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Tishman deal fails: sign of trouble in commercial real estate

Tishman sends its $5.3 billion investment in 11,000 apartments back to its bankers. The move involves two massive developments in Manhattan: Stuyvesant Town and Peter Cooper Village.

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The Stuyvesant Town and Peter Cooper Village private residential development (bottom center) is seen in New York, in this October 26, 2009 file photo.

Shannon Stapleton/Reuters/File

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The largest real estate deal ever has failed.

On Monday, Tishman Speyer BlackRock, one of America’s largest commercial property owners, threw in the towel. They sent their $5.3 billion investment in 11,000 apartments in New York back to their bankers – the same way some homeowners are mailing their keys back to lenders.

The Tishman Speyer move involved two massive middle-class housing developments in Manhattan: Stuyvesant Town and Peter Cooper Village. The two complexes, consisting of 56 buildings, had been purchased in 2006 from MetLife. Since then, residents of both complexes had mounted intense legal and political opposition to Tishman Speyer’s attempt to raise rents and evict longstanding tenants.

The problems at Tishman Speyer, some analysts believe, are “symptomatic” of commercial real estate problems around the United States.

Many loans made to developers between 2005 and 2007 assumed rising rents and low vacancy rates. And developers believed that corporations – key tenants – would continue to expand their employment, not shrink it. So they erected new office towers. But many companies instead have laid off workers. Since a smaller workforce needs less space, these companies have tried to sublet their extra space. This has just added to the glut of space.

Moreover, some of the loans were for retail space. The developers of shopping centers never expected that the consumer would stop buying the latest fashion trends or new furniture for their homes.

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