close at $57.42 yesterday on the New York Stock Exchange. BlackRock's shares fell 4 cents to $148.45.

Tishman Speyer will be managing partner of the joint venture with BlackRock. Wachovia Corp. and Merrill Lynch & Co. are acting as advisers and lenders to Tishman Speyer and BlackRock. BlackRock Inc. is 49.8 percent owned by Merrill Lynch.

The sale could be the biggest real estate transaction in U.S. history, said Steve Murray, editor of Real Trends, a residential real estate communications company. The federal government paid $15 million for the Louisiana Purchase in 1803, the equivalent of $277 million in today's dollars, according to the historical price calculator measuringworth.com.

The median price of new homes in the United States was $237,000 in August, up 0.34 percent from $236,200 in July, according to the U.S. Census Bureau. The median price of Manhattan condos rose 1.5 percent to $990,000 in the second quarter from $975,000 in the first quarter, said Miller Samuel Inc., the biggest Manhattan appraiser.

Median rents in Manhattan's most popular neighborhoods rose 9.7 percent between June 2004 and December 2005. The vacancy rate for apartments in Manhattan for the second quarter was 0.55 percent, compared with 0.78 percent in the first quarter, according to New York broker Citi Habitats.

The average monthly price for a rent-regulated, one-bedroom apartment in Peter Cooper Village and Stuyvesant Town is $1,137, compared with $2,534 for units in the complex that have been deregulated, a difference of 120 percent.

MetLife first said in July that it might sell the property. It hired CB Richard Ellis, the nation's largest commercial real estate broker. Final offers with deposits were due yesterday, and the sale should close by Nov. 15, according to documents the broker sent to bidders.

Tishman Speyer was founded in 1978 by Jerry Speyer and Robert Tishman. The company owns and manages about 75 million square feet of real estate in the United States, Europe, South America and Australia. It is developing 1,000 condominiums in San Francisco and in 1999 opened two mixed-use, 500-apartment towers at 63rd Street and West End Avenue in New York.

Tenants had backed a bid by a group led by the New York City Central Labor Council of the AFL-CIO, which controls two pension fund trusts with $5 billion earmarked for real estate investment.

"As a bidder, we were disappointed about the result, but we do view this as the beginning of a process," said New York City Councilman Daniel R. Garodnick, a lifelong resident of Peter Cooper Village and Stuyvesant Town who helped organize the labor-backed bid.

"We are going to make sure that the principle we set out in our bid - the preservation, into the long term, of affordable housing - will be one that is recognized by Tishman Speyer."

Rent regulation keeps prices below market value and limits annual increases. It doesn't allow a new landlord to break the lifelong residency rights of tenants. Owners can turn such apartments into co-ops or condos through a series of steps starting with offering to sell units to their occupants. Next, at least 15 percent would have to agree to buy. Regulated tenants cannot be kicked out if they don't want to leave.

Otherwise, for apartments to be converted to condos, landlords have to wait until rent-regulated units reached $2,000 per month and a tenant's household income exceeded $175,000 for two consecutive years.

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