The Real Deal New York

Possible Stuy Town investors have baggage

J-51 has dogged LeFrak, a strong contender for the site

February 05, 2010 05:23PM
By Adam Pincus

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Richard Lefrak’s organization is a possible contender for Stuy Town

Tishman Speyer Properties and BlackRock Realty were pilloried for aggressively pushing out tenants and running afoul of the city’s J-51 tax abatement rules.

But some of the firms that are being mentioned as possible replacements as owners or managers at Stuyvesant Town and Peter Cooper Village — such as developers LeFrak Organization and Rose Associates, and real estate firm Stonehenge Partners — come with their own skeletons in the closet.

The New York City real estate world is bracing for a struggle among titans for management or ownership of the 11,200-unit housing complex on Manhattan’s East Side following the announcement  last month that the owners would cede control. Potential parties must negotiate with special servicer CWCapital Asset Management, the majority of which is owned by Canadian institutional fund Caisse de dépôt et placement du Québec. The special servicer represents the interests of the bondholders of the securitized loans on Stuyvesant Town.

Tishman Speyer and BlackRock purchased the complex for $5.4 billion in November 2006.

Other firms being bandied about as possible investors or managers are WL Ross & Co., Centerbridge Partners, Related Companies, WinnCompanies and Prudential Douglas Elliman, according to media reports.

The thorny city tax abatement program known as J-51 that contributed to the forfeiture of Stuy Town and Peter Cooper Village has dogged one of the leading contenders for the site, LeFrak, who declined to comment.

The legendary firm is currently operating at LeFrak City under a little-publicized agreement struck with state Attorney General Andrew Cuomo’s office following a 2007 investigation of alleged bias against prospective government-assisted tenants at the Elmhurst, Queens complex where the owner receives J-51 tax benefits.

Cuomo’s office found that leasing agents at the 4,100-unit LeFrak City housing complex were refusing to rent to prospective tenants holding Section 8 vouchers. In early 2008, LeFrak worked out an agreement with Cuomo’s office in which the firm denied any wrongdoing, but created a program to monitor leasing for prospective tenants that have government subsidies, through mid-2011.

LeFrak is partnering with Centerbridge Partners and billionaire turnaround investor Wilber Ross and his WL Ross & Co., the latter of which has said it is negotiating with CWCapital on behalf of the joint venture to either manage or possibly buy the apartment complex.

City Council member Daniel Garodnick, who lives in the complex, said in an e-mailed statement to The Real Deal that the tenants are concerned about a manager with a financial stake which could give it an interest in pushing out rent-stabilized tenants.

“Whoever it is, the residents want to see a new manager that both respects the law and the tenant body,” he said.

There were also concerns from some housing advocates about Rose Associates, which managed Stuy Town and Peter Cooper Village between 2004 and 2006, when approximately 1,400 were removed from rent-stabilization, according to The Real Deal’s analysis of renovation and deregulation expenses from the complex’s 2006 offering plan. Company co-president Adam Rose declined to comment.

That bested the 1,251 units that were converted by Tishman Speyer and BlackRock to free market between November 2006 and June 2009, data from the special servicer shows.

Another potential concern for advocates was the connection between Ofer Yardeni’s Stonehenge Properties, which has a 14-year long financial relationship with the Canadian Caisse — which controls CWCapital — according to the Stonehenge Web site. Stonehenge did not respond to requests for comment.

Harold Shultz, senior fellow at the Citizens Housing and Planning Council, said it was important for any relationship between CWCapital and the other parties to be transparent.

“It would certainly seem in the interests of the bondholders that whatever the relationship the potential bidder has with CWCapital should be disclosed,” Shultz said.

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