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Cash Crisis for America’s Most Expensive Apartment Complex

Developer Tishman Speyer has nearly depleted a $650 million cash reserve needed to prop up iconic apartment complexes Peter Cooper Village and Stuyvesant Town, and thanks to an unresolved court case, can’t replenish its coffers.

The real-estate developer led by Chairman Jerry Speyer has had to put its fundraising plans on ice because the properties’ revenue potential is tied up in the legal battle.

Set up as a temporary cash cushion when Tishman and a group of investors bought the massive Manhattan apartment complex in 2006 for $5.4 billion, Tishman has tapped the reserve at a faster rate than expected to help cover day-to-day expenses, including payments on a $3 billion mortgage.

As of this week, there was just $49.6 million left, according to trade publication Commercial Real Estate Direct, and with Tishman tapping the reserve at an average rate of $11.3 million a month, it could be completely depleted by December.

Under normal circumstances, savvy, well-respected developers like Tishman would simply go out and raise more money, either through loans or by selling stakes to new investors.

But an unresolved court case that could affect its revenues from the property is crimping those plans, sources said.

In March, the Appellate Division of the State Supreme Court ruled that Tishman and other property owners improperly converted rent-stabilized apartments to market-rate prices while receiving special tax benefits.

On Sept. 10, the New York Court of Appeals will hear Tishman’s appeal of the decision. But even if the courts ultimately rule in Tishman’s favor, sources said a decision could take months.

And until Tishman can answer if and when it can convert the complex’s apartments to market-rate units, investors are likely to stay away from any deals the developer tries to put together.

“It’s a material risk,” said one real-estate lawyer. Losing the case will have a “very, very, very, very material impact,” and investors just aren’t willing to take the chance, he said.

Tishman officials declined to comment, but people close to the firm said the developer and its investors are banking on the cash reserves lasting through at least March or April, giving them time to rebuild the cash coffers once the case is settled.

Of course, The appeals court could also decide to uphold the lower court’s ruling, which may further impede fundraising plans.

“It would be a disaster,” said an attorney, adding that the impact would be felt by all New York landlords, not just Tishman.

Source: Stuytown Cash Crisis, Kaja Whitehouse, New York Post, 8/22/09

Comment: The Stuy Town deal was done with very aggressive projections for turnover, or vacancy rate. If triple hearsay can be believed, ownership projected turnover to be double-digits.  See here and here. If Manhattan’s vacancy rate is not even 2%, Tishman Speyer would probably not have realized such turnover if they uncovered plutonium in the Oval Courtyard.

Update 9-1-09: Some fans of Stuy Town are following Multifamily Investor following Stuy Town. And by fans, I mean, not fans.

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