GIC recognises big loss in US property project
Bulk of US$675m investment in New York complex has been written down
The Government of Singapore Investment Corp (GIC) has written down most of its US$675 million investment in a giant New York apartment complex that was bought at the height of the property boom in the United States but which has since suffered from the collapse of the housing market there.
The joint owners of Stuyvesant Town and Peter Cooper Village defaulted on their debts last Friday, following a US court ruling that dealt the project a death blow last October. It had been struggling for months as it failed to deliver the hoped-for returns amid the US economic recession.
GIC had invested US$575 million in a so-called mezzanine loan backed by the property – a subordinated loan that sits between ordinary debt and equity – and US$100 million in an equity stake.
BT understands that the entire US$575 million debt investment has been written down. It is unclear if GIC has also written down its equity investment in the property.
‘GIC recognised the losses following the ruling by the New York Court of Appeals in October 2009 which precipitated the default,’ a GIC spokesman said yesterday.
In 2006, US developer Tishman Speyer Properties and BlackRock Realty, a unit of fund manager BlackRock Inc, bought Stuyvesant Town and Peter Cooper Village – a sprawling, 11,200-apartment complex with 110 buildings along New York City’s East River – for US$5.4 billion, the biggest property transaction in US history.
While details of the deal were not made public, news reports citing people familiar with the deal say that it was funded by US$1 billion in equity from institutional investors including GIC, US$3 billion in debt that was pooled with other commercial mortgages and sold on as mortgage- backed securities or bonds, and US$1.4 billion of mezzanine debt that was also sold to institutional investors.
The other investors included pension funds such as the Florida State Board of Administration and the California Public Employees’ Retirement System or Calpers, as well as US mortgage finance companies Fannie Mae and Freddie Mac – which own the biggest portion of the debt, according to a Bloomberg report.
The Florida State Board of Administration and BlackRock have written off their entire investment in the property.
Completed in 1947, the apartment complex was built at the end of World War II to provide affordable housing for New York residents returning from the war. More than 70 per cent of its apartments remained under rent control that subsidised their tenants when the new owners took over in late 2006.
The owners planned to evict tenants who no longer qualified for the subsidised rents, and raise the rents for the apartments to at least the prevailing market rates. They also expected to further boost the rents the apartments could command by investing in new amenities for residents, to generate the returns needed to earn a profit on their investment.
But the project ran into difficulties when US housing prices collapsed and the economy slid into recession.
By last September, a fund set aside for renovation of the buildings and to pay interest on the debt used to fund the deal had been nearly depleted.
And on Oct 22, the New York Court of Appeals upheld an earlier court ruling last March that the owners had wrongly charged market rents on thousands of the apartments while receiving tax exemptions under the city’s rent-controlled housing programme.
Source : Business Times – 12 Jan 2010