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What Other Major Investors Had the “Stuyvesant Town” Strategy?
Significant (virtual) ink has been spilled about Stuyvesant Town and its owners’ failed plans to turn a profit. Lost in the mix has been coverage of attempts by other developers to achieve the same goals for less expensive buildings.
Exhibit A: The Belnord, a 213-unit prewar apartment complex on Manhattan’s Upper West Side.
Extell Development has spent over $50mn on renovations since purchasing the property in 1994 for a reported $15mn. This suggests that the sponsor extracted a significant profit at the time of the 2007 origination. The debt amounts to $1.7mn per unit, excluding the retail portion which includes 60k sf of retail space. The underwritten NCF [net cash flow] was $29.9mn, based on assumptions of turning rentcontrolled units to market rent, versus in place cash NCF of only $11.2mn.
At securitization, the breakdown of the units was 74 market, 22 rent stabilized and 119 rent controlled. The unit mix at securitization had an average monthly rent of $2.22 psf, with rent controlled, stabilized, and market rent units at $0.53psf, $1.35psf, and $5.19psf respectively. The underwritten rent at stabilization was $6.66psf. As of December 2008, only a net three units had been converted to market rates, well below the pro forma conversion rate. To cover the shortfall, a debt service reserve of $49.4mn was funded; the current balance is only $29mn.
Current snapshot
Given the recent court ruling regarding Peter Cooper Village & Stuyvesant Town, The Belnord strategy is in serious jeopardy. The current DSCR [debt service coverage ratio] as of June 2009 is 0.55x, due to the sponsor’s inability to deregulate units and the property incurring higher-than-expected operating expenses. It is highly unlikely that the property will reach its stabilization in April 2012 as planned.
Outlook
Pre-funded reserves will likely continue to support his loan for the next 2-3 years. We expect a term default with a significant loss after we estimate that the debt service reserves run out in October 2012. The sponsor, Extell Development, has several development projects underway in New York City, which could limit its ability to support the debt service on the Belnord. Applying a cap rate of 6.5%, assuming minimal improvement in cash flow, and factoring in advances and expenses, we expect a loss of 55% to the A-note. This would result in a deal loss contribution of 4.3% to [the $375mn 10y interest only A-note securitized in] JPMCC 06-LDP9.
Source: Barclays
Hat Tip: Zero Hedge
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Check out what others are saying about this post...[...] from Related Cos. for $42.5 million. (Related is having its own issues with its recent purchase of the Upper West Side apartment complex [...]