Stuyvesant Town - Peter Cooper Village: America's Largest Foreclosure

N9-211-106 MAY 25, 2011

ARTHUR I SEGEL

GREGORY S. FELDMAN

JAMES T. LIU

ELIZABETH C. WILLIAMSON Stuyvesant Town - Peter Cooper Village: America's Largest Foreclosure

It is an iconic property. It is an iconic disaster. Stuyvesant Town-Peter Cooper Village is a sprawling series of brick apartment buildings with 11,000 rental units that line New York’s East River. Residents of “Stuy Town”, as it is called, number around 25,000. Most are middle- class. 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 — The Economist

In July 2010, William Ackman, the founder of Pershing Square, received a call from Michael Ashner, the Chairman and CEO of Winthrop Realty Trust and a long-time friend of Ackman’s. Ackman, a seasoned real estate investor, sat by the pool in Nantucket and listened carefully on his cell phone as Ashner described a potential new opportunity: the acquisition of the distressed Stuyvesant Town and Peter Cooper Village (“ST/PCV”) complex. As Ashner laid out his investment thesis, Ackman could not help but think about how similar this investment might be to his recent, successful investment in General Growth Properties.

Ackman quickly realized that any investment in the iconic complex would quickly come under public scrutiny much like the initial buyout deal. For many years, the property had been considered an “oasis” for middle-class 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 also realized that he 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. Ackman acknowledged that 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.

As Ackman pondered the investment, he looked out of his office window onto midtown Manhattan. Would this be a good deal? Ackman had been raised in and around New York and this ______

Professor Arthur I Segel, Gregory S. Feldman (HBS 2011), James T. Liu (HBS 2011) and Elizabeth C. Williamson (HBS 2011) prepared this case. This case was developed from published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

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was an investment in the heart of his city. Was there a way for him to re-vitalize a property that was in distress or was it too late to save ST/PCV?

Stuyvesant Town – Peter Cooper Village

Stuyvesant Town and Peter Cooper Village were designed by MetLife to address a post-war housing crisis in the 1940s.a The community is set on 100 acres on Manhattan’s Lower East Side, bounded on the north by 23rd Street; the south by 14th Street; the west by First Avenue and the east by Avenue C (see Exhibit 1). Considered to be Manhattan’s largest apartment complex, ST/PCV is made up of 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).2 The property also features 100,000 square feet of retail space, including “neighborhood conveniences such as grocery stores, banking centers, dry cleaning, movie rentals and apparel outlets,” 20,000 square feet of professional space and six parking garages with 2,260 licensed spaces.3 Unique to a Manhattan property, ST/PCV also offers residents open landscaped area, 15 playgrounds, designated sports areas, and the signature Stuyvesant Oval.4

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 ST/PCV 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.5 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. ST/PCV’s vacancy was below average for Manhattan as the site maintained 98% occupancy every year from 2003 through 2005.6 Average monthly rent across all ST/PCV 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 one bedroom apartments; $41.46 per square foot for two bedroom apartments; $53.83 per square foot for three bedroom apartments; and $48.85 per square foot for four bedroom apartments.7

Tishman Speyer and Blackrock Buyout

In October 2006, Tishman Speyer and Blackrock (the “Sponsors”), two of the most influential players in real estate, announced the largest American real estate deal ever: the acquisition of PCV/ST for $5.4 billion.b New York Times Reporter Charles Bagli described how Tishman Speyer and Blackrock were able to pay this record-breaking 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

a In return for government assistance with the development, MetLife agreed to maintain below-market rent and limit its profit to 6% for 25 years. Dob The transaction wasNot valued at $6.3 billion, inclusCopyive of $890 million of reserves and closingor costs. Post 2

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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.8

The Tishman Speyer and Blackrock consortium was among eight parties invited to submit final bids for the property, including a tenant group who hoped to preserve the development as middle- class housing.9 Given the property’s original purpose of providing affordable housing (particularly to veterans), the tenant-led bid created a political uproar in New York causing a number of bidders to walk from the process. While other bidders met with the tenant group to discuss their proposals, Tishman Speyer was “the only bidder that did not meet with the tenants.”10 Rob Speyer communicated to tenants that Tishman/Blackrock would not make dramatic changes to the community’s makeup, but “he would not commit to preserving a large block of apartments as affordable housing, which the tenant group had sought.”11 The tenant group’s bid of $4.5 billion was no match for Tishman Speyer and Blackrock, or even the second-highest bidder, Apollo Real Estate, at $5.33 billion.12

Tishman Speyer’s investment was led by Rob Speyer, “a thin wiry-haired man with a secret passion for professional wrestling, who joined his father’s company a decade ago after stints as a reporter for two local newspapers.”13 In acquiring ST/PCV, Speyer was targeting a new property type for Tishman Speyer: “The idea was the condominium market and the housing market were starting to soften, and we thought the multifamily business would be a great countercyclical bet.”14 The younger Speyer’s record-breaking deal replaced the previous record $1.85 billion purchase of Rockefeller Center in 2000.15 That transaction was led by Jerry Speyer, Rob Speyer’s father and one of the founding partners of Tishman Speyer. Following in his father’s footsteps, Rob Speyer said of the residential property, “You can’t help feeling that Stuyvesant Town, Peter Cooper Village are a special piece of real estate, just like Rockefeller Center.”16

