A giant real-estate bust

Two iconic apartment complexes in New York City are turned over to creditors after the owners miss a big payment.

By Kim Peterson Jan 25, 2010 2:09PM
Two massive New York City apartment complexes are so underwater on their mortgages that they might as well be renamed "Atlantis."

In what's considered the most expensive real-estate deal of its kind in recent history, the sister complexes -- 110 buildings and 11,000 units in all -- sold a few years ago for $5.4 billion.

Cue the enormous real-estate meltdown that hit New York particularly hard. And now, the apartment owners say they can't make a $16 million dollar loan payment and will have to turn the whole thing over to creditors, according to The Associated Press.

The financial pain will likely be felt all the way to England. The Church of England is an investor in the Stuyvesant Town and Peter Cooper Village apartments.
How did it all go wrong? For one thing, the owners wanted to convert many of the rent-controlled, middle-class units into luxury residences that they could sell for big money, the AP reports.

They also rolled out rent increases to many of the 25,000 tenants in the buildings. The tenants fought back in court, and eventually $200 million of the rent increases were deemed improper, according to the AP.

The apartment conversions took too long, and then the real estate bust crushed the owners' plans. At one point, the value of the buildings fell to about $2 billion. The owners, by the way, had taken out a $3 billion mortgage and $1.4 billion secondary loan to finance the purchase.

It's unclear who will control the buildings in the future. The owners, Tishman Speyer Properties and BlackRock Realty, say they want to avoid a messy bankruptcy battle.

The New York Observer says that a Massachusetts firm is being named a "special receiver" to help figure out the mortgage mess. The $3 billion mortgage, it seems, was divided into pieces and rebundled as part of a commercial-mortgage-backed security in 2007.

Some of the investors include a state of Florida retirement fund; two California retirement fund and even the Church of England, the Observer reports.
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