New York Appellate Division Ruling

By John J. Richard, Managing Director, Investcap Advisors LLC

The property markets received another jolt this week, this time coming from the New York Appellate Division. A very tenant-friendly ruling handed down this week indicated that Tishman Speyer, the owner of Stuyvesant Town and Peter Cooper Village in Manhattan, had illegally converted roughly 4,000+ units from rent controlled/stabilized status to market rent. The issue in this ruling centered around whether an owner of a multi family property could renovate units taking advantage of certain tax abatements and still convert those units to market. This ruling evidently contradicts a decade-old policy promulgated by a New York City housing commission. It is unclear whether Metropolitan Life, the previous developer and owner of the multi family project, will also be held partially responsible for this practice prior to their sale of the property in 2006. The senior mortgage on Stuy Town/Peter Cooper has garnered much attention over the past year as the debt service reserve established at closing nears depletion. Portions of this senior debt ($3 billion) are spread across multiple CMBS deals. This ruling will certainly place an added stress on Tishman’s ability to service the debt and it has obvious implications for other multi family projects in New York City that conducted the same rent conversion practice while also taking advantage of the tax abatements.