Last week the New York State Court of Appeals ruled that property developers Tishman-Speyer and BlackRock Realty had illegally raised rents on thousands of apartments in the Stuyvesant Town and Peter Cooper Village development on Manhattan’s Lower East Side.

The Church Commissioners had provided $70 million in equity financing for Tishman-Speyer’s $5.4 billion investment in 2006. However, the purchase of the 11,000-unit 80-acre development from MetLife came at the height of the New York property bubble, and a recent report from Realpoint, a credit rating agency, estimated the property had a current value of $2.13 billion.

The 2006 deal was financed with 80 per cent debt, with Tishman-Speyer and BlackRock Realty along with investors such as the Church of England and the California and Florida public employees’ pension funds putting down 20 per cent of the purchase price in cash.

Rental income however only covered 58 per cent of the debt at the time of the purchase. In order to amortize the debt, the partnership needed to end the rent-controlled status of several thousand apartments and charge free-market rates. However, the Court of Appeals ruled : “The current and former owners of the properties, respectively, were not entitled to take advantage of the luxury decontrol provisions of the Rent Stabilization Law (RSL)1 while simultaneously receiving tax incentive benefits under the City of New York’s J-51 program.”

The ruling could cost the partnership $200 million in rent repayments to tenants, leaving it likely the project will collapse by years’ end, real estate analysts report. A spokesman for the Church Commissioners confirmed to The Church of England Newspaper that it did hold an equity position in the deal, but declined to speculate as to its current valuation.

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