Manhattan Property Could Strain Calpers

The nation's largest pension fund, already bruised from an ill-fated investment in California land, now faces more pain from buying into New York City apartment buildings at the top of the market.

The California Public Employees' Retirement System, known as Calpers, in November 2006 committed $500 million in equity to a sprawling apartment property on Manhattan's East Side, called Peter Cooper Village and Stuyvesant Town. Calpers made the investment into a joint venture led by closely held developer Tishman Speyer and BlackRock Realty Advisors -- shortly after the venture purchased the 56-building complex from MetLife Inc. for $5.4 billion.

Now, the deal, which was funded with $4.4 billion in debt from Wachovia Corp. and Merrill Lynch & Co., is showing signs of stress. On Friday, Standard & Poor's, a major credit-rating agency, downgraded 22 classes of bonds linked to a big chunk of the $3 billion mortgage that helped finance the deal.

S&P analyst Harris Trifon attributed the action to a 10% decline in the value of the property since the deal was signed in late 2006. The venture's success depends on its ability to convert rent-controlled units to market rentals. But Mr. Trifon said conversion costs have been greater than expected and average rental income at the regulated units has fallen short. The $400 million in interest reserves designed to service the debt "may be completely depleted" before the project can generate enough cash flow to meet the debt-service obligation, Mr. Trifon said.

If there is a shortfall, the investors in the property would have to put up more cash or face the possibility of foreclosure.

A Tishman spokesman said the partners are confident in their investment. "We fully anticipate our partnership will fund more capital into the project, as necessary," he said.

Calpers hasn't disclosed the current valuation of its stake in the 80-acre park-like complex by the East River. At the time when the investment was made, Calpers projected an internal rate of return, after fees, of 13.5%, according to a Calpers document. A Calpers spokesman declined to comment.

The potential loss on the New York City apartment project would deal another blow to Calpers. Already, the $223.9 billion fund has said it could lose much of its $970 million investment in a California land deal that has fallen victim to the housing bust. LandSource Communities Development LLC, a partnership that involves Calpers and owns 15,000 acres of land outside of Los Angeles, filed for bankruptcy-court protection in June.

Calpers' real-estate portfolio, which was valued at $23.6 billion at the end of the June fiscal year, returned 5.9% for the 12 months ended in June, compared with its National Council of Real Estate Investment Fiduciaries Index return of 13.6%.

Tishman, which manages the property, has said that its cash flow has been steadily improving. "The needles are moving in the right direction," said Manus Clancy, a managing director at Trepp, a New York company that tracks the commercial real-estate finance market. "Unfortunately, the trading level of the bonds indicates the market has already written a bad ending."

Well you can just blame this whole damned mess on those stubborn old farts in the rent stabilized apartments who absolutely refuse to die. The unbridled greed and selfishness of these middle class, hardworking folks is what has brought the market to its knees and now looks like wiping out the pensions for the old farts in California. Believe me, Jerry, Robbie and I are doing our utmost to persecute and harrass these terrible people. We've reduced their once beautiful housing complex to a muddy, messy slum; we've destroyed their precious Oval, cut down the infernal trees that they loved so much and put dying little twigs in their place; we've filled the vacant apartments with alcoholic, weed smoking, coke snorting students who party from dusk to dawn and we make damned sure that in the event the students don't make enough noise there is plenty of thunderous clanging from our dumpsters that are emptied at 3 am several times a week. In short, we have done our utmost to drive out these people who are weighing down the economy with their avarice and refusal to simply die! The whole situation of these people living so long and refusing to get out of their homes is not funny, entertaining or helpful.

http://www.nytimes.com/2008/09/28/nyregion/28spitzer.html?_r=1&ref=nyregion&oref=slogin

In this TIMES article, Eliot Spitzer is looking for a charity, maybe he would help us.

If there is a shortfall, the investors in the property would have to put up more cash or face the possibility of foreclosure.

A Tishman spokesman said the partners are confident in their investment. "We fully anticipate our partnership will fund more capital into the project, as necessary," he said.

From Reuters

BOSTON, USA - "WANTED: Money managers to run a US$700 billion (S$994 billion) bailout of Wall Street by buying toxic debt.

Qualifications: Must understand the most esoteric corners of finance and have strong constitutions, in case losses mount.

This is the assignment some of the world's most prominent money managers will likely be lobbying hard to get over the next few days after the US government proposed the bailout to help clean up the nation's worst financial disaster since the Great Depression.

Asked to name the firms best-placed to snag the business, industry insiders and consultants first named Bill Gross's PIMCO and Lawrence Fink's BlackRock Inc - two of the country's biggest fixed-income specialists who managed to side-step much of the wreckage.

SNIP

Lawrence Fink, known as Wall Street's Mr Fix-It for being selected by the Federal Reserve to help manage Bear Stearns' portfolio as it was being bought by JP Morgan Chase, is expected to top the list of possible candidates for the job.

Mr Fink was one of the first people on Wall Street to package mortgage obligations and popularize the new product. His firm, BlackRock, which manages roughly US$1.4 trillion, largely avoided the toxic debt but has raised new funds to capitalize in distressed markets and is owned, in part, by Merrill Lynch , which had loaded up on the bad debt and agreed to be taken over by Bank of America."

Tishman's spokesman probably had a pretty good reason to be confidant.