Tishman to appeal Stuyvesant Town ruling

The real estate investment and development firm can appeal a US court ruling that would force it to repay millions of dollars in rent overcharges. The ruling had brought into question the strategy of converting rent stabilised apartments in New York to market rates.

Tishman Speyer can appeal against a New York court ruling forcing it to repay millions of dollars of rent for its Stuyvesant Town/Peter Cooper Village complex.

The New York-based real estate developer and investment firm was told yesterday that it could appeal a state appeals court rule that owners of rent-regulated buildings who receive certain tax credits cannot convert those apartments to market rates.

In March, the Appellate Division of New York’s Supreme Court ruled that Tishman Speyer, and the complexes’ former owner, Metropolitan Life, should not have been deregulating apartments while receiving J-51 tax abatements, which are given for making building improvements.

According to media reports, the ruling could have left Tishman with an estimated $200 million bill in rent refunds.

However, a spokesman told PERE the Appellate Division of the State Supreme Court had notified lawyers for Tishman Speyer Properties that it would allow the landlord to appeal the ruling. “We’re pleased that the Appellate Division has granted our motion for leave to appeal. We look forward to the Court of Appeals ruling on this important issue,” he added.

Wolf Haldenstein Adler Freeman and Herz LLP announced today that the same four-panel judge that unanimously ruled in the plaintiffs’ favor in the New York case of Roberts v. Tishman-Speyer at the beginning of March has allowed the landlord defendants to appeal directly to the Court of Appeals, New York’s highest court. The putative plaintiff class consists of thousands of present and former tenants at New York’s largest residential apartment complex, Stuyvesant Town and Peter Cooper Village, and won what has been hailed by some as a “landmark victory” for tenants’ rights in the Appellate Division – New York’s intermediate appeal court – on March 5, 2009.

Lawyer Alexander Schmidt, of Wolf Haldenstein Adler Freeman and Herz who is representing the tenants in the case, said the appeal was not “entirely unexpected” adding all sides wanted a “prompt, final ruling” on the issue.

Tishman bought the Manhattan residential complex, located on 80 acres of prime lower east Manhattan real estate, for $5.4 billion in 2006. The firm’s strategy hinged upon the success of converting much of the 56-building complex’s rent-stabilised units into market-rent properties.
According to financial documents seen by PERE magazine, Tishman assumed Stuyvesant Town and Peter Cooper Village would be able to increase its net operating income (NOI) from a reported $112 million in 2006 to $160 million in 2008. However, data from commercial mortgage research company Trepp in the nine months to the end of September 2008 shows that NOI was $101 million.

Market-rent properties for the same period comprised 37 percent of the 11,227-unit complex, compared to 28.4 percent at the time of the deal.
Earlier this month, rating agency Fitch downgraded certain classes of collateralised debt obligations of real estate investment trust, Gramercy Capital Corp., including a mezzanine position secured against Stuyvesant Town/Peter Cooper Village.

In a statement, Fitch said Tishman’s business plan was “lagging behind schedule”. The firm, Fitch estimated, also had just four months of interest reserves remaining to cover debt service on the first mortgage, which matures in 2016.