How a New York multifamily complex became a middle class utopia and a battlefield. PERE magazine December 2009-January 2010 issue

It is a middle class utopia built over 80 acres of prime Manhattan real estate. Imagine thousands of uniform apartment blocks rimming a picturesque green park; young 30-somethings gently pushing their newborns in strollers, occasionally overtaken by joggers mid-wind down after a tough day on Wall Street.

Stuyvesant Town and Peter Cooper Village is a white collar haven. Funny then, that this housing complex between 14th and 23rd street in Manhattan’s East Village, colloquially named “Stuy Town”, has also been the subject of a series of battles since it was conceived in 1942.

Stuyvesant Town and
Peter Cooper Village,
New York City

Today, the complexes, which span 7.5 million-square-feet of residential space equal to more than 11,000 apartments, are at the centre of a bitter court dispute between current owners Tishman Speyer and BlackRock Realty Advisors and their tenants over the former’s strategy to convert as many of the tenancies from rent-stabilised to market rates.

Worse still, the two partners, who won a fierce bidding war for the right to pay developer MetLife a massive $5.4 billion for the complexes in 2006, have seen the equity in the deal disappear and $4.5 billion of the debt deployed in the purchase fall into special servicing. Fitch Ratings notes that the appraised valuation of the properties could now be as low as just $1.8 billion.

Disputes over the apartment complex, however, started from the offset. While recent efforts have focused on positioning Stuy Town as luxury dwelling, its origins point to a different story. An early example of public-private partnerships in New York, the complex – named after the last director general of New Amsterdam, Peter Stuyvesant, and the philanthropist Peter Cooper – were originally intended for returning Second World War veterans.

New York’s local authority awarded the site to MetLife for no fee, in addition to providing the developer with tax-exemptions to build the complex. But in order to clear the site, then-New York mayor and the development’s champion, Fiorello Henry La Guardia, sanctioned the clearing out of 11,000 people, many working class African-Americans. The New York Times said at the time the decision resulted in the “greatest and most significant mass movement of families in New York’s history”.

Having cleared the site and with MetLife breaking ground, the local authority found itself deliberating over

Stuyvesant Town

whether to allow both Caucasians and African-Americans an equal opportunity to occupy the apartments.

The decision was eventually left up to MetLife, with the company opting to allow only Caucasians to take apartments. Instead, MetLife built a separate complex, Riverton Houses in Harlem, for African-American families. Although in later years, segregation rules were relaxed and then abandoned altogether, to this day Stuy Town remains a predominantly white neighbourhood.

It is also a sought-after neighbourhood to live in. Residents at the East side complex enjoy a range of facilities including sushi bars, delicatessens, shuttle buses to Wall Street and Wi-Fi lounges – with many paying rents that are capped or “stabilised” and governed by state regulations. Typical stabilised rent deals see tenants pay just $2,000 a month for an apartment compared to around $4,000 to $5,000 nearby – gold-dust for those that have them.

Predictably the inhabitants of Stuy Town have fought against Tishman Speyer and BlackRock’s strategy to convert apartments to market rent. And they have been largely successful. In March this year, the Appellate Division of New York’s Supreme Court, the city’s intermediate appeal court, ruled that Tishman, BlackRock and former owner MetLife, were improperly converting apartments to market rates while receiving certain tax abatements, particularly the city’s J-51 programme which is aimed at encouraging the refurbishing of apartments and of which Stuyvesant will be a part until 2017.

Despite appealing the decision, in October New York’s highest court, the State Court of Appeals, sided with the tenants. There are already suggestions that the partners may have to pay up to $600 million in back rents deemed wrongly converted.

Having fought off countless rivals in 2006 to acquire the property, Tishman and BlackRock expected to convert 8 percent of Stuy Town’s 11,227 apartments each year to market rate, generating net cash flow of $334 million by 2008. Actual net cash flow reached just $136 million two years following the deal. There are now suggestions CWCapital, the special servicer drafted in to seek a resolution to the partners’ debt obligation, may force foreclosure.

Whatever the future holds for Stuy Town, it is indisputable that the history of this utopia has been riddled in conflict.