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AUDIE CORNISH, HOST:

It's ALL THINGS CONSIDERED from NPR News. I'm Audie Cornish.

ROBERT SIEGEL, HOST:

I'm Robert Siegel, and for the next few minutes, I'm on a combination book interview, field trip and sentimental journey. The field trip is to this 80-acre patch of Lower Manhattan, Stuyvesant Town and Peter Cooper Village. Right now, I'm standing before an oval lawn, surrounded by tall, orange brick apartment buildings and ringed by playgrounds with basketball courts and jungle gyms and all sorts of amenities for middle-class life in the city.

These two middle-income housing projects came to epitomize the lunatic excess of the housing boom. In 2006, their 11,232 apartments sold for $5.4 billion. They were bought in a competitive auction by Tishman Speyer and BlackRock. Little did the buyers know or care that one of those 11,232 apartments was the one where I grew up.

How that biggest real estate deal ever came together and then spectacularly came apart is the subject of Charles Bagli's new book, "Other People's Money." Charles Bagli covered the story of Stuyvesant Town for The New York Times. Welcome to the program.

CHARLES BAGLI: Thank you.

SIEGEL: And first, explain what's special about this place.

BAGLI: Well, this was a little corner of Manhattan where people of moderate means could come and set down roots. And, in fact, they did. There's first-, second- and third-generation families living here, and it was sort of a quiet oasis and, most importantly, an affordable oasis in an increasingly expensive Manhattan.

SIEGEL: Now, Stuyvesant Town and Peter Cooper Village were built in the 1940s by Metropolitan Life - Metropolitan Life Insurance Company - with help from the city. And lots of the people who lived here, 60 years later, were in rent-stabilized apartments. How did Tishman Speyer and BlackRock, the buyers, how did they figure they could make so much money when the rents were effectively controlled?

BAGLI: Rents in New York were rising at a pretty rapid clip, and the rent laws had actually been watered down over the prior decade. So a lot of developers thought that they could buy what they might call meat-and-potatoes buildings and dislodge one set of tenants or residents for another set that was a one or two rungs up the ladder. And this way, they could make that profit, a bigger profit, on their complex.

SIEGEL: There's an irony here. Your book is called "Other People's Money" because while Tishman Speyer and BlackRock made the $5.4 billion bid, there were lots of other funds that contributed that money. And some of them were state pension funds that were benefiting the very kinds of people who needed housing like Stuyvesant Town.

BAGLI: Absolutely. And so they were effectively funding a scheme to dislodge the people who lived here, the pensioners, for, you know, more well-heeled residents.

SIEGEL: Well, at the core of this entire story is whether this place - my hometown, in the middle of Lower Manhattan - whether this refuge for middle-income New Yorkers could be redefined as luxury housing. Let's take a look and see whether this is luxury.

Kirstin Aadahl of the Stuyvesant Town-Peter Cooper Village Tenants Association took us to a friend's three-bedroom apartment. It's the model apartment I grew up in. My parents moved out when the monthly rent was pushing north of $200.

Well, today, rents for this 1,161-square-foot apartment, for a new tenant - not someone protected by the rent laws - start at $5,242 a month. The floor plan of my youth was full of pleasant memories for me, but one thing this was not and is not is luxurious.

Well, why don't you show us around the apartment, Kirstin?

KIRSTIN AADAHL: Sure. So...

SIEGEL: Show me the kitchen first of all.

AADAHL: The kitchen has changed. We now have dishwashers, which is nice.

SIEGEL: Whoa.

(LAUGHTER)

AADAHL: Yeah, and microwaves and built-in, you know, everything.

SIEGEL: This is not a large kitchen.

AADAHL: No.

SIEGEL: I remember this, you know, from the apartment I grew up in very well.

AADAHL: How long did you live in your apartment here?

SIEGEL: When I was 1-year-old, we moved in, in 1948...

AADAHL: OK.

SIEGEL: ...when it opened up.

AADAHL: Right.

SIEGEL: And my parents moved out about 20, 25 years later.

AADAHL: Wow.

SIEGEL: So long time.

AADAHL: Long time.

SIEGEL: Long time.

AADAHL: Oh, that's nice.

SIEGEL: Yes. Well, then, we hit the dining room, living room...

AADAHL: Mm-hmm. Right.

