UPDATED, Dec. 7, 4:00 p.m.: Mortgage giant Fannie Mae is backing the Blackstone Group and Ivanhoe Cambridge’s acquisition of Stuyvesant Town-Peter Cooper Village with a $2.7 billion credit guarantee, the government-backed company announced Monday.
Wells Fargo’s multifamily division will originate the acquisition loan and pass it on to Fannie Mae, which will then sell it off to investors in the form of commercial mortgage-backed securities stamped with its repayment guarantee. This means the U.S. federal government will in effect back the $5.3 billion acquisition, on top of New York City’s $225 million subsidy package for the buyers.
Fannie Mae, a de-facto mortgage insurer, is a company with shareholders but is backed by the government and has a public mission to further homeownership. Investors around the world are willing to accept low yields on Fannie Mae-backed mortgage securities because of an implicit understanding that the federal government will jump in if Fannie can’t honor its commitments during a crisis – as happened in 2008. This implicit guarantee means Fannie-backed loans are often far cheaper for borrowers than private-market equivalents.
“Fannie Mae Multifamily and Wells Fargo are important partners in our effort to preserve the affordable heritage of Stuyvesant Town-Peter Cooper Village,” Jonathan Gray, Blackstone’s head of real estate, said in a statement.
Fannie Mae did not disclose the interest rate on the loan, but said it carries a 10-year term. In a call with reporters, Jeffery Hayward, head of the firm’s multifamily business, said the deal’s closing depends on the resolution of a lawsuit by the old ownership’s lenders against special servicer CWCapital.
“There has to be a certain set of conditions for us to close,” Hayward said, adding that he has “every confidence” this will happen.
Attorney Lawrence Rolnick of Lowenstein Sandler LLP, who represents one of the plaintiffs in the suit, Appaloosa Investment, told TRD that the plaintiffs are not seeking to block the sale of Stuy Town and that the dispute is only over the proceeds.
The prospect of Fannie Mae financing was an important factor in negotiations between the city and Blackstone over a deal to keep 5,000 units at the housing complex affordable for 20 years. New York’s senior senator Chuck Schumer had lobbied the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, to make any financing of a Stuy Town acquisition contingent on a deal with the city. This meant that if Blackstone and Ivanhoe Cambridge wanted the cheapest form of financing, they would have to make affordability concessions.
At a Stuy Town tenant meeting in October, Schumer said the Tishman Speyer saga had taught him the need for “outside leverage.”
“I realized that to get such a huge mortgage,” he recalled, “you need the backing of Freddie Mac and Fannie Mae.” On the call Monday, Hayward acknowledged that it had passed on an opportunity to back a Stuy Town acquisition in the past, and that it would not have gotten involved without the agreement between Blackstone and the city.
The bulk of Fannie Mae’s loans are single-family mortgages, but the firm also has an active multifamily division that currently guarantees more than $16 billion in loans in New York City alone. The company has a $30 billion cap on the total volume of multifamily loans it can insure each year, but it can exceed that cap for projects with an affordable housing component.
“This deal would not have been possible without Fannie Mae because there are very few financing sources in the marketplace with the expertise to execute these types of transactions,” Alan Wiener, head of Wells Fargo Multifamily Capital Group, said in a statement.