A group led by Tishman Speyer Properties LP is giving up control of the Stuyvesant Town and Peter Cooper Village apartment complex in Manhattan to creditors, marking the collapse of one of the largest transactions during the U.S. real estate boom.
The decision came after a joint venture headed by Tishman and a unit of BlackRock Inc defaulted this month on $4.4 billion of debt used to finance the purchase of the 11,200-apartment property.
In a statement, the venture said it had no intention of filing for bankruptcy.
The venture acquired the complex from MetLife Inc for $5.4 billion in 2006, just as the nation's real estate market was cresting. The property, however, is now valued at perhaps $2 billion or less.
The only viable alternative to bankruptcy would be to transfer control and operation of the property, in an orderly manner, to the lenders and their representatives, according to the statement from the venture.
A battle over the property or a contested bankruptcy proceeding is not in the long-term interest of the property, its residents, our partnership or the city, it added.
Stuyvesant Town's troubles reflect the deterioration of both property values and the availability of credit, including to refinance highly leveraged transactions, since the end of the nation's real estate boom.
MetLife originally built the complex for returning World War II veterans and other middle-class tenants. More than 25,000 people live in 56 buildings there.
Tishman itself invested only a reported $112 million of its own money for the purchase.
But the property's falling value may cause equity investors such as the California Public Employees' Retirement System and the Singapore Investment Corp to lose large portions of their investments.
On January 11, the Singapore fund said it had already booked some losses on its $675 million debt and equity investment.
The venture had hoped to increase rents on the complex's rent-regulated apartments to higher market levels.
This strategy backfired in October when New York's Court of Appeals, the state's highest court, ruled that rent increases on thousands of apartments were illegal.
Gramercy Capital Corp, one of Tishman's lenders, last week called for the removal of Tishman as manager.
Tishman said it would not consider a long-term contract to operate the property after ceding ownership, but offered to continue managing it for an interim period to make the transition smooth and seamless for the residents.
(Reporting by Jonathan Stempel in New York and Bhaswati Mukhopadhyay in Bangalore; Editing by Jon Loades-Carter, John Wallace and Lisa Von Ahn)