The joint-bid by Tishman Speyer and Blackrock was seen as a mutually beneficial arrangement to both acquirers. BlackRock, a leading investment advisory firm run by Lawrence Fink, had a global network of investors that would help finance the deal. Fink, known as someone who had “a special ability to raise money,” was also widely known for his mercurial behavior:17

At times coolly analytical, and surprisingly reflective, he was at other moments defensive, emotional, and startlingly blunt. He gesticulates when he speaks, in a voice that sometimes verges on shouting but can suddenly drop to a whisper as though he were talking to a child or a lover. Both trenchant and gossipy in his insights—with a mind that moves at 90 m.p.h.—it is obvious what draws people to him. He’s open and unguarded, but only up to a point. There is another side of Fink—cautious and veiled—that monitors every word that comes out of his mouth.18

While Blackrock would help the financing, Tishman Speyer, a substantial owner and developer of real estate, would manage the property. The division in roles became apparent early on when during a tour of the property Fink grew agitated when an elderly lady peppered him with questions regarding plans for the property, responding: “That’s exactly why God invented Tishman Speyer.”19 This would, however, be Tishman Speyer’s first foray into running a residential community. Tishman executives believed their experience managing commercial properties would translate directly to running a massive residential community: “How hard can it be? It’s people in buildings. We do it all over the world.”20 Do Not Copy or Post 3

Acquisition Thesis

Tishman Speyer and Blackrock had three key investment theses. First, ST/PCV was a matchless property in Manhattan due to its size, unique natural features and location.

Second, the conversion of stabilized rent apartments to market rates would dramatically increase rental revenues (see Exhibit 4).c At the time of the buyout, 72% of the units were rent stabilized and historically 6% of the units had converted to market rate each year.21 With aggressive pursuit of illegal sublet tenants, appraisers estimated conversion rates at 15% in year 1 and 12% in year 2.22 Furthermore, estimates indicated that 1,600 units (14%) were illegally sublet “or leased to tenants that do not meet rent regulation guidelines and can be converted to market units if current guidelines are enforced.”23 The acquirers planned new policies for aggressive conversion including: (i) pursuit of illegal tenants with the assistance of three law firms that would review tenant information, (ii) implementation of a more restrictive sublease policy, and (iii) implementation of a picture identification system and rent collection via management rather than lockbox.24

Third, a capital improvement program would provide needed upgrades to the existing structures. While $210 million had been invested between 2002 and 2006, the Tishman Speyer and Blackrock plan would increase rental rates “with a $125 million value enhancement capital plan and new marketing campaign.”25 This campaign would add a variety of amenities including, but not limited to: roof decks, fitness centers, improved lighting, updated signage, and introduction of shuttle buses (both on-site and to the nearest subway).26 Furthermore, the acquirers planned to launch a marketing campaign to dispel bias of an “older” tenant base.

Acquisition Structure

The Tishman Speyer and Blackrock acquisition was financed with a first mortgage and 11 mezzanine loans (see Exhibit 5). The $3.0 billion first mortgage consisted of separate pari passu notes that were sold in various securitizations by Merrill Lynch and Wachovia and was issued at a rate of 6.434%. The transaction was further financed with $1.4 billion of mezzanine loans at a rate of 6.83%. The mezzanine loans were purchased by investors such as the Government of Singapore, Gramercy Capital, Bracebridge, and Hartford Financial. The equity sponsors included the California Public Employees’ Retirement System (CALPERS), the California State Teachers’ Retirement System (CALSTRS), Blackrock, Tishman Speyer, and the Church of England, amongst others. These equity investors collectively contributed $1.9 billion to the transaction, including $240 million of acquisition costs and fees, a $400 million interest reserve, a $190 million general reserve, and a $60 million capital expenditure reserve. (See Exhibit 6 for an estimate of commitment amounts.)27

At the time of the transaction, the “as is” appraised value of the property was $5.4 billion but the “as stabilized” value was $6.9 billion.28 The acquirers underwrote an increase in net operating income (NOI) of nearly 30% from 2006 to 2007, largely attributed to revenues from apartment conversion. (See Exhibit 7 and Exhibit 8 for Cash Flow Statements from 2004-2009.)

The transaction closed on November 17, 2006. Tishman Speyer and Blackrock “wasted little time asserting its presence in Lower Manhattan. Three weeks after the deal closed, Rob Speyer raised a 42- foot Christmas tree on the oval at Stuyvesant Town, much like the one his father’s company puts up every year at Rockefeller Center.”29 Even at the time the deal closed there were skeptics about the

c Rent-stabilized tenants cannot be forced out of a building. An apartment can become “de-controlled” and rented at market Dorates after it becomes Not vacant and the rent reaches Copy $2,000 per month. or Post 4

price that Tishman Speyer and Blackrock paid. President of GreenStreet Advisors Craig Leupold said the price paid “was regarded as ‘surprisingly high. Everything would have had to have gone right for this deal to have made sense in any sort of short-term—say, 10 years—investment horizon.’”30

Problems Emerge

The deal, a sharp departure from Tishman Speyer’s core competencies in commercial real estate, immediately posed problems.31 A few weeks after the deal closed, tenant leaders began voicing concerns over the proposed gentrification of Stuyvesant Town to which Rob Speyer replied, “In another year, you guys will be happy how we turned things around.”32 However, most tenants seemed to have a different view. Referring to the Christmas tree lighting, Jim Roth, a member of the tenant association, remarked:

