State lost $250 million on NYC real estate dealby Dara Kam | September 1st, 2009
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.