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Update on Conversion to the ST/PCV Community from Council Member Dan Garodnick

From Council Member Dan Garodnick:

I wanted to take this opportunity to give an update on where things stand regarding the future of Stuyvesant Town and Peter Cooper Village.

As you all know, I have spent much of the past nine years of uncertainty working to make sure that the Tenants Association is in the strongest possible position to fight for this community, and to deliver a positive outcome from the mess left from the last sale. I am not going to rehash it. You know it, you have lived it.

I will, however, take a moment to bring you up to speed on what has and has not happened, and give you a sense of where things stand.

Recent History

Let’s pick up in June of this year. You will recall that CWCapital announced that it was going to conduct a UCC foreclosure on June 13—and by doing that, wipe out all of the mezzanine loans, and formally transfer ownership to the bondholders.

To ensure that nobody forgot about the interests of the 25,000 people who live here, we showed up strong on the steps of City Hall on June 13—in the rain—to demand fairness for Stuyvesant Town and Peter Cooper tenants. We were joined by many of our friends—Congresswoman Maloney, State Senator Hoylman, Assemblymember Kavanagh, Comptroller Stringer, Borough President Brewer, and our senior Senator Chuck Schumer, all united to make sure that Stuyvesant Town and Peter Cooper Village remains an affordable, stable community—and free from predatory practices, designed to push rent-stabilized tenants out of their units, like what we just experienced.

CWCapital decided to call off the foreclosure, and instead transferred the deed of the property to the bondholders in a procedure called “a deed in lieu of a foreclosure.” The outcome was the same—the bondholders (the lenders in the $3 billion first mortgage) now own the property, and for better or worse, CW continues to represent their interests.

One result that CWCapital did not want, however, was that they got sued by one of the mezzanine interests—another lender in the initial transaction (now owned by Centerbridge)—which said that the process that CW employed was not consistent with the agreement between the lenders. This lawsuit is for monetary damages only and likely would not result in any reversal of the action they took.

A few weeks later, I hosted a meeting with tenant leaders, elected officials and Mayor de Blasio in my Peter Cooper apartment, where we pushed the Mayor for his support, and he reiterated his commitment to preserving the long-term affordability of this community. He expressed a strong desire to be supportive here, a rather stark difference in the approach from his predecessor. We shared some cannolis from Veniero’s, and I can report that the Mayor is a lovely houseguest.

Positions of the City, the Tenants Association and CWCapital

After that time, CWCapital had several meetings with City Hall, and several meetings with representatives of the Tenants Association. Most meetings that have taken place have been preliminary, to share preferences and to reiterate positions.

Let’s review what those positions are at this point:

CW’s position—CW has a desire to deliver a full recovery to its bondholders, and there has been some public suggestion that they believe they would achieve that at $4.7 billion. They are open to conversion, but only if it allows them a full recovery.

The City’s position—maximize long term affordability. They are neutral on most other points, including our plans for conversion.

And of course, our position has not changed—we want to first protect the rights of long-term rent-stabilized tenants, so that they are not again subject to the same sorts of predatory actions that we saw in 2007 and 2008. In support of that goal, I co-founded and built built a City-wide coalition against predatory equity to fight back against these sorts of practices—and in an early success, we got a commitment from Fannie Mae and Freddie Mac that they would not lend to any bid for the property that is not supported by the City and the tenants. Thanks to Senator Chuck Schumer and Congresswoman Maloney for their support of that effort.

Second, we want to maximize tenants’ choices by offering them a chance to buy their units if they wish. We continue to push this point with both City Hall, and with CWCapital.  My impression is that while both the Mayor and CWCapital are open to a conversion as a conceptual matter, they are far from sold, and we have work to do.

It bears noting that a unit’s sale price would be dependent on the sale price of the entire property. And if CWCapital can get $4.7 billion—a far cry from the less than $2 billion when we initially started this conversation—that means that in a conversion, the cost of units would inevitably go up. And if the units are all to be sold at levels that are unaffordable to the people who live in the community, that is not the outcome we want.

Third, we want to protect the long term affordability of this community—for the next generation of tenants. To that end, the Mayor, Deputy Mayor, and Housing Commissioner, and staffs, have all made it directly clear publicly and privately that they want the City to participate here. We will hold them to that.

How could that happen? To achieve long term affordability for future residents, it would require City support in terms of tax abatements or subsidies It would mean that once long-time rent-stabilized tenants vacate their units, there would be a mechanism to allow another New Yorker to move in, provided that they meet a certain—perhaps middle income—threshold. I should again note that all of this is a change from the last Administration, which viewed our issues as purely private, and without any need for City involvement as a policy matter.

Finally, we continue to be determined to protect the historic configuration of the property, and to not allow anyone to build on our playgrounds or other open spaces. This has not changed, and our position on this is well understood and recognized.

Given the complicated issues facing this property, whatever we negotiate will probably not be a simple, off the shelf solution to our situation.

Potential timing for next steps

So what is the timing for resolution of all of this? While CWCapital has said they plan to sell sometime in the next year, there is no legal requirement forcing them to do so. The law allows for CW to represent the bondholders—a REMIC trust—for up to 6 years. This includes an initial three-year period, beginning from the date of the deed in lieu transaction (June 2014), with an option to renew for an additional three years.

Now, we don’t necessarily think that they would really want to use all of those six years—and as a term-limited Council Member I certainly hope they move it along already. But if CW wants to take their time on these negotiations, they can do that.

Some scenarios that might unfold

How might this all go down? As I see it, there are three possible scenarios here:

First, the tenants, the City, and CW could agree on a package of outcomes that we would want to see—like conversion, long term affordability, etc.—and then that structure could be put out for bids. Doing that would ensure the outcome, but not the owner. That could even be a point where Brookfield, which has stood ready to assist us since the beginning, could participate.

Second, all negotiations could fall apart, and CWCapital could just put the property up for a straight up auction. Much like we saw last time.

A third—unlikely, but possible—scenario, would be CWCapital simply sponsoring a conversion themselves, and disposing of unsold rental units after six years.

Of course, there are variables like the Centerbridge lawsuit that could change these expectations.

I think the best opportunity for us is a pre-negotiated deal where we know the outcomes, we have tenant protections built in, and the core questions are resolved before an auction. And that is what we are working toward.

Conclusion

The most important takeaway here is that we have been working for years to use our leverage to get a seat at the table. We are now finally there, and nobody is going to shut us out of this process.

We don’t know what the final product will look like here—but what the Tenants Association is calling for, and what I support, has not changed. We all realize we may need to be flexible or creative to find the best possible resolution for this community.

We may need to show up and make some noise, and remind the powerful interests out there that we are not messing around. And we will call on you for that. It is an important weapon in our arsenal because the real estate world knows that this community is organized, and it is committed to this cause.

But we now have more tools, and more allies, and I am more optimistic than ever about our ability to deliver a positive outcome here. So, I thank the Tenants Association for its leadership, and I thank all of you for the time and for your patience as this process unfolds.

Posted in Conversion.

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