It’s a PR deal. They try and make it look like nothing has changed. They invite four or five original tenants, their kids, and their grandchildren. They’re portraying this lovely community-family atmosphere. That’s nice, but you look at the picture and you see those grandchildren? None of them will be able to live here. It’s a sham. They’re very good at it.33

Not only did the Sponsors run into a public relations problem, they also began to have problems attracting new residents. After raising rents during the summer of 2007, vacancies were estimated to have spiked from 150 to 800. Because of the older features of the Stuyvesant Town complex, it was difficult to price the asset at the premium market rates that the Sponsors desired.34

The Sponsors immediately began to work on recovering rent-stabilized apartments. By some accounts, a number of residents kept their apartments as pied-à-terre for nearly a decade after moving out. As such, the Sponsors had a laser-like focus on removing tenants. The Sponsors hired three law firms to aide in the effort and issue non-renewal notices to approximately 12% of the rent stabilized leases. Many tenants began complaining of aggressive tactics used by the Sponsors and numerous lawsuits were filed against the Sponsors for their tactics.

The final blow to the Sponsors was in October 2009 when the New York Court of Appeals upheld a lower court ruling, in a 4-2 decision, that Tishman Speyer had improperly raised rents. The court ruled that rent increases on approximately 4,350 apartments violated the law because the complex had accepted the J-51 tax incentive that was meant to encourage renovations of such properties:

The tenants argue 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, while simultaneously receiving tax incentive benefits under [New York City regulations].35

This ruling, a reversal of previous interpretations of the law, called into question the very thesis of the original buyout.d Plagued by the inability to execute on its original thesis, Tishman Speyer and Blackrock decided to turn the property over to creditors on January 25, 2010.36 (See Exhibit 9 for the letter to tenants.)

Foreclosure - “It’s the poster child for the entire housing bubble.”37

Choosing to avoid a bankruptcy process, the Sponsors decided to relinquish control of the properties to its creditors, stating: “We make this decision as we feel a battle over the property or a

Dod The New YorkNot State government had advisedCopy landlords who accepted the tax incentiveor that deregulation Post was permitted. 5

contested bankruptcy proceeding is not in the long-term interest of the property, its residents, our partnership or the city.”38

Per the agreements in ST/PCV’s financing documents, CW Capital, the special servicer, was designated to work with various creditors to determine who would take over ownership of the property.e As with similar real estate financings, each tranche of the mezzanine debt would be allowed to cure the default. If a mezzanine debt lender “cured” the default, by paying all of the accrued interest owned to more senior tranches, they would receive 100% of the equity ownership.f However, industry insiders did not believe any mezzanine borrower would emerge and cure the default given recent third party valuations of $1.8 billion.39 As such, most assumed that the property would end up in the hands of the $3.0 billion first mortgage lenders.

Pershing Square & Winthrop Realty: White Knight Bidders for Stuyvesant Town?

By July 2010, the Stuyvesant town Sponsors had announced that they intended to “turn over” the keys to the property and the property lay in flux. The outcome of the property was still unclear and many residents wondered what the outcome would be. Certain residents began worrying about basic services and maintenance. Earlier in the year, the Tenants Association hired Moelis & Company as an exclusive financial advisor and to ensure that tenant issues would be heard.40

Ashner’s plan involved acquiring mezzanine loans one, two, and three (the three senior most mezzanine loans in the capital structure). The proposal called for Ackman and Ashner to create a joint-venture, PSW NYC, LLC (“PSW”), and acquire $300 million face value of mezzanine loans. (The market for this type of paper was illiquid and opaque.) The joint venture would pay approximately $45 million, or 15% of face value, for the three tranches of debt. After acquiring the debt, the joint venture would hold a foreclosure process and if no other bidders emerged, PSW would become 100% equity holders of the property. As equity holders, PSW would seek to convert the ST/PCV into either a condominium or a cooperative building and allow residents to purchase their apartments.

As Ackman mulled over the transaction details, he wondered about the potential risks to the transaction:

First, although he was buying the debt at a substantial discount to face value, recent valuations had suggested a valuation of only $1.8 billion—would he be paying too much? Looking at the recent trends in rental rates and vacancies in the Stuyvesant town area, Ackman wondered which way the market was headed. Would looking at recent comparables in the industry suggest a different valuation? Would these comparables be relevant given the size and scope of Stuyvesant Town? (See Exhibit 10 for trends in rental rates and vacancies and Exhibit 11 for market comparables.)

Second, Ackman wondered about the potential interaction with CW Capital and the first mortgage lenders. He was aware of previous battles between CW Capital and Appaloosa, a hedge fund that owned a piece of the mortgage debt via various CMBS instruments. In that battle,

e Special servicers help lenders manage properties that are in default.

f The right to cure was given to the most junior tranches first and then subsequently to more senior tranches. (In this case, the waterfall began with mezzanine tranche 11, followed by mezzanine tranche 10 and ending with mezzanine tranche 1.) This process was created to allow lenders that believed their tranche still had value to acquire the equity interests and prevent the Doneed for costly valuation Not fights in a bankruptcy filing.Copy or Post 6

Appaloosa claimed that “CW Capital [was] indisputably self-dealing and operating under a fundamental conflict of interest.”41 How should Ackman approach CW Capital? Would they be supportive of his bid for the complex? (See Exhibit 12 for an overview of special servicers and Exhibit 13 for a ranking of the largest special servicers).

