The saga of Stuyvesant Town... Defaulting on a $3 billion mortgage... A $5 billion deal on the horizon... Blackstone is selling some office space... And look who's buying... A new high for Apple...
Today, we revisit the saga of Stuyvesant Town – the massive housing complex on Manhattan's east side.
Nobody rings a bell at the top, but the deal to buy "Stuy Town," as it's known, was as clear a sign as one can ask for.
A little history on the property... Stuyvesant Town and Peter Cooper Village – both the same development – run from 14th St. to 23rd St. on 1st Ave. The property stretches back to the FDR Highway.
Other than Central Park, it's probably the most visible footprint in Manhattan.
With help from the city, MetLife built the property in the 1940s to house soldiers returning from World War II.
Today, the 11,000-unit complex is home to some 30,000 residents. It's a popular residence for families... The property has playgrounds, tennis courts, basketball courts, trees... It's relatively enclosed and private, and the rents are reasonable.
In 2006, asset-management firm BlackRock and developer Tishman Speyer Properties purchased the 56-building complex for $5.4 billion.
The two thought they could triple income from the property to $336 million by 2011 (that's how people think at market tops, for reference)... They planned to raise rents on long-term tenants.
Instead, by 2009, income was only $139 million. And the value of real estate had plunged following the subprime crisis.
In October 2009, the owners had $33.7 million in interest reserves left to service their debt payment of $16 million per month.
As we wrote in the October 14, 2009 Digest...
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BlackRock and Tishman Speyer eventually defaulted on their $3 billion mortgage and $1.4 billion in mezzanine debt in 2010. Again, take note of the bubbly behavior... The purchasers financed $4.4 billion of a $5.4 billion commercial transaction.
Since then, creditors and tenants have argued over the future of the property... Including a group led by hedge-fund manager Bill Ackman trying and failing to force the property into bankruptcy. Ackman is also pushing Brookfield Asset Management to work with the tenants to convert the property to condos.
But it may finally reach a conclusion next month...
CWCapital Asset Management, owned by Fortress Investment Group, has been in charge of the property since the default. It's holding a foreclosure sale on June 13 for $300 million of junior loans.
Whoever wins the auction will take over the entity that owns the property, then will have to pay or resolve the senior mortgage. At that point, the winner could sell the property.
Income at Stuy Town is up $54 million since Tishman Speyer and BlackRock walked away – it hit $177.5 million in 2013.
And there are still 4,311 apartments with restricted rents. Those are open to market rent between June 2020 and May 2022.
A person familiar with the deal told Bloomberg that Fortress is in discussions with lenders for an acquisition that values the development at about $4.7 billion.
Based on Stuy Town's 2013 numbers, that's a gross rental yield of less than 3.8%.
One fun fact about New York City real estate... Apartment prices are now 45% above the 2008 peak, according to real-estate-research firm Real Capital Analytics (RCA).
While Fortress is looking to enter the trophy property market today, private-equity firm Blackstone Group – some of the smartest real estate investors in the world – are getting lighter...
Blackstone is selling five high-rise buildings in Boston for about $2.1 billion. The buildings were part of Blackstone's 2007 acquisition of Sam Zell's Equity Office Properties – one of the largest takeovers ever... And another sign of the top.
Blackstone is also selling its stake in a sixth Boston property – hotel Rowes Wharf – to its partner in the deal, Morgan Stanley.
Blackstone has been taking advantage of high prices to sell more property recently... But this is the largest sale since the downturn. In the first quarter of this year, urban office-building prices were 11.3% above their 2007 peak, according to Moody's/RCA commercial-property price index.
On the other side of this transaction is Oxford Properties Group – the real-estate-investment arm of the Ontario Municipal Employees Retirement System... Yes, a pension fund – notoriously awful investors with extra-deep pockets.
We've long poked fun at pension funds and sovereign-wealth funds (government-controlled investment vehicles) for being some of the worst investors on the planet, with some of the worst timing. Coincidentally, some of the other bidders on the property were the Government of Singapore and a joint venture between Norway's sovereign-wealth fund and insurance giant MetLife.
Oxford has been active in the real estate markets recently... It purchased 450 Park Ave. in New York City in February for $575 million – one of the highest prices ever paid per square foot for NYC property (more than $1,700 per square foot).
Elsewhere in the market, tech giant Apple hit a 52-week high today.
No real news to report here... Apple is simply an excellent company that generates over $45 billion in free cash flow every year. It's also sitting on $150 billion in cash – more and more of which it's returning to shareholders.
The company increased its quarterly dividend (which it initiated in March 2012) from $2.65 to $3.29 per share – a 24% increase. And since Dan Ferris recommended Apple in Extreme Value, the company has repurchased more than $44 billion of its shares.
