As I noted last week, Stuy Town's reserves are being depleted and the property is on CMBS watch lists as a result.
The main reason: Tishman Speyer paid too much.
Why did they pay too much/what underwriting mechanism justified that price?
Simply put, they were unrealistically optimistic in their projection of 'tenant rollover.' That is--they thought a lot more rent stabilized tenants would move out than actually did.
{To oversimplify-- when those hypothetical rollovers happen the "cheap" rents in the formerly regulated apartments basically pop to market.}
Another property -the Riverton Houses- has similar problems but is further along the path- it is essentially in foreclosure. A recent report on Riverton by Fitch also gives us some hard numbers --and we can see just what kind of projections the buyers of Riverton made :
The Riverton is a 1,230-unit, seven building rent stabilized apartment complex in Harlem. It was acquired by Stellar Management and Rockpoint Group in December 2006. According to The Real Deal, the buyer planned to get more than 40% of the existing units de-regulated. Fitch Ratings downgraded loans tied to the property, based on a recent appraisal report.
Fitch reports that in their two-and-a-half years of
ownership, Stellar had only been able to convert 128 units, or roughly 10
percent of the building, to market-rate units-only about a quarter of what they
projected.
And that's in Harlem, where the differential between market and regulated rents is not as great as downtown. I don't know what kind of rollover Stuy Town has seen, but I do know that Tishman, like the buyer of Riverton, projected rollover far in excess of what I've ever seen in a rent stabilized property and far in excess of what later transpired.
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