Book details mistakes that led to default on Stuy Town

By Sabina Mollot

CHARLES BAGLI (Photo by Jay Seldin)

(Photo by Jay Seldin)

Even before the default of the property in 2010, the purchase of Stuyvesant Town for $5.4 billion by Tishman Speyer and its partners only four years earlier had come to be recognized by many as the biggest mistake ever made in real estate.

So why then, was Tishman, as well as countless other key players in the world of New York real estate, not to mention those from offshore and even pension funds and the Church of England, so convinced that a historically middle class apartment complex was in fact an untapped goldmine? And why was the property’s previous owner, MetLife, not held accountable for its initially racist leasing policy while receiving all kinds of breaks from the government for the complex’s construction?

These are just a couple of the questions surrounding the property’s history-making moments to get tackled in a new book by New York Times reporter Charles Bagli, set for release on April 4.

Bagli, who’s been covering major New York real estate stories for the past quarter century, signed a deal with publisher Dutton in 2010 for a book about the infamous Stuy Town deal, Other People’s Money: Inside the Housing Crisis and the Demise of the Greatest Real Estate Deal Ever Made. The book is priced at $28.95 but is currently available for pre-order for $15.98 on Barnes & Noble’s website  as well as on Amazon.

This week, Bagli said the book was something he’d been thinking about since he began covering stories about the property.

“The more I learned about Stuyesant Town, the more intriguing it was,” he said. “It had this rich history that most of us don’t know anything about. It’s such a cauldron for the lives of the middle class.”

The book hardly reads like a history textbook though since right from the start the reader is the fly on the wall as negotiations between real estate execs, brokers and attorneys are played out.

Much attention is also paid to the backstory of Stuyvesant Town/Peter Cooper Village, including the initially unsuccessful attempts to make the complex integrated and then over the years, the various attempts by tenants to fight planned rent hikes.

“Every time they did that, the tenants would rise up,” said Bagli.  “It’s funny because there were all of these regulations issued in Stuyvesant Town. There were lots of guards to tell you not to run on the grass and rules about the apartments having to be covered in carpets, but on the other hand there was all this rebellion.”

In doing research for the book, Bagli conducted around 100 interviews, many with real estate bigs, including the normally press-wary Rob Speyer. Bagli said he figured Speyer, who spearheaded the doomed deal, agreed to talk due to the fact that he’s interviewed him before, including right after the sale in 2006, but also because they knew each other from 10 years earlier when they both worked at the New York Observer. At that time, Speyer, who later became a reporter, was working as a fact checker.

Other interviewees include developer Richard LeFrak, who was a bidder early on but bailed when the price reached $4.5 billion, and ST/PCV residents, including former Tenants Association President Al Doyle and Council Member Dan Garodnick. There were, naturally also a few individuals who refused to be interviewed on the subject of the Stuy Town sale, including Larry Fink, CEO of BlackRock Realty, Tishman’s main partner on the venture, and Mayor Bloomberg.

During the course of his interviewing, Bagli said he thought it was interesting how many parallels there were between two men who had ended up becoming adversaries, Speyer and Garodnick.

“Both were about the same age, both bright,” he said. “They got involved with a woman during the course of all of this and got married around the same time and had kids the same time. But they represented very different interests.”

Other sources of information for the book came by way of library archives of public documents and newspaper articles, including many from Town & Village, and Met Life’s press archives. Though he never lived in Stuy Town, Bagli’s had connections with the property over time through different residents, including his publisher and agent, who’d both lived there.

While the book mainly focuses on the sale to Tishman Speyer at the height of the real estate boom and the subsequent default after the bubble burst, another aspect of the story is how a greedy industry still hasn’t learned its lesson. Too many players, said Bagli, are still paying for major deals with a two thirds or more of the cost in loans and simply hoping for the best when calculating returns.

“And of course nothing ever is ideal like that,” said Bagli, who noted that when calculating potential rents for Stuy Town, the buildings were compared to a new tower on East 23rd Street with a doorman.

“That’s really not comparable to apartments with one bathroom, 60-year-old pipes and no doorman,” he said. “It was absurd.”

Yet there was no shortage of plans to turn the rent-stabilized property into the  goose that laid golden eggs in 2006, including converting the apartments to co-ops, or at least some of them. Ofer Yardeni of Stonehenge Partners hoped to have specific buildings set aside for the elderly after getting those older residents to move out of their two and three-bedroom apartments. Douglas Durst wanted to erect a building on Stuy Town’s green spaces, though he dropped out after bidding climbed higher than $4 billion.

Ironically, it was another one of the bidders, LeFrak, who seemed to be one of the few voices of reason when considering the future worth of the complex. As the owner of 15,000 rent regulated units in Brooklyn and Queens, LeFrak didn’t believe ST/PCV was worth more than $3 billion. Though he did eventually bid as high as $4.5 billion, after being pressured go up to $5 billion if he wanted to play with the big boys, he dropped out.

Like many of its residents, Bagli sees the Stuy Town of today as being in jeopardy since close to half of the 11,232 units are renovated and therefore renting at close to market rate.

“You’re not talking about middle class families anymore and I think it’s a tremendous loss for the city,” he said. “For all the racial history, it’s still a refuge for a lot of people who would otherwise not be able to live in Manhattan or New York City.”

Bagli will be discussing his book, alongside Times columnist Michael Powell, at the Stuyvesant Town Community Center on April 4 at 7 p.m. A preview of a documentary about Stuy Town’s history, co-produced by tenants, director William Kelly and preservationist Marie Beirne, will also be screened. The Community Center is located at 449 East 14th Street.

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