Third, if his bid was successful what would his plan be? Ackman and Ashner had discussed the ability to transform the complex into a condominium or cooperative in which tenants would be given the ability to purchase their own apartments. Mortgage rates for a standard thirty-year fixed rate mortgage stood at 4.75% for up to eighty-percent loan-to-value.g Would low rates be enough to incent current owners to purchase an apartment? This would be the largest conversion in history—did PSW have the right team in place?

Fourth, many in the industry had speculated that if PSW became the owner of PC/STV, it would file a Chapter 11 bankruptcy filing. A bankruptcy filing would provide PSW access to the “automatic stay” and would avoid bringing the mortgage loan current.h However, a bankruptcy filing would also add to the uncertainty of the investment. How would a judge rule? Could Ackman successfully argue for an appropriate valuation in a contentious valuation fight?

Finally, Ackman pondered how he should think about the other constituents. He knew that the Tenant Association had previously bid and would be a vocal group, but other investors like Wilbur Ross were also closely following the situation. If he didn’t act now, would someone else seize the opportunity?

g A thirty-year mortgage at 4.75% would have a mortgage constant of 6.26%.

h Estimates of accrued interest and other charges were approximately $666 million. Senior borrower interest was accruing at Do$193 million perNot year. Copy or Post 7

Exhibit 1 Property Map

Source: “Wachovia Bank Commercial Mortgage Trust Commercial Pass-Through Certificates,” Prospectus Supplement, Series 2007-C30, March 14, 2007, p. D-3.

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Exhibit 2 Property Overview

Peter Cooper Village Stuyvesant Tow n Combined Rentable SF 7,524,091 2,708,867 10,232,958 Acreage ~61 ~19 80 Buildings 89 21 110 Total Units 8,746 100% 2,481 100% 11,227 100% Stabilized 6,287 72% 1,751 71% 8,038 72% Market 2,330 27% 673 27% 3,003 27% Vacant 129 2% 57 2% 186 2%

Source: Adapted from “$3,750,000,000 First Mortgage on Peter Cooper Village / Stuyvesant Town (PCV/ST): Acquisition Financing,” Wachovia and Merrill Lynch Presentation, December 2006, p. 12.

Exhibit 3 Property Demographics

Demographics Stuyvesant Tow n Peter Cooper Village Combined Estimated Population 14,749 4,195 18,944 Estimated Households 8,362 2,556 10,918

Income Households > $150K 21.90% 22.10% 21.90% 2006E Household Income $98,456 $121,093 $103,756 2011E Household Income $110,105 $130,150 $114,798

Age 2006E Median Age 46 62 50 2006E Average Age 46 58 49 Age 65 and Above 19.20% 45.20% 25.30%

Source: “$3,750,000,000 First Mortgage on Peter Cooper Village / Stuyvesant Town (PCV/ST): Acquisition Financing,” Wachovia and Merrill Lynch presentation, December 2006, p. 13.

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Exhibit 4 Average Rental Rates

Avg SF per Avg Monthly Rent per SF Avg Monthly Rent per SF at Var in Rent # of Units Unit Rent 2006 2006 Market Rent Market per SF Stuyvesant Tow n Dereg - 1 BR 1,386 755 2,504 $39.78 2,926 $46.49 16.9% Dereg - 2 BR 872 943 3,018 $38.39 3,658 $46.53 21.2% Dereg - 3 BR 65 1,165 4,084 $42.06 4,511 $46.45 10.5% Dereg - 4 BR 1 1,753 4,950 $33.88 6,793 $46.50 37.2% Dereg - 5 BR 6 1,698 5,754 $40.67 6,580 $46.51 14.4% Stabilized - 1 BR 3,096 755 1,125 $17.88 2,926 $46.51 160.1% Stabilized - 2 BR 2,779 943 1,380 $17.55 3,658 $46.53 165.1% Stabilized - 3 BR 381 1,161 1,544 $15.96 4,511 $46.64 192.2% Stabilized - 5 BR 31 1,681 1,958 $13.98 6,580 $46.97 236.1% Vacant - 1 BR 49 751 0 $0.00 2,926 $46.74 n.a. Vacant - 2 BR 74 943 0 $0.00 3,658 $46.53 n.a. Vacant - 3 BR 6 1,145 0 $0.00 4,511 $47.26 n.a. Stuyvesant Town Total 8,746 860 1,668 $23.27 3,336 $46.52 123.2% Peter Cooper Village Dereg - 1 BR 403 948 2,768 $35.04 3,595 $45.52 29.9% Dereg - 2 BR 267 1,224 3,747 $36.74 4,641 $45.51 23.9% Dereg - 3 BR 3 2,162 6,520 $36.19 8,198 $45.50 25.7% Stabilized - 1 BR 776 947 1,183 $15.00 3,595 $45.58 203.9% Stabilized - 2 BR 957 1,223 1,457 $14.30 4,641 $45.56 218.5% Stabilized - 3 BR 17 1,489 1,619 $13.04 8,198 $66.05 406.4% Stabilized - 4 BR 1 2,441 2,705 $13.30 8,426 $41.42 211.5% Vacant - 1 BR 30 947 0 $0.00 3,595 $45.57 n.a. Vacant - 2 BR 27 1,225 0 $0.00 4,641 $45.48 n.a. Peter Cooper Village Total 2,481 1,092 1,847 $20.30 4,161 $45.69 158.4% Consolidated Total 11,227 911 1,707 $22.49 3,518 $46.34 131.0%

Source: “Wachovia Bank Commercial Mortgage Trust Commercial Pass-Through Certificates,” Prospectus Supplement, Series 2007-C30, March 14, 2007.

