Two more properties are being returned to the bank because the owners cannot afford mortgage payments. While that statement is altogether ordinary, especially with the dismal housing market over the last two years, what is remarkable is what two properties were returned.
Two massive apartment complexes on prime Manhattan real estate were returned to creditors by a partnership led by Tishman Speyer Properties and BlackRock Realty. The two major real estate investors financed and purchased Stuyvesant Town and Peter Cooper Village for $5.4 billion in 2006. The properties are comprised of 110 buildings and 11,000 apartments. Today, Fitch Ratings estimates the properties are worth $1.8 billion.
If the properties had not been returned to creditors, it was likely that the partnership would have had to file bankruptcy. The partnership could not make the $16 million January loan payment. The news represents the latest and largest in a string of major commercial real estate ventures that have ended in default. Many of the sour deals were struck in the middle part of the last decade when money was loose and the rise in real estate property values appeared unstoppable. Now, money is tight and real estate prices have fell off a cliff. Thus, it is nearly impossible for large ventures to refinance their debt.
Commercial real estate defaults have escalated recently. While the residential real estate market has been in turmoil for years, the commercial real estate market may not have reached its nadir. In December, $31 billion worth of commercial apartment properties were in default, foreclosure, or bankruptcy. Construction that began before the recession is finishing up around the country, adding unnecessary supply. And existing deals operate under valuations that are often double what the properties are worth. A dismal commercial real estate market could help impede progress in the broader economy. That's why the news out of Manhattan resonates throughout the country.
