Blackstone Leads Deal to Buy Stuyvesant Town Housing Complex


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Stuyvesant Town and Peter Cooper Village, a sprawling collection of 11,200 apartments that rode the boom and bust of the real-estate cycle, is set to be sold to Blackstone Group LP and another large investor for about $5.3 billion, people familiar with the matter said.

The deal, in which Blackstone is partnering with Ivanhoé Cambridge, the real-estate arm of pension-fund giant Caisse de dépôt et placement du Québec, would be among the most expensive ever for a single property and would cap a tumultuous decade endured by the iconic redbrick complex on Manhattan’s east side.

The 56-acre property was purchased in 2006 for $5.4 billion by a venture led by Tishman Speyer Properties, then the most ever paid for a single property.

The investment group’s bullish projections for rent increases fell far short of reality, prompting a default on $4.4 billion of debt in 2010. Since then, the complex has been in the control of a group of creditors led by CWCapital Asset Management, which is owned byFortress Investment Group LLC.

CWCapital for months has been seeking to sell the property and recently agreed to the terms of a deal with Blackstone as well as with New York City officials, the people said.

The city is expected to contribute $225 million to help preserve a portion of the complex as affordable to low- and middle-income residents, and an announcement is scheduled for Tuesday, the people said.

The deal shows the dominance in the real-estate sector of asset manager Blackstone, which has amassed a war chest of billions of dollars from pension and sovereign-wealth funds to throw at deals, dwarfing any other private player.

The New York firm recently raised a $15.8 billion fund, the largest real-estate fund ever. Other large deals of late include its announced $23 billion purchase, with Wells Fargo & Co., of the real-estate assets of General Electric Co.

During the real-estate market boom, Blackstone pulled off two of the largest leveraged buyouts in history, for Hilton Hotels for $18.5 billion and Equity Office Properties Trust for $23 billion.

While Blackstone executives years ago privately vowed to avoid the Stuyvesant Town complex because of its potential to become a political lightning rod, they appear to have changed their mind. The company also has amassed a portfolio of roughly 50,000 single-family homes in recent years.

Separately, Blackstone has raised money for longer-term investments that are more stable but also tend to generate lower returns than its traditional fare—a category dubbed “core,” where the pressures to raise rents might be lower.

The rent controls at Stuyvesant Town and other big complexes long have been a hot-button issue in New York. The property was developed by insurer MetLife Inc. for returning World War II veterans and remained a middle-class haven for decades, even as rents in other parts of the city soared.

But the insurer gradually converted rent-regulated units to luxury rentals. When it sold to the Tishman Speyer group in 2006, the new owners tried to pick up the pace dramatically, only to find it was harder than expected.

Adding to Tishman’s woes: a tenants’ lawsuit that resulted in the entire complex falling back under rent regulation.

CWCapital has gradually converted more apartments to higher rates, and only about 5,000 units are now occupied by the original tenants with rent-stabilized leases that protect against steep increases. Some of those units are well below the market rate, which can stretch to $4,500 for a two-bedroom unit.

With few lawsuits remaining and a hot real-estate market, CWCapital last year began looking to sell, and it has been in talks for months with the administration of Mayor Bill de Blasio, which is eager to show progress on low-income-housing issues in a city grappling with ever-rising rents.

Mayor de Blasio was elected in 2013 with a promise to build or preserve some 200,000 units of affordable housing. Winning restrictions on the ability of the new owners to raise rents on about half of the units until 2035 would be considered a major political victory for the mayor.

Mortgage giants Fannie Mae and Freddie Mac in June agreed to consult with the city and tenant groups before investing in a future deal for the purchase of the complex, at the urging of Sen. Charles Schumer (D., N.Y.).

“The fact that Fannie and Freddie required the city and the tenants to approve of the deal created a much better deal for the tenants, for the city and for New York,” said Sen. Schumer, who long has pushed to keep at least some of the complex affordable.

By bringing city officials into the deal, CWCapital may be able to sidestep the politically messy sales process that occurred when MetLife put the property up for sale in 2006. At the time, many politicians lobbied to block the sale because the high sum offered by the Tishman group suggested many long-time tenants would be pushed out in favor of those with higher rents.

Under a binding agreement with the city, Blackstone has agreed to keep roughly 5,000 units below market rents until at least 2035. domain price calculator Most of those units will be aimed at middle income families: Two-bedroom apartments, for example, will rent for as much as $3,200 a month, a rent considered affordable for a family of three making up to $128,000 a year.

About 500 units will be set aside for lower-income families, with two-bedroom units renting for up to $1,500 a month.

To win those guarantees, the city is giving Blackstone a $144 million loan through its Housing Development Corp., an affordable-housing agency. It will also exempt Blackstone from the $75 million mortgage recording tax.

“For the traditional rent-stabilized tenants, they can take comfort in the fact that there is very little incentive here for anyone to try to push them out,” said Daniel Garodnick, a city council member who represents the area and also lives in the complex.