assuming Ackman won the bid, what should his strategy have been going forward?

Stuyvesant Town²Peter Cooper Village: America’s

Largest Foreclosure

It is an iconic property. It is an iconic disaster. Stuyvesant Town5Peter Cooper Village is a sprawling series

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Town,µDVLWLVFDOOHGQXPEHUDURXQG5,000. Most are middle5class. The property, which opened in 1947 as a

place to house veterans and their families, has seen people fight several wars to control it.1

³The Economist

In July 2010, William Ackman, the founder of Pershing Square, was relaxing by the pool in

Nantucket when he received a call on his cell phone.2 Michael Ashner, the chairman and CEO of

Winthrop Realty Trust and a longVWLPH IULHQGRI$FNPDQ·VGHVFULEHGDSRWHQWLDOQHZRSSRUWXQLW

the acquisition of the distressed Stuyvesant Town²Peter Cooper Village complex. Ashner asked

Ackman³who had recently profited from a wildly successful investment in General Growth

Properties³whether he was interested in being involved.

Any investment in the iconic complex would quickly come under public scrutiny much like the

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New Yorkers. It had been featured in numerous magazines and newspapers for its initial buyout and

subsequent failure. Even a small investment by Pershing Square would garner significant attention in

the media. Ackman would need to move quickly on any investment he would make in the complex.

The property had recently been abandoned by its owners and had come under the control of CW

Capital, the special servicer for the vast amount of debt that was in default. Any investment in a

distressed property could be very risky and might require the company to seek protection in the

bankruptcy courts. While the bankruptcy process was not new for Ackman, it could add significant

complexity and unknown outcomes.

Would this be a good deal? Ackman had been raised in and around New York, and this was an

investment in the heart of his city. Was there a way for him to revitalize a property that was in

distress, or was it too late to save it?

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211?106 Stuyvesant Town²3HWHU&RRSHU9LOODJH$PHULFD·V/DUJHVW)RUHFORVXUH

2

Stuyvesant Town²Peter Cooper Village

Stuyvesant Town and Peter Cooper Village (STVPCV) were designed by MetLife to address a postV

war housing crisis in the 1940s.a The community waV VHW RQ DFUHV RQ0DQKDWWDQ·V /RZHU East

Side, bounded on the north by 23rd Streetf the south by 14th Streetf the west by First Avenuef and the

east by Avenue C (see Exhibit 1&RQVLGHUHGWREH0DQKDWWDQ·VODUJHVWDSDUWPHQWFRPSOH[67VPCV

was a collection of 80 sprawling red brick buildings containing over 11,000 apartments and

approximately 10,230,000 rentable residential square feet (see Exhibit 2).3 The property also featured

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banking centersGUFOHDQLQJPRYLHUHQWDOVDQGDSSDUHORXWOHWVµVTXDUHIHHWRISURIHVVLRQDO

space, and six parking garages with 2,260 licensed spaces, according to the prospectus.

4 Unique to a

Manhattan property, STVPCV also offered residents open landscaped area, 15 playgrounds,

designated sports areas, and the signature Stuyvesant Oval.5

The complex was host to nearly 19,000 individuals from over 10,000 households with 8,362

households in Stuyvesant Town and 2,556 in Peter Cooper Village (see Exhibit 3). The estimated

median annual household income in 2006 was approximately $104,000, with just over 20% of

residents earning over $150,000. The estimated median age of STVPCV residents in 2006 was 46 in

Stuyvesant Town, and 62 in Peter Cooper Village.

The Manhattan rental market had 737,768 housing units, according to the 2005 Housing and

Vacancy Survey.6 Net vacancy for Manhattan was 3.79% in 2005. New housing unit permits averaged

4,549 between 1995 and 2005, and approximately 2,400 units were scheduled to come on the market

in 2007 and 2008. STV3&9·VYDFDQFZDVEHORZDYHUDJHIRU0DQKDWWDQf the site had maintained 98%

occupancy every year from 2003 through 2005.7 Average annual rent across all STVPCV units was

$22.49 per square foot in 2006 (see Exhibit 4). According to a November 10, 2006, appraisal of

comparable properties, annual rents for apartments not subject to rent control were $40.67 per square

foot for oneVbedroom apartmentsf $41.46 per square foot for twoVbedroom apartmentsf $53.83 per

square foot for threeVbedroom apartmentsf and $48.85 per square foot for fourVbedroom apartments.8

Tishman Speyer and BlackRock Buyout

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players in real estate, announced the largest American real estate deal ever: the acquisition of STVPCV

for $5.4 billion.b New York Times reporter Charles Bagli described how Tishman Speyer and

BlackRock were able to pay this recordVbreaking price:

Once, buyers priced properties based on existing cash flow. Real estate executives say that

calculus would have generated a $3.5 billion price for the two Manhattan complexes that

Tishman Speyer bought. But buyers are now looking to the future, building models of

anticipated cash flow when determining how much to bid. The Stuyvesant Town deal, with its

$5.4 billion price tag, reflects the new math, and analysts and rival bidders say the hefty price

means that the deal will not show a profit for as many as six years.9