Few places in New York are less likely to inspire grand dreams than Stuyvesant Town and Peter Cooper Village, the twin housing projects that sprawl across 80 acres of the Lower East Side. Built by MetLife in the 1940s, the project encompasses block after block of boxy brick apartment buildings and stolid public spaces, entirely barren of inviting corners or eye-catching detail. The critic Lewis Mumford dubbed it “the architecture of the Police State”; a slightly kinder motto might have been “What do you expect for $68.50 a month?”
Yet when MetLife spruced up the complex and put it on the market in 2006, real-estate moguls jetted in for the sale. A joint venture put together by Tishman Speyer and BlackRock carried the day through its willingness to, as The New York Times noted, “pay up—way up—to unlock future profits in the sprawling Manhattan properties.” At $5.4billion, their winning bid made the sale the most expensive real-estate deal of all time.
Three years later, however, those profits were still securely locked inside the property’s 11,232 apartments—many of which remained rent-controlled, despite strenuous efforts to convert them to upscale market-rate rentals. With net income well under projections, the partnership started spending down its reserves. Then, in October 2009, a court ruled that the partnership had improperly decontrolled the rent for thousands of apartments, and would have to return them to their original status. As of this writing, analysts are predicting default in a matter of months unless the partnership’s debt of $4.4billion can be restructured—a shaky prospect, given that the owners may owe tenants of formerly rent-stabilized apartments as much as $200million in rent overcharges and damages. Stuyvesant Town might soon set another record: the biggest real-estate default in history.