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Exhibit 5 Acquisition Structure

Cum ulative As is Total LTV Rate

First Mortgage Debt: $3,000 million $3,000 47.7% 6.43%

Mezzanine: $1,400 million $4,400 70.0% 7.19%

Sponsor Equity: $1,890 million* $6,290

*Note: includes $1,000 sponsor cash, $240m acquisition costs and fees, $400m interest reserve, $190m general reserve and $60m capex reserve.

Source: “Wachovia Bank Commercial Mortgage Trust Commercial Pass-Through Certificates,” Prospectus Supplement, Series 2007-C30, March 14, 2007. p. D-5.

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Exhibit 6 Investors in Stuyvesant Town

Amount Investors ($Million)

Merrill Lynch Wachovia $3,000 Total First Mortgage $3,000

Government of Singapore 575 Gramercy Capital and SL Green 200 Hartford Financial 100 DG HYP 100 CW Capital 90 Bracebridge 75 Newcastle Investment Corporation 50 Other 210 Total Mezzanine Lenders 1,400

CALPERS 500 Florida state pension fund 250 Tishman Speyer 112 BlackRock 112 CALSTRS 100 Church of England 70 Other 746 Total Equity 1,890

Source: Adapted from Charles V. Bagli and Christine Haughney, “Wide Fallout in Deal for Stuyvesant Town,” The New York Times, January, 26, 2010, http://www.nytimes.com/2010/01/26/nyregion/26stuy.html, accessed May 2011.

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Exhibit 7 ST/PCW Historical Cash Flows

2004 2005 2006 Revenues Residential Income $175,882,987 $191,964,735 $212,566,684 Parking 5,030,689 4,724,042 5,307,144 Retail/Professional 4,599,367 4,947,704 5,140,498 Laundry Revenue 1,704,186 1,771,173 2,213,066 Storage/Other 4,919,453 4,702,141 6,025,230 Total Revenue 192,136,682 208,109,795 231,252,622

Operating Expenses Real Estate Taxes 32,895,039 33,215,740 35,848,730 Insurance 2,554,761 2,470,170 3,698,220 Payroll 9,807,052 10,575,047 11,293,706 Utilities 17,485,585 19,978,111 21,393,600 Water & Sewer 2,903,611 3,179,642 3,227,008 R&M 27,892,773 31,565,004 34,917,379 G&A 2,355,562 2,474,898 3,289,234 Legal/Professional 2,539,350 3,745,948 2,314,868 Management Fees 1,600,043 2,042,738 2,194,388 Total Expenses 100,033,776 109,247,298 118,177,133

NOI 92,102,906 98,862,497 113,075,489

Source: Adapted from “$3,750,000,000 First Mortgage on Peter Cooper Village / Stuyvesant Town (PCV/ST): Acquisition Financing,” Wachovia and Merrill Lynch Presentation, December 2006, p. 38.

Exhibit 8 ST/PCW Actual Cash Flow Performance

Actual Actual Actual Projected Cash Flows 2007 2008 2009 Revenue $248.8 $289.0 $143.1 Expense 140.6 151.0 78.6 NOI 108.3 138.0 64.5 Replacement Reserves 2.2 2.2 1.1 NCF 106.0 135.7 63.4

Source: Bloomberg.

Note: Dollar figures are in Millions.

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Exhibit 9 Letters to PCV/ST Tenants

Source: The Huffington Post, March 28, 2010, http://www.huffingtonpost.com/2010/01/26/tishman-speyer-sends- brea_n_437722.html, accessed May 2011.

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Exhibit 10 New York City and Stuyvesant / Turtle Bay Area Rental Data

NYC Metro Vacancy Rate and Rent Change

4.5% 15.0%

4.0%

10.0% 3.5%

3.0% 5.0% 2.5%

2.0% 0.0% Vacancy Rate

1.5% Change Rent % of

1.0% (5.0%)

0.5%

0.0% (10.0%) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Vacancy Rate Y/Y Rent Change

Stuyvesant Town / Turtle Bay Area Vacancy Rate and Rent Change

6.0% 25.0%

20.0% 5.0%

15.0% 4.0%

10.0% 3.0% 5.0% Rent Change Rent Vacancy Rate 2.0% 0.0%

1.0% (5.0%)

0.0% (10.0%) 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Vacancy Rate Y/Y Rent Change

Source: REIS, accessed February 23, 2011.

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Exhibit 11 Sales Comparables in Stuyvesant/Turtle Bay Area

