Times reporter and Stuy Town expert Charles Bagli has turned his Stuy Town expertise into a book, Other People's Money: Inside the Housing Crisis and the Demise of the Greatest Real Estate Deal Ever Made, on shelves now. The book traces the history of Stuy Town from its construction as middle class housing to the complete implosion that followed its multi-billion-dollar sale years later. We recently asked for your questions about Stuy Town and called Bagli to pose some of those questions (we skipped some of the more factual queries answered in the book) and some of our own. Here we go:
Curbed: There were clearly some people who saw the warning signs where the Stuy Town deal was concerned?but how was it so few people?
Bagli: I think there were a couple of factors. One is the euphoria of the moment. You've got this long-running real estate boom, and the institutional memory is really short?.The other factor is that because of the way things were financed, what I call the casino-like atmosphere on Wall Street?I think there was a situation where there was very little risk on the part of buyers?.If the loan goes sour, you hand back the keys. So you're not going to incur a lot of financial pain. The only question would be, is there going to be damage to your reputation?
I think almost every assumption in the business plan was wrong?what you could get on the open market for those apartments, I think they were really way over-optimistic. The number of illegal tenants was wrong. The turnover rate was twice as high as anybody had every achieved.
How has the failure of Stuy Town not harmed Tishman Speyer's business at all?
I think they were worried about reputational damage, but as they were handing over the keys, they were raising $1 billion to buy distressed properties. I know some of the people who invest with Tishman Speyer privately have [said] it was the first time they ever lost money on a Tishman Speyer deal. I don't think they'll ever get involved with rent-regulated housing agian?.They are building housing elsewhere, but they don't manage the housing, and it's market rate.
Most of us, if we failed so spectacularly, you might declare bankruptcy and wouldn't be able to get any credit?this problem will haunt you for years. But at this level, at this high-stakes level, it seems like there isn't a lot of risk.
How do you think Tishman Speyer felt about ousting so many rent-stabilized tenants?
They had a judgement, as they were buying the property, that there were as many as 1,600 "illegal" tenants. They showered the complex with these letters that were essentially eviction notices?.It created this level of distress that they would never be able to overcome. MetLife had actually converted something like 27 or 28 percent of the units without creating that kind of enmity?It was perceived as a mass attempt to evict people, and in some cases the residences had to hire a lawyer and to fight it to prove they were indeed legal tenants. Or they had to repeatedly go back in and supply paperwork to prove it. But I don't think it was their main problem?the main problem was that they had [such] an enormous amount of debt on the property, that on day one, the rental income generated only 40 percent of the loan payments. So they had this huge gap to try to overcome, and they expected that they would turn over apartments at just a spectacular double-digit rate.
Had Mayor Bloomberg taken a position suggesting that Met Life set aside a certain number of units for affordable housing, would the bids have skyrocketed the way that they did?
I think if the mayor had used his bully pulpit, much as he has for sugary drinks, cigarettes, and guns, there might very well have been a much different outcome here. This was never a completely private venture?the city gave almost 20 percent of the land to MetLife, it provided a spectacular 25 year tax break, and they used one of the city's most important tools, eminent domain, to seize property that MetLife could not otherwise purchase. So this really was a public-private partnership from the first day. If he had stood up and said "Hey, this has been a gem among the city's crown jewels?it should be for another 65 years, I call on MetLife to preserve so many units in perpetuity for middle-class tenancy"?I think that?the bidding wouldn't have been anywhere near as high, it would have been much more sensible, you would have been able to preserve some of the housing.
How long will at least 40% of the apartments remain regulated. Ten years? 20 years? Long enough to see a change in the rent laws?
I'm sure that the people who run Stuy Town today have actuarial tables that tell you how old a certain segment of the population is and when they'll die?.Under today's formula, if you spend $120,000 [to renovate], you can raise the rent $2,000?.even though these are regulated today, you're talking about $4,000 and $5,000 rents. So I just think the aging process is running against that. People are getting old.
So what's next for Stuy Town?
Even with the failure of the Tishman-Speyer and Blackrock, 50 percent of the units are market rate. A two-bedroom apartment goes for as much as $4,500/month, and that is outside the grasp of a middle-class family. And that's what Stuy Town has been traditionally. Who are the people who are paying that kind of money? Students, packed in like sardines, or young professionals, who have no intention of staying around or setting down roots. The complex is going to become something else.
Would it ever be feasible for the final owners to tear down sections at a time and redevelop?
I think it would be interesting to re-imagine what Stuyvesant Town/Peter Cooper Village could look like. Is there a public benefit to preserving affordability? Would you restore the street grid? How would you reorganize the green space? In a way, Stuy Town was designed to be one of the first gated communities?MetLife specifically didn't want any public amenities inside the complex. No churches or schools, retail is pushed out to the edges. That was very much so they could control this environment. But would we do that today? I don't think so.
Anything you'd like to add?
I think Stuyvestant Town has an interesting, rich, and fascinating history that made this a compelling story. But I think what happened at Stuyvesant Town happened at a lot of other places. Stuyvesant Town is better able to survive the speculative drama that occurred because it's in Manhattan.
When the mayor sat on the sidelines in 2006 on this, city officials were telling me that they could build two units of housing in Queens for every one unit they would have saved at Stuyvesant Town?I think if you look at what's happening now in Queens?you'll find that the cost for taxpayers is much higher?.The truth of the matter is that preserving housing is often going to be a lot cheaper than building new affordable housing. That's not to say the mayor doesn't have a great housing plan, but I don't know if it keeps up with the loss of affordable housing.
· Other People's Money: inside the Housing Crisis and the Demise of the Greatest Real Estate Deal Ever Made [Amazon]
· Ask a Stuy Town Expert Your Questions and Win a Book [Curbed]
· Stuy Town coverage [Curbed]