STUYVESANT TOWN – PETER COOPER VILLAGE AMERICA’S LARGEST FORECLOSURE Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

STUYVESANT TOWN – PETER COOPER VILLAGE AMERICA’S LARGEST FORECLOSURE Case Study Solution

Why did Tishman Speyer and Black Rock, renowned institutional investors, invest in the first place?

Black Rock were the sponsors of the property that provided the financing for buying the property and Tishman Speyer was one of the largest real estate dealer in America. They had acquired ST-PCV property for around $ 5.4 billion. This investment of Tishman was led by Rob Speyer who wanted Tishman to target this new property type. It was stated by Rob that the idea was to take advantage of the softening of the housing market and also the condominium market and Rob thought that purchase of this multifamily property would be a great counter cyclical bet.

The father of Rob, Jerry Speyer led this transaction. Both the institutional investors decided to invest in this property in order to form a mutually beneficial arrangement for each of the two investors. Black Rock had a global network of the investors and using that network he would be able to finance the deal. On the other hand, Tishman would be responsible for the management of the property as he was a renowned developer and substantial owner of the real estate.

They invested in the property based on three acquisition theses. First, this property was matchless in Manhattan due to its location, size and natural features. Secondly, rental revenues were expected to increase in future as a result of conversion of rent stabilized apartments to market rates. Thirdly, they would launch a capital improvement program for upgrading the existing structures so that rent rates could be increased.

Question 2

What mistakes did they make, if any, or was it just bad luck and bad timing? Could those mistakes have been avoided?

A number of mistakes had been made by them. First, Tishman was the only bidder that did not meet with the tenants of the property while all the other bidders had discussed the proposal with their tenants. Secondly, this was the first foray of Tishman into running a residential community and in the past they had only managed commercial properties.

Furthermore, Tishman had placed significant value of the property and the price paid was too high. In the first few weeks of the acquisition of the properties many tenant leaders voiced their concerns regarding the gentrification of the Stuyvesant Town and they had different views regarding the Christmas Tree lighting. Black Rock, the sponsors of the deal had run into the public relations problems and they also faced problems in attracting the new residents.

When they increased the rents in Summer of 2007, the vacancy had spiked from 150 to 800. This wasa mistake on their part as they increased the rents at the wrong time. They should have waited for at least 3-4 years before increasing the rents for the property. Increase in the rent rates also brought other problems when in October 2009, the New York Court of Appeals had upheld a lower court ruling in the 4-2 decision based on the fact that Tishman had improperly raised the rents.

The increase in the rents on the 4350 apartments had violated the laws because the J-51 tax incentive had been accepted by the complex and this had encouraged renovations of this property. These all were the mistakes made by Tishman and Black Rock. Therefore, it was not the bad luck but it can be concluded that it was the bad timing and not the correct time to increase the rents.

In the end, the sponsors had decided to relinquish the control in order to avoid the bankruptcy processes. These problems could have been avoided by doing a detailed due diligence of the property and its apartments, talking with the tenants and tenant heads and hiring and expert to provide services for management of residential properties as Tishman and Black Rock did not have the required experience in this arena.

Question 3

Calculate the present value of the property in 2010 based on the DCF valuation method assuming a 10-year hold period? Utilizing in-place cash flows provided in the case study, make assumptions to create some pro-forma for a minimum 10-year hold period. Your Excel model should include a detailed analysis to calculate the property value in 2010..............

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