Commercial Real Estate Finance

Editors Note: This post is the first in a three day, three person opinion on the aftermath of the Stuyvesant Town/Peter Cooper Village deal going kaput. Today Dave Jacobs writes about its effect on the capital stack. Tomorrow Rich Weidel examines the effect on the CMBS market. Thursday, Dave Weinstein will explore the world of risk/reward. Stay tuned and enjoy!

So by now I’m sure you’ve heard about Tishman Speyer giving back the keys (deed -in-lieu of foreclosure) to its creditors on the Peter Cooper Village/Stuyvesant Town Apartment deal in Manhattan.  Once the largest price ever paid for a residential building in the world (a record $5.4 billion dollars in 2006) to original developer and seller MetLife Insurance, it is now the poster child for capital market chaos and rapid devaluation.  Rather than tell the sob story again, we’ve decided to look specifically at how this transaction was capitalized, and how it will soon be capitalized.

Before you go feeling bad for Tishman Speyer and Blackrock Inc., understand that while they had all the press of ownership, they were actually hurt the least.  Using a ridiculous amount of leverage, both contributed $112,500,000 of their own equity.  Yet, the total equity pie was $1.9 billion dollars.  This means their joint contributions were under 16% of the equity required. Other equity investors included CalPERS, The Church of England, the Florida Sate Board of Administration, and the Government of Singapore.  If the true value, as it has been reported is only $1.8 billion dollars today, then all of thir investments have gone “bye-bye” as well.

But wait, it gets worse.  There was about $1.4 billion dollars of mezzanine financing put into place on top of that. Winthrop Realty trust had the senior mezzanine, leading a group that also included Allied Irish Banks, Deutsche Genossenschafts-Hypothekenbank AG, and Hartford Financial Services Group.  Grammercy Capital Corp. also held a large junior debt piece.  What happens to all their positions?  Well, again, if they cannot or do not want to assume an ownership position (and why would you want to make interest payments on something based on a $5.4B property value when its only worth $1.8 billion today?), all of their investments would be wiped out as well.

As we generally say, the senior lender position is the safest to be in the capital stack because it is the lowest risk position.  And while the senior lender, Wachovia made a $3B loan on a property only worth $1.8B, they are the only ones in this mess who may escape unscathed.  How, one might ask?  Because they securitized this loan, pooled it off with others and sold it in the CMBS market.  Luckily for them, because it was an apartment deal, Fannie Mae and Freddie Mac stepped up to the plate to buy a very large portion of that debt.  And since the U.S. taxpayer has propped up Fannie and Freddie, that means that the new capital stack for Peter Cooper Village/Stuyvesant Town Apartments may look something like this:

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