Transaction Year Built / 12-Mon Rolling Date Building Renovated Price Total Sq Ft Total Units Price / Sq Ft Price / Unit Cap Rate 12/29/09 324 E 52nd St 1904/1980 $7,800,000 16,932 24 $461 $325,000 6.7% (Q4 2009) 11/23/09 525 3rd Ave 1928/-- 28,250,000 76,024 88 372 321,023 6.7% (Q4 2009) 05/18/09 318 E 30th St 1953/1985 2,000,000 3,850 5 519 400,000 6.0% (Q2 2009) 05/05/09 329-331 Lexington Ave 1920/-- 5,126,000 18,548 18 276 284,778 6.0% (Q2 2009) 04/21/09 226 E 59th St 1904/-- 4,450,000 11,827 16 376 278,125 6.0% (Q2 2009) 03/24/09 246 E 32nd St 1900/-- 2,881,875 4,147 5 695 576,375 5.5% (Q1 2009) 03/04/09 106 E 30th St 1915/1989 2,425,000 4,742 7 511 346,429 5.5% (Q1 2009) 02/12/09 229 1st Ave 1900/1960 2,000,000 3,740 7 535 285,714 5.5% (Q1 2009) 02/06/09 126 Lexington Ave 1910/1986 2,800,000 4,495 5 623 560,000 5.5% (Q1 2009) 12/19/08 306 E 15th St 1910/-- 5,175,000 6,548 7 790 739,286 5.3% (Q4 2008) 12/08/08 115 E 39th St 1910/1988 3,995,000 6,264 6 638 665,833 5.3% (Q4 2008) 12/01/08 493 2nd Ave 1920/-- 3,850,000 9,442 18 408 213,889 5.3% (Q4 2008) 11/24/08 125 E 30th St 1930/-- 2,000,000 NA 10 NA 200,000 5.3% (Q4 2008) 10/15/08 308 E 52nd St 1950/-- 3,600,000 3,952 4 911 900,000 5.3% (Q4 2008) 10/02/08 107 E 35th St 1910/1985 4,600,000 7,715 10 596 460,000 5.3% (Q4 2008) 08/27/08 306 E 18th St 1910/-- 2,750,000 4,132 4 666 687,500 5.3% (Q3 2008) 08/18/08 213 E 26th St 1910/1959 3,500,000 8,845 15 396 233,333 5.3% (Q3 2008) 08/18/08 Gramercy Green Building 2006/-- 275,000,000 289,986 292 948 941,781 5.3% (Q3 2008) 08/12/08 287 3rd Ave 1910/-- 5,900,000 5,468 6 1,079 983,333 5.3% (Q3 2008) 06/23/08 244 E 21st St 1936/1988 8,650,000 15,210 24 569 360,417 5.3% (Q2 2008) 06/19/08 305 E 44th St 1910/-- 10,100,100 7,076 16 1,427 631,256 5.3% (Q2 2008) 05/16/08 108 E 31st St 1910/2004 4,150,000 4,046 4 1,026 1,037,500 5.3% (Q2 2008) 04/03/08 243 E 33rd St 1920/1988 2,236,364 4,170 9 536 248,485 5.3% (Q2 2008) 04/03/08 244 E 33rd St 1940/1988 1,987,879 4,220 8 471 248,485 5.3% (Q2 2008) 04/03/08 247 E 33rd St 1925/1988 5,963,636 12,530 24 476 248,485 5.3% (Q2 2008) 04/03/08 333-335 E 33rd St 1910/1988 6,212,121 14,718 25 422 248,485 5.3% (Q2 2008) 04/23/08 232 E 50th St 1900/1986 2,700,000 4,951 5 545 540,000 5.3% (Q2 2008) 03/28/08 247 E 52nd St 1965/1986 3,250,000 8,125 18 400 180,556 5.4% (Q1 2008) 02/13/08 245 Park Ave S 1940/1987 28,934,500 44,713 55 647 526,082 5.4% (Q1 2008) 02/13/08 141 E 33rd St 1960/1988 53,735,500 101,577 123 529 436,874 5.4% (Q1 2008) 02/13/08 8 Gramercy Park S 1940/1987 28,934,500 44,713 55 647 526,082 5.4% (Q1 2008) 01/31/08 318 E 15th St 1965/-- 46,843,406 112,898 148 415 316,510 5.4% (Q1 2008) 01/30/08 352 E 55th St 1950/-- 3,500,000 4,800 7 729 500,000 5.4% (Q1 2008)

Source: REIS, accessed February 23, 2011.

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Exhibit 12 Special Servicer Overview

What is a Special Servicer?

CMBS loans are usually structured such that a master servicer oversees the day-to-day administration of the underlying loans and the necessary distribution and collection of cash flows to various investors. Within most CMBS securitizations, special functions are often sub-contracted to other entities. The special servicer is one of the sub-contractors and becomes involved when a CMBS deal fails to perform as expected and the loans become troubled or distressed. In this capacity, the special servicer has significant ability to modify or foreclose on the loan in order to maximize value for lenders. Nearly all of the special servicer’s activities are detailed in the Pooling and Servicing Agreement (PSA) of a securitization.

Typical Role of a Special Servicer

• Will attempt to collect loan payments • May waive late charges and default interest • May initiate corrective action in cooperation with the borrower if cure is likely (i.e. negotiating and accepting a discounted payoff) • May modify the loan if it determines such modification will result in maximizing the value of the loan • May foreclose • May manage a real estate owned (REO) property until it could be liquidated

What Economic Interests Does a Special Servicer Hold?

Special servicers generally own a piece of the “first-loss,” sometimes known as a B-note, portion of the CMBS loan in order to better align-interests between the special servicer and junior creditors.

Typical Fees?

Usually a fixed fee plus a percentage of total assets in special servicing (i.e. the special servicer fees increase as the more loans need “special servicing.”

