Other People's Money: Inside the Housing Crisis and the Demise of the Greatest Real Estate Deal Ever Made
Summary
This is the full subtitle entry for Charles Bagli's account of the Stuyvesant Town and Peter Cooper Village transaction, catalogued elsewhere in this reference under its short title.
Bagli, a New York Times real estate reporter, reconstructs the 2006 purchase of the two adjoining Manhattan complexes by Tishman Speyer and BlackRock for 5.4 billion dollars, which was the largest residential real estate transaction ever completed in the United States, and the default that followed within four years.
The underwriting rested on converting a large share of more than eleven thousand rent-regulated apartments to market rents on a timetable no operator had achieved. The financing was structured with interest reserves that assumed the conversions would generate income within a few years. Tenants organised and litigated, a court found the previous owner had improperly deregulated apartments while claiming tax benefits, rents were rolled back with refunds owed, and the property was surrendered to its lenders.
The book covers the sellers, the buyers, the lenders who securitised the debt, the pension funds and sovereign investors who lost their equity, and the tenants who organised against the plan. Bagli reports all sides and the tenant material is unusually well done for a real estate book.
It is a case study in an acquisition whose entire return depended on an untested assumption and on a regulatory interpretation that litigation reversed.
Key takeaways 7
- The largest residential real estate transaction in American history defaulted within four years of completion.
- The purchase price required converting rent-regulated apartments to market rents at a pace that no operator had previously achieved.
- Interest reserves in the financing assumed the conversion income would arrive within a few years, which left no margin if it did not.
- Litigation reversed the regulatory interpretation the underwriting depended on, requiring rent rollbacks and refunds.
- Organised tenants with legal resources are a counterparty that residential underwriting must account for and commercial underwriting does not.
- Pension funds and sovereign investors lost their entire equity commitments, which indicates the risk was not understood at the institutions funding it.
- An acquisition justified by an assumption the seller could not achieve requires specific evidence about why the buyer can.
Who should read it
Real estate investors and underwriters assessing transactions whose returns depend on untested assumptions and regulatory interpretations.
Where it sits in the reference 2
Who recommended it 1 · 1 direct
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