And if you back out the company's cash, Apple is still trading around 10 times earnings and eight times free cash flow.
Extreme Value readers are up 41% on the recommendation in less than a year.
Dr. David Eifrig is also a fan of Apple. As he recently told subscribers...
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New 52-week highs (as of 5/19/14): Apple (AAPL), Brookfield Asset Management (BAM), BP (BP), Allianz GI Equity & Convertible Fund (NIE), ProShares S&P 500 Buy Write Fund (PBP), Market Vectors India Small Cap Fund (SCIF), Targa Resources (TRGP), Union Pacific (UNP), and U.S. Commodity Index Fund (USCI).
Some good discussions on wages and trailing stops in today's mailbag. Send your e-mails to feedback@stansberryresearch.com.
"[Last Friday's Digest] is one of your very best articles. My mind is now crystal clear as to why I am sitting on the sideline selling puts and waiting. I knew that the safest strategy was to sit and wait but I was not 100% sure why. Now I know thanks to you." – Paid-up subscriber Roy
"Doc's mention [in yesterday's Digest Premium] of a shortage of workers in California vineyards due to immigration issues and current rules and enforcement is country-wide in agriculture. I am an apple grower in NY and concern in finding enough good labor is a constant issue and sometimes there are not enough workers to do the work or pick the fruit. However, it not an issue of 'cheap labor' as Doc mentions as we all pay well above minimum wage.
"It comes down to a total lack of a domestic labor pool to choose from because Americans would rather not make money than to do farm labor work. Piece work rates can allow workers to make $125 to $180 plus per day and our hourly wages range between $10 and $14 per hour. Remember we are not talking about living in an area of high housing costs so these wages in rural America sound cheap compared to a metropolitan area but are far above many occupations. In NY it's the taxes that are killing us. Love you guys and thanks so much for your information." – Paid-up subscriber Doug Fox
"Funny- I bought Steve's recommendation of SCIF on Dec 18, 2012 and am DOWN 3% and at one point was down 40%. Would you please explain how Steve's readers are 'up 40%' since his last recommendation of the same fund and if this serves as a fair representation of Steve's advice?" – Paid-up subscriber Allan Tulp
Goldsmith comment: You're right... Steve originally recommended the Market Vectors India Small Cap Fund (SCIF) in December 2012. And he stopped out for a 33% loss in June 2013 after emerging markets got crushed. He wrote in the July issue of True Wealth...
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Luckily, Steve minded his stop losses. SCIF fell another 21% from June to September. Then he recommended SCIF again in his February issue. Subscribers are now up 40% and counting. If you entered both trades – as Steve recommended – you're still showing a profit.
Regards,
Sean Goldsmith
May 20, 2014
A sign of the top for the wealthy – and a mortgage anomaly...
Mortgages are offering an "unheard of" situation today.
In today's Digest Premium, Dr. David "Doc" Eifrig discusses what's causing this never-before-seen setup...
To subscribe to Digest Premium and access today's analysis, click here.
A sign of the top for the wealthy – and a mortgage anomaly...
The really wealthy folks who bought second homes in 2005 and 2006 out in Beaver Creek and Calistoga Ranch got burned.
They didn't go underwater. But they're selling those second and third homes... and nobody wants to buy them today. Rich people aren't taking out loans to buy second homes today.
For the first time ever, you can get jumbo loans cheaper than conventional mortgages. That's unheard of.
Banks are having such a hard time selling these jumbo loans that interest rates are inverted. Normally, the bigger loan that's outside of the conventional flow of the mortgage pipeline costs more. So while these are lucrative loans for banks (people taking out a $5 million mortgage aren't haggling on fees and basis points), they're just not lending enough to make big money. That's one of the reasons I (Doc Eifrig) recommended selling Wells Fargo in Retirement Millionaire.
So why is this happening today?
For one, I just don't think the market is that active in general. But let's say people with between $3 million and $10 million were 60 years old during the last housing boom. Today, they're 70... They're not as active. And they're wondering what to do with their money and how they're going to liquidate their fixed assets to distribute their cash to grandkids and such.
We're in the midst of a demographic shift... And the people with lots of assets just aren't doing much today.
On a somewhat related note, I just saw a new airline offering a suite that has a shower and a bathroom... It's like a one-bedroom apartment. Usually, when you see stuff like that, it's a sign of the top for the wealthy...
– Doc Eifrig
A sign of the top for the wealthy – and a mortgage anomaly...
Mortgages are offering an "unheard of" situation today.
In today's Digest Premium, Dr. David "Doc" Eifrig discusses what's causing this never-before-seen setup...
To continue reading, scroll down or click here.