Sources: Excerpted from American College of Mortgage Attorneys, “The Roles of the Master Servicer and Special Servicer in Servicing Distressed Loans Held in Commercial Mortgage-Backed Securities Pools,” http://www.acmaatty.org/quebec/contents/sessions/pdf/08/The_Roles.pdf, accessed May 2011; Ambrose, Sanders, and Yavas, “Special Servicers and Adverse Selection in Informed Intermediation: Theory and Evidence,” Working Paper, January 31, 2008; Yingjin Gan, “The Economics of the Debt Markets,” Dissertation, University of Pennsylvania, 2005. Do Not Copy or Post 17

Exhibit 13 Largest Special Servicers

Amount Avg. Loan Size Company $Million Number of Loans $Million LNR Partners $201,348 15,015 $13.4 CW Capital $150,469 11,788 $12.8 C‐III Asset Management $116,200 11,936 $9.7 PNC Real Estate $61,235 8,977 $6.8 Berkadia Commercial Mortgage $36,564 6,225 $5.9

Source: Chart adapted from Mortgage Bankers Association, “Year-end 2010: Commercial / Multifamily Mortgage Servicer Rankings, 2011, p. 18.

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Appendix A – Major Participants

Tishman Speyer

“Tishman Speyer is one of the leading owners, developers, operators, and managers of first-class real estate in the world, having managed a portfolio of assets since its inception of over approximately 116 million square feet and more than 92,000 residential units, and a property portfolio of US$50.2 billion in total value across the United States, Europe, Latin America and Asia… Tishman Speyer's vertical integration is the key to its success. Our multi-disciplinary teams enable us to envision a broader array of possibilities than others. We then have the skills and experience in- house - acquisitions and development; design and construction; property management; investment management; leasing; tax and risk management -- to realize these possibilities, adding value to every aspect of a property or project.”42

Key properties of note in New York include: Rockefeller Center, 200 Park Avenue (“The PanAm Building”), and the Chrysler Center.

Blackrock

“BlackRock is a premier provider of global investment management, risk management and advisory services to institutional and retail clients around the world… As of 30 September 2010, BlackRock's assets under management total US$3.45 trillion across equity, fixed income, cash management, alternative investment and real estate strategies… BlackRock's global real estate capabilities extend across the capital market structure to include equity and debt products… BlackRock manages real estate debt and equity strategies, with focuses on Global, U.S., European, Australian and Asian markets. BlackRock believes that successful real estate investing is a result of establishing a strategic advantage in portfolio exposures to property sectors and markets, and in the speed and quality of executing those exposures. This focus on strategy and execution is the cornerstone of BlackRock's investment philosophy. BlackRock's real estate investment strategy is guided by its proprietary research tools and the combined knowledge, experience and market expertise of its senior investment professionals.”43

Pershing Square / William Ackman

Upon graduating from Harvard Business School in 1992, William Ackman began his business career by co-founding a hedge fund, Gotham Partners.44 After litigation regarding one of investments, Gotham Golf, Ackman wound down Gotham Partners in 2002.45 In 2004 he founded Pershing Square Capital Management as a hedge fund management firm with $54 million from himself and Leucadia National.46 As an activist investor, Ackman typically bought significant stakes in public companies and then pressured management to make changes.

Winthrop Realty Trust / Michael Ashner

“Winthrop Realty Trust (NYSE:FUR) is a real estate investment trust (“REIT”) engaged in the Dobusiness of Notowning and operating Copyreal property and real estate relatedor assets throughPost our ownership 19

of assets, loans secured by real property and equity and debt securities of other publicly traded and privately owned real estate companies.”47

“Mr. Ashner has served as the Chairman and Chief Executive Officer of Winthrop Realty Trust, a NYSE-listed real estate investment trust, since 2004. In addition, Mr. Ashner has served as the Chairman and Chief Executive Officer of Winthrop Realty Partners, L.P., a vertically integrated property management firm, since 1996. Mr. Ashner has acquired over $12 billion of real estate, including 85,000 apartment units, 50 million square feet of office, retail, and industrial assets and 1,000 hotel rooms. Winthrop Realty Partners has managed more than 500 limited partnerships, of which in excess of 50 were publicly reporting with over 100,000 investors, as well as five publicly traded REITS. . . . Mr. Ashner holds an AB from Cornell University and a JD from the University of Miami.”48

Source: Company websites.

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Endnotes

1 “The battle for Stuyvesant Town: The housing rubble,” The Economist, September 30, 2010. http://www.economist.com/node/17149032?story_id=17149032, accessed March 2011.

2 “$3,750,000,000 First Mortgage on Peter Cooper Village / Stuyvesant Town (PCV/ST): Acquisition Financing,” Wachovia and Merrill Lynch Presentation, December 2006, p. 4.

3 “Wachovia Bank Commercial Mortgage Trust Commercial Pass-Through Certificates,” Prospectus Supplement, Series 2007-C30, March 14, 2007, p. D-6.

4 Ibid.

5 Ibid., p. D-9.

6 Ibid., p. D-6.

7 Ibid., p. D-9.

8 Charles V. Bagli, “Megadeal: Inside a New York Real Estate Coup,” The New York Times, December 31, 2006, http://www.nytimes.com/2006/12/31/business/yourmoney/31speyer.html?_r=2&ref=jerryispeyer, accessed February 2011.

9 Charles V. Bagli, “$5.4 Billion Bid Wins Complexes in New York Deal,” The New York Times, October 18, 2006, http://www.nytimes.com/2006/10/18/nyregion/18stuyvesant.html?_r=1, accessed February 2011.

10 Ibid.

11 Ibid.

12 Juan Gonzales, “Little Bid that Could. Stuy Town Tenants’ Offer Making Waves in Market,” NY Daily News, October 13, 2006, http://articles.nydailynews.com/2006-10-13/news/18348790_1_affordable-housing- rent-stabilized-units-tenants, accessed January 2011.

