Stuyvesant Town is nearing the end of its reserves and will default on its loans unless it gets a capital injection, according to the real estate research firm Reis Inc.
Three billion dollars of loans backing the $5.4 billion 2006 buyout of Stuyvesant Town-Peter Cooper Village by Tishman Speyer and BlackRock were packaged into five commercial mortgage backed securities. On Friday those CMBS bonds were downgraded by Fitch on fears of a default by the sponsors.
The CMBS market has been “the next shoe to drop” for quite some time. Increasingly, it looks like the shoe may have dropped.
- The default and delinquency rate on CMBSs rose to 4.52 per cent from 3 per cent in the second quarter and 0.8 per cent a year earlier.
- About $26.64 billion of loans underlying CMBS outstanding were 60 days or more past due last quarter. Defaults may top 6 per cent by year-end, the firm said.
Bloomberg reports on the Stuy Town catastrophe:
The Tishman Speyer group acquired Stuyvesant Town in 2006 for $5.4 billion. The property is now worth about $1.8 billion, Fitch said. The New York Court of Appeals ruled on Oct. 22 that rent increases at the complex violated the law because the development was built with city assistance and the owners received tax breaks.
You can see why everyone is expecting a default. This situation obviously invites high-level jingle mail. Why keep making payments on underwater loans when the judicial system tells you that you cannot make money on the apartments?