A VAST prime Manhattan property that has caused losses to investor, the Government of Singapore Investment Corporation (GIC), is having its ownership transferred to creditors – possibly including GIC.
The Stuyvesant Town and Peter Cooper Village apartment complexes will be given up by troubled owners Tishman Speyer Properties and BlackRock Realty after loan restructuring talks failed.
‘We make this decision as we feel a battle over the property or a contested bankruptcy proceeding is not in the long-term interest of the property, its residents, our partnership or the city,’ spokesman Bud Perrone said in an e-mailed statement yesterday, the Associated Press reported.
The timing of the transfer has not been set, nor has it been decided who the new owners will be, he added. GIC declined comment when contacted yesterday. One of the junior lenders, Gramercy Capital, is reported to have asked for Tishman Speyer to be replaced as manager of the complexes last Friday.
Tishman Speyer and BlackRock bought the properties for US$5.4 billion (S$7.6 billion) in a joint venture at the height of the United States property boom in 2006.
The owners each invested US$112.5 million out of total equity of US$1.9 billion. They also took out a US$3 billion mortgage from Wachovia Bank and US$1.4 billion of mezzanine debt from various lenders, including GIC. The mortgage was packaged with other loans and sold as securities – with the biggest holders Fannie Mae and Freddie Mac.
A controversial court ruling last October ordered the owners to pay back rents to a third of the more than 20,000 residents – after they were found to have raised rents too quickly. Then the recession depleted the property’s value to US$1.8 billion. A reserve fund of US$900 million has also been drained.
Tishman Speyer and BlackRock failed to repay a loan of US$16 million, which triggered the default last month, leading to talks to restructure the loans to avoid foreclosure.
GIC said then it already recognised losses on its investment. While it has not confirmed the total value of its investments, it is believed to have written down the value of about US$575 million in mezzanine debt. It has a further US$100 million in equity.
Mezzanine financing became a popular way of funding real estate investments during the property boom. In the event of a foreclosure, senior debt holders are paid back first before the mezzanine, or secondary, debt holders, which include the likes of GIC and Gramercy Capital. Equity holders are paid last.
A former banker familiar with debt proceedings said with ownership transferred, creditors will negotiate in court and could hold on to the property or make a fire sale to recoup losses as soon as possible.
He said the most senior creditor would most likely want to take possession quickly and sell. Secondary debt holders such as GIC and Gramercy could negotiate with the senior creditor to delay the foreclosure, hoping the property’s value rises and they can recoup some of their losses. But this could involve them pumping in more money to service interest payments, pay conveyancing fees and wages.
Source: Straits Times, 26 Jan 2010