SIEGEL: It's like an L with a nice window looking out.

AADAHL: A nice window and air conditioners, yeah.

SIEGEL: And then, down the hall to the bedrooms.

AADAHL: Mm-hmm. OK.

SIEGEL: But we pass on the way the - I guess this is the killer item in Tishman Speyer's dreams of luxury in Stuyvesant Town, the bathroom.

AADAHL: Yeah.

SIEGEL: One bathroom.

AADAHL: One bathroom. Only one bathroom.

SIEGEL: It's hard to sell that as luxury in New York.

AADAHL: Does have a window, though.

SIEGEL: It does have a window.

(LAUGHTER)

SIEGEL: OK. And then we have the three bedrooms. In here, this was my bedroom. And there's a telltale sign here of life in Stuyvesant now, which is there's a rack with clothes drying on it.

(LAUGHTER)

AADAHL: That's right.

SIEGEL: Because the apartments don't have washer/dryers if you want to...

AADAHL: No, they don't. We have laundry downstairs in the basement.

SIEGEL: Downstairs in the basement.

AADAHL: Uh-huh.

SIEGEL: Kirstin Aadahl mentioned air conditioning. That wasn't allowed when I grew up here. And there were other restrictions.

Now they have dogs and cats, I see. They're - that wasn't allowed when I was growing up here.

BAGLI: No. In fact, we couldn't get near the grass, what, 10 years ago. There was post and chain all around every single stretch of grass here. And the guards would chase you away if you tried to set foot on a blade of grass.

SIEGEL: Charles Bagli, how did the deal to buy Stuyvesant Town for 5.4 billion, how did it all fall apart?

BAGLI: Well, it started almost on the first day. There was an enormous amount of debt. And the income from the property only covered 40 percent of the debt service. So that's, you know, you buy a house...

SIEGEL: And day one, you're losing money.

BAGLI: And day one, you don't have enough money to pay the mortgage. In fact, you've got less than half the money to pay the mortgage. Now, you and I can't get away with that. But the big guys can - the guys who are playing with other people's money.

SIEGEL: The big guys - the biggest guys - in New York real estate were making what turned out to be a colossal mistake about this place.

BAGLI: Absolutely. These firms did very well with office buildings. One of their mistakes, the hubris here, was that they assumed that real estate is all the same. But not only is residential different, but there's this peculiar sub-species known as rent-regulated housing. And if you don't understand it, its customs, its politics, it'll kill you.

SIEGEL: The whole idea behind this deal was that Tishman Speyer and BlackRock could get tenants in rent-regulated units out and tenants who were willing to pay market rents in. The tenants association went to court and blocked them. It turns out, you can't take advantage of public tax breaks - which they and MetLife had been doing - and raise rents the way they planned.

There was no way those thousands of monthly rent checks could match the owners' debts. So the buyers just walked away. Who ultimately lost money and who made money off of this huge deal? I asked Charles Bagli.

BAGLI: Well, two big companies, as you said, they walked away, they turned in the keys and went home. So they pretty much went through it unscathed. But CalPERS, the largest pension fund in the country, lost $500 million - poof, gone.

SIEGEL: California Public Employees Retirement System.

BAGLI: Yes. Another pension fund down in Florida lost 250 million. The government of Singapore, well, they lost the most, over $600 million. It all just went poof.

SIEGEL: So this was the housing crisis in a nutshell right here.

BAGLI: Writ large.

SIEGEL: Enormous nutshell, but here, it was all happening.

BAGLI: Yes.

SIEGEL: Bottom line for Tishman Speyer and BlackRock, though, is that you can lose a lot of people a couple billion dollars, all told, and walk away from it unscathed and go into the next deal and the deal after that and nobody says: Holy cow, those are the idiots who spent $5.4 billion on Stuyvesant Town and Peter Cooper Village.

BAGLI: Yes. People say: Oh, New York is the most unforgiving market in the world. But it seems very forgiving.

SIEGEL: Well, Charles Bagli, thank you very much for talking with us.

BAGLI: Thanks for having me.

SIEGEL: Charles Bagli's book about Stuyvesant Town and Peter Cooper Village is called "Other People's Money: Inside the Housing Crisis and the Demise of the Greatest Real Estate Deal Ever Made."

(SOUNDBITE OF MUSIC)

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