THE Government of Singapore Investment Corporation (GIC) has suffered losses investing in a prime New York property project after the American owners defaulted on a debt payment last Friday.
The exact size of the hit has not been disclosed but GIC is said to have invested a total of US$675 million (S$925 million) in Manhattan’s Stuyvesant Town and Peter Cooper Village.
It confirmed to The Straits Times yesterday that it had ‘recognised the losses’ on its investment last year.
The combined enormous housing apartment complex was bought for US$5.4 billion by a venture led by Tishman Speyer Properties and a unit of BlackRock, a private equity powerhouse.
The owners missed a payment of about US$16 million to lenders last Friday, a step that triggered the process to default.
A GIC spokesman said yesterday that it ‘recognised the losses following the ruling by the New York Court of Appeals in October 2009 which precipitated the default’. There was no further comment.
GIC reportedly owns a US$575 million mezzanine loan backed by the property. Following the default, it is believed to have written down the value of the loan.
It was also reported to have an additional investment of US$100 million in equity.
The joint venture bought the 11,000-unit Stuyvesant Town-Peter Cooper Village complex in 2006 in a top-of-the-market deal, in the hope of replacing existing tenants with higher-paying ones. But the highly leveraged deal floundered amid a weakened real estate market.
Last October, New York’s Court of Appeals, the state’s highest court, also ruled that Tishman Speyer and BlackRock had raised rents too fast and ordered them to pay several hundred million dollars in back-rent to tenants, in a move which shook the state’s real estate market. The property’s value is estimated to have plunged by more than half, to less than US$2 billion.
In addition, a debt-service reserve fund of US$400 million and a general reserve of US$190 million are believed to have been essentially drained by the owners.
Owing hundreds of millions of dollars to tenants and unable to charge higher rents, the owners defaulted on their loan and may yet declare bankruptcy if efforts to restructure the loan fall through.
If it does default, the combined 80-acre complex, Manhattan’s largest residential space, will be the second-largest default in a commercial mortgage-backed security deal, after the US$4.1 billion default on loans backing Extended Stay America hotels last year, according to Fitch Ratings.
The two properties, on First Avenue between 14th Street and 23rd Street in Manhattan, were built in the 1940s.
Analysts estimate that GIC, which is one of the New York properties’ biggest investors, manages a portfolio of between US$200 billion and US$300 billion globally.
Real estate investments made up 12 per cent of its asset mix, according to its annual report for the year ended March 31, 2009.
GIC’s portfolio slumped more than 20 per cent in Singapore-dollar terms for that financial year but it said last September that it has since recovered more than half of those losses.
Source: Straits Times, 12 Jan 2010
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