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State lost $250 million on NYC real estate deal

by Dara Kam | September 1st, 2009

Florida's $250 million investment in Peter Cooper Village in New York City has turned into a total loss, officials said today.

Florida's $250 million investment in Peter Cooper Village in New York City has turned into a total loss, officials said today.

Florida lost $250 million on a 2007 investment in a Manhattan apartment building, the head of the State Board of Administration told the panel overseeing the board this morning.

Peter Cooper Village in NYC is part of the state’s $99.6 billion portfolio that makes up the state’s pension plan.

The state invested $250 million in the apartment complex, where monthly rents range from $2,625 to $8,333, according to the development’s website.

Less than two years later, the value of the investment is zero, Williams told Gov. Charlie Crist, CFO Alex Sink and AG Bill McCollum, who oversee the SBA.

“We think we’re carrying that investment as a zero on our books,” Williams said.

This morning is the first of the quarterly meetings on the state’s investments requested by Sink that the SBA will give to the panel.

The Peter Cooper Village and Stuyvesant Town – known in NYC as “Peter Cooper” – are 11 buildings on 80 acres in downtown Manhattan. It’s the largest contiguous single-owned piece of property in Manhattan, Williams told the panel.

The apartments were built in the 1940s by MetLife to house veterans and their spouses returning from World War II. Few improvements have been made to the property since then.

It’s currently home to about 5,000 tenants, many of whom live in rent-stabilized units. That means owners can make little adjustments in those tenants’ rents even if they spend lots of money to upgrade the units. Many of the renters don’t qualify for the discounts, however, but instead sub-lease the apartments from others who have since moved.

The apartment complex is also home to many older individuals, Williams said.

When the state entered a partnership to become partial owners of the development, the plan was to revamp the old buildings and charge more rent in the hopes that the convenient location would be appealing to younger renters who work on Wall Street. The state made the investment when the property was worth about $5.4 billion, probably its highest value ever.

Peter Cooper owners took out loans to do the remodeling just before the bottom fell out of the stock market.

So the well-to-do Wall Street-types never moved in and many of the elderly residents stayed because their rent was so cheap. And, like elsewhere, the New York real estate market softened, forcing rents to go down.

The state’s partnership that owns a portion of Peter Cooper is among the bottom tier of investors in the property. So if it goes bankrupt or is sold at a loss, the state will likely not recoup any of the money it put into the deal.

So what’s next?

“That would be the $64,000 question,” Williams told the panel. “The short answer is I don’t know.”

CFO Sink questioned why state investors would have considered the property because it was so run down.

Sink, who used to live in New York, said that the apartments did not even have central heat and air-conditioning.

“What were they thinking?” she asked.

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6 Responses to “State lost $250 million on NYC real estate deal”

  1. Bob Says:

    Why should taxpayers be on the hook to make up losses for bad investments in pension plans? Nobody guarantees my 401(k) when an investment loses value.

  2. tony gallagher Says:

    The loss is not a loss for the state. The will raise, gas, property, sales, or any other tax the choose to compensate for the loss. If your 401K went to zero would you be able to charge your neighbors to make up for the loss?

    Great investment strategy by the way. Buy at the height in second position on real estate.

  3. Allen Says:

    How does a $250 million piece of real estate all of the sudden become worth nothing??? I can see it depreciating, but losing all of it’s value? Can the Post provide a little more explanation?

  4. computer consultant Says:

    Goverment efficiency in action. I am sure there are many more cases like this outthere

  5. Retired Guy Says:

    In response to Allen: I assume the SBA’s auditors have informed management that because it’s expected that the project will be sold or go into bankruptcy and liquidated, in either case at a loss, that it’s not likely that the state will recoup any of its investment. So they have to show the true value of the investment on their books, which was $250 million two years ago but is zero now.
    One of the many obvious questions is why are the geniuses who made or approved this “investment” decision still employed by the state (i.e. we taxpayers)? If they are this incompetent then they should be dismissed. How many other great investment decisions did they make that we don’t yet know about? There could be another 250 of them at $1 million a pop that haven’t yet surfaced. Certainly this can’t be the only investment which went south. The state could have avoided these losses and saved a lot of money in needless salaries and benefits for these investment geniuses by not employing them and just putting the money in FDIC insured CD’s.

  6. Sick of Government Waste Says:

    According to a report I saw this past weekend on MSNBC, one fo the largest contributers to Gov. Christ’s campaign was the very same developer that our state just lost $250 million investing in. Coincidence? I beginning to think our govenor is as crooked as Lumbard Street in San Francisco.

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