An Insider's View Of The Biggest Real Estate Deal of all Time

"It was, as Daniel Garodnick, a New York city councilman who lives in Peter Cooper Village, put it, a "defining moment in [New York] city history." International players who had single-mindedly pursued glamorous landmarks like the Chrysler and G.M. buildings in New York and the Sears Tower in Chicago were loudly proclaiming their appetites for humble, "plain vanilla" apartment buildings and a willingness to pay up -- way up -- to unlock future profits in the sprawling Manhattan properties.

"...For all of the deal's accolades, it also illuminates the financial leaps of faith that real estate buyers are increasingly taking. Once, buyers priced properties based on existing cash flow. Real estate executives say that calculus would have generated a $3.5 billion price for the two Manhattan complexes that Tishman Speyer bought. But buyers are now looking to the future, building models of anticipated cash flow when determining how much to bid. The Stuyvesant Town deal, with its $5.4 billion price tag, reflects the new math, and analysts and rival bidders say the hefty price means that the deal will not show a profit for as many as six years."

"Though the announcement that Stuyvesant Town and Peter Cooper Village were for sale initially escaped much public attention, it sent the real estate industry into a frenzy. And for good reason: a sizable chunk of Manhattan was now up for grabs."

The land is a "relic of a bygone urban era when Mr. Ecker and MetLife conceived of a project where "families of moderate means might live in health, comfort and dignity in park-like communities and that a pattern might be set of private enterprise productively devoted to public service... Over the years, MetLife sold many of its residential complexes, but it held on to Stuyvesant Town and Peter Cooper Village, which were only blocks from the company's landmark headquarters on Madison Avenue."

..."The pending sale created a panic among many tenants of the two complexes, where nearly three-quarters of the apartments have regulated rents at a third to half of market rates. An apartment can be decontrolled after it becomes vacant, or the rent reaches $2,000 a month and the existing tenants' income rises above $175,000 over two years. As a result, MetLife had brought about 27 percent of the units in the two complexes to market rates. Tenant activists feared that a new buyer paying nearly $500,000 per apartment would be financially pressed to accelerate the process and transform the complexes by jacking up rents."