It was heralded as the most vital affordable housing deal in a generation, but now the city and state are reviewing their agreement with Blackstone Group after new rent regulations drove the landlord to dramatically pull back its investment into Stuyvesant-Town Peter Cooper Village, which it bought for a record $5.3 billion.
In 2015, Blackstone, one of the world’s largest financial firms, received a $220 million financing package from the city in exchange for preserving 5,000 affordable units at the 11,000-unit Stuyvesant Town and Peter Cooper Village complex for 20 years. But the state’s June reforms to the rent-stabilization law led the developer this summer to halt major renovations, and keep up to 50 units vacant, as The Real Deal reported earlier this week.
Now, city and state authorities are assessing whether the “warehousing” of units and a freeze on most investment at the complex violates the covenants of the financing, $144 million of which was structured as an interest-free loan so the city could enforce the affordability component of the deal. The deal was structured so that Blackstone would never pay a single penny of the principal — since at the end of the 20-year term, the balance would be zero on the zero interest rate loan.
“We take this very seriously and are conducting a thorough review in partnership with the State,” a spokesperson for the city’s Housing Preservation and Development told The Real Deal. “The city will do whatever we can to maintain the availability of the housing stock and support hard working New Yorkers in search of an affordable place to live.”
A spokesperson for the landlord told The Real Deal that the company was “proud” of its work at Stuy Town, which it bought alongside Montreal-based investor Ivanhoé Cambridge. “We will continue to fulfill our commitment to voluntarily preserve 5,000 affordable apartments and have invested hundreds of millions of dollars in capital improvements, including completing New York City’s largest solar project,” the spokesperson said in a statement. “In light of the new legislation, unfortunately, we have to make some difficult choices and scale back certain investments.”
The news that Blackstone would “warehouse” apartments — effectively leaving stabilized units vacant — follows a statement in July that it would only make necessary repairs at the housing complex because of the new rent law, which limits the landlord’s ability to pass the cost of repairs onto tenants.
A TRD analysis of Department of Buildings permits shows that in 2018 Blackstone spent $617,661 on interior renovations for 11 apartments — an average per-apartment cost of $56,151. The most expensive renovation in 2018 at Stuytown was $129,322 for a fifth-floor apartment, while the least expensive renovations were carried out for $5,400 at two apartments.
Some landlords are hoping the vacancy strategy pushes lawmakers to roll back elements of the new rent law, sources told TRD.
“It’s the subtext. It’s like, ‘I’m going to hold my breath until I turn blue and someone will come rescue me,’” real estate finance attorney Joshua Stein said. He noted that the decision to forego renovations and keep apartments closed-off is purely a business decision.
But Assemblymember Harvey Epstein, who represents the East Side of Manhattan, said he does not find Blackstone’s new strategy compelling.
“This feels like they’re trying to blackmail the government or hurt the housing market,” Epstein said. “Not renting out apartments and not doing renovations doesn’t feel like a conversation.”
In 2018, the Independent Budget Office released a scathing report on the financing of the Stuy Town agreement, which also included a waiver on a $77 million mortgage transfer tax. The report estimated that 1,800 of the 5,000 affordable apartments would not have been deregulated through 2035 — even without the agreement. The new restrictions on deregulating rent-stabilized apartments, passed in June, bring that number to zero, further calling into question the efficacy of such an agreement.
“Obviously [the changes to the rent law] made a deal of questionable returns in regard to the amount of rent regulated housing it was preserving even more questionable,” said Doug Turetsky, Chief of Staff of the Independent Budget Office. “We can look at hindsight. No one knew rent regulations would change the way they did.”