13 Charles V. Bagli, “Megadeal: Inside a New York Real Estate Coup,” The New York Times, December 31, 2006, http://www.nytimes.com/2006/12/31/business/yourmoney/31speyer.html?_r=2&ref=jerryispeyer, accessed February 2011.

14 Gabriel Sherman, “Clash of the Utopias,” New York Magazine, February 1, 2009, http://nymag.com/realestate/features/53797/, accessed February 2011.

15 Charles V. Bagli, “Megadeal: Inside a New York Real Estate Coup,” The New York Times, December 31, 2006, http://www.nytimes.com/2006/12/31/business/yourmoney/31speyer.html?_r=2&ref=jerryispeyer, accessed February 2011.

16 Ibid.

17 Henny Sender and Saskia Scholtes, “Merging of two cultures will create formidable player,” Financial Times, June 13, 2009, http://www.ft.com/cms/s/0/991a3754-57b1-11de-8c47-00144feabdc0.html#axzz1NMiI TRAG, accessed April 2011.

18 Ibid.

19 Gabriel Sherman, “Clash of the Utopias,” New York Magazine, February 1, 2009, http://nymag.com/realestate/features/53797/, accessed February 2011.

20 Ibid.

21 “$3,750,000,000 First Mortgage on Peter Cooper Village / Stuyvesant Town (PCV/ST): Acquisition DoFinancing,” WachoviaNot and Merrill LynchCopy Presentation, December 2006, p. or6. Post 21

22 Ibid.

23 Ibid.

24 Ibid., p. 13.

25 Ibid., p. 21.

26 Ibid.

27 Charles V. Bagli and Christine Haughney, “Wide Fallout in Deal for Stuyvesant Town,” The New York Times, January, 26, 2010, http://www.nytimes.com/2010/01/26/nyregion/26stuy.html, accessed March 2011.

28 “$3,750,000,000 First Mortgage on Peter Cooper Village / Stuyvesant Town (PCV/ST): Acquisition Financing,” Wachovia and Merrill Lynch Presentation, December 2006. p. 9.

29 Charles V. Bagli, “Megadeal: Inside a New York Real Estate Coup,” The New York Times, December 31, 2006, http://www.nytimes.com/2006/12/31/business/yourmoney/31speyer.html?_r=2&ref=jerryispeyer, accessed February 2011.

30 Suzanna Andrews, “Larry Fink’s $12 Trillion Shadow,” Vanity Fair, April 2010, http://www.vanityfair.com/business/features/2010/04/fink-201004, accessed February 2011.

31 Gabriel Sherman, “Clash of the Utopias,” New York Magazine, February 1, 2009, http://nymag.com/realestate/features/53797/, accessed February 2011. Most developers shied away from buying rent stabilized properties especially given New York’s significant pro-tenant lobby.

32 Ibid.

33 Ibid.

34 Ibid.

35 Patricia Hurtado, “Tishman’s Stuyvesant Town Rent Rise Voided by Court,” Bloomberg, October 22, 2009, http://www.bloomberg.com/apps/news?pid=newsarchive&sid=awzF8qAi7NrQ, accessed February 2011.

36 Charles V. Bagli, “N.Y. Housing Complex Is Turned Over to Creditors,” The New York Times, January, 25, 2010, http://www.nytimes.com/2010/01/25/nyregion/25stuy.html, accessed March 2011.

37 Charles V. Bagli and Christine Haughney, “Wide Fallout in Failed Deal for Stuyvesant Town,” The New York Times, January, 26, 2010, accessed March 2011.

38 Theresa Agovino, “Tishman, Blackrock hand over Stuy Town keys,” Crain’s New York Business, January 25, 2010, http://www.crainsnewyork.com/article/20100125/FREE/100129934#, accessed March 2011.

39 Lingling Wei and Mike Spector, “Tishman Venture Gives Up Stuyvesant Project,” The Wall Street Journal, January, 25, 2010, http://online.wsj.com/article/SB10001424052748703415804575023483097973538.html, accessed March 2011.

40 “Stuyvesant Town / Peter Cooper Village Tenants Association retains Moelis & Company as exclusive financial advisor,” Debtwire, March, 10, 2010, accessed March 2011.

41 Sarika Gangar and Nicoletta Kotsinas, “Appaloosa bites back at LNR, American Capital on Stuyvesant Town,” Debtwire, March, 25, 2010, accessed March 2011.

42 Tishman Speyer, “About Us: Business Philosophy,” Tishman Speyer Web site, http://tishmanspeyer.com/about/philosophy.aspx, accessed May 2011.

43 BlackRock, “About Us,” BlackRock Web site, http://www2.blackrock.com/global/home/AboutUs/ DoAboutBlackRock/index.htm, Not accessed February Copy 2011. or Post 22

44 Chris Serres, “William Ackman: Targeting Target.” Star-Tribune, January 13, 2008, http://www.startribune.com/business/13715691.html, accessed February 2010.

45 Ibid.

46 Ibid.

47 Winthrop Realty Trust, “Company Profile,” Winthrop Realty Trust Web site, http://www.winthropreit.com/CompanyProfile/default.html, accessed May 2011.

48 Winthrop Realty Trust, “Management Team,” Winthrop Realty Trust Web site, http://investor.winthropreit.com/management.cfm, accessed May 2011.

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