When a state appeals court decision came down today that private equity-backed realty company Tishman Speyer illegally converted thousands of Stuyvesant Town tenants into luxury units, the company pleaded with the judge that the ruling could be a death blow.
Tishman and its partner, the firm Black Rock Realty, do have troubles: they already owe bondholders $1 billion more than the property is worth. The companies are at risk of defaulting on a $3 billion loan, and now they owe thousands of tenants around $200 million in rent overcharges and damages. (Under the law, tenants are entitled to triple damages on rent increases.)
In 2006, the companies paid a whopping $5.4 billion for New York’s City’s biggest housing complex, a record New York City real estate deal that was based on the expectation that the real estate boom would continue and that their thousands of middle-class rentals could be converted into luxury units. (The lawsuit, based on the way the company illegally used tax-breaks for rent-controlled buildings, saved the developers $25 million dollars.) Today the properties are devalued at $1.99 billion.
Since the decision, Real estate lawyers have been chattering nervously, echoing dire predictions that this decision could “trigger the collapse of the entire commercial real estate market.”
Wait a second. Don’t those predictions seem a little exaggerated?…
While a $1 billion dollar write-down would be huge for any company, Black Rock Realty is a division of Blackrock — one of the world’s largest money management firms. The investment firm has $1.4 trillion-with-a-t dollars in assets under management and reported $293 million dollars in profits in the third quarter. The Times has said this is one of the few firms to have emerged relatively “unscathed” from the financial crisis.
And yet the companies are telling bondholders and investors — which include the Church of England and California’s and Florida’s state pension funds — that it may collapse and default on a $3 billion dollar loan.
Even if Tishman isn’t bluffing, bankruptcy lawyers say the company will still owe the tenants damages regardless of whether it files for Chapter 11.
Meanwhile, tenants’ lawyers have hailed the decision as an enormous victory. Tenants’ lawyer Robert Grimble told the Voice that in his thirty-year career, he hasn’t seen a landlord make the legal argument that Tishman tried to make in court.
Though, as this class action lawsuit has made its way through the legal system, some judges have sided with Tishman and others with the tenants, the J-51 statute, Grimble said, is “plain as day.”
This article from the Village Voice Archive was posted on October 22, 2009