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Owners Bet On Raising The Rent, And Lost (U.s)

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http://www.nytimes.com/2010/05/29/business/29real.html?ref=business

The first signs of financial turmoil came at Riverton Houses in Harlem.

Then came Stuyvesant Town and Peter Cooper Village on Manhattan’s East Side.

Now a third complex built by Metropolitan Life in the 1940s for veterans and middle-class families has run into financial distress after being purchased by speculators during the recent real estate boom. The owners of the sprawling Parkmerced apartment complex in San Francisco announced this week that they would default on their $550 million mortgage, which comes due in October.

A partnership of Laurence Gluck of Stellar Management and the Rockpoint Group, which had already lost Riverton Houses in Harlem in March to foreclosure, put out a statement on Wednesday that placed their problems at the 3,221-unit Parkmerced in the context of the current economic downturn.

“The landscape has changed dramatically,” P. J. Johnston, a spokesman for the owners, said in an interview. “The economy has taken a major hit. Many properties are facing default.”

But just like Riverton and Stuyvesant Town, the owners of Parkmerced sought to take advantage of a roaring market to replace rent-regulated residents with tenants able to pay far higher rates.

The owners in all three cases invested substantial sums in upgrading the aging buildings and renovating some apartments. But ultimately they failed to increase revenue enough to cover the debt payments on the properties, which were heavily leveraged. The recession did not help.

“It’s pretty interesting that they have all ended up in the same place,” said Andrew Florio, an analyst at Real Capital Analytics, a research firm. “People assumed they could boost revenues by kicking people out and raising rents.”

Stellar told the more than 6,000 tenants at Parkmerced, which is spread over 115 acres on the south side of San Francisco, that life would go on as usual. They said they were negotiating with lenders, which include Deutsche Bank, to restructure their debt and would continue with their $1.2 billion expansion proposal to nearly triple the number of apartments at Parkmerced.

“Phone calls will be answered and issues addressed, our maintenance team will respond to work orders, and the leasing team will continue to lease new apartments,” Seth Mallen, an executive vice president for Stellar, said in a statement.

But so far, lenders have been reluctant to acknowledge the losses and restructure deals that were struck during the boom. And analysts say it remains difficult for owners to refinance large properties at anywhere near the old terms. As Stellar points out, they are not alone; more than $150 billion in commercial loans like theirs have been transferred to special servicers who handle troubled debts.

There is $550 million in senior debt on Parkmerced and an additional $52 million in secondary loans, according to the owners, but it is not as heavily leveraged as Riverton or Stuyvesant Town and Peter Cooper Village. The default was bad news for the giant California public employees pension fund, Calpers, which invested in all three properties. Calpers has already written off a $500 million investment in Stuyvesant Town.

Stellar and Rockpoint were forced to give up Riverton Houses after defaulting on $250 million in loans. And Stuyvesant Town and Peter Cooper, which had been bought by Tishman Speyer Properties and BlackRock Realty for $5.4 billion in 2006, is in foreclosure.

All three deals had prompted an outcry from tenant advocates who bemoaned the loss of housing affordable to working and middle-class families.

“The Bay Area, like New York City, continues to be one of the least affordable real estate markets in the country,” said Christopher Lund, a spokesman for the East Palo Alto Fair Rent Coalition. “The Parkmerced is the largest multifamily complex in San Francisco and its 3,200 rent-stabilized units are a key part of the Bay Area’s remaining affordable housing stock.”

MetLife built Parkmerced, Stuyvesant Town, Riverton and a handful of other large complexes in the 1940s amid a national housing crisis in a remarkable effort to provide homes for returning veterans. At Stuyvesant Town, for instance, the company received special property tax exemptions in return for agreeing to build the complex, maintaining relatively low rents and limiting its annual profit to 6 percent.

Anyone know how many of these types of buildings got bought out by the speculators (with the assistance of pension funds)? I suppose those doing the managing walk away with huge fees whilst the banks and pension funds get the losses.

One of these going under equates to how many subprime mortgages?

Amazing how easy the sales pitch of we'll upgrade the building, charge more rent and it'll make more money works on people.

When you are forever chasing higher returns your going to end up getting scammed.

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  • 145 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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