Friday, July 26, 2013

Other People's Money


In October 2006, MetLife decided to sell one of the crown jewels of its real estate holdings, Stuyvesant Town-Peter Cooper Village.  The parcels are famous to all New Yorkers.  PRIME REAL ESTATE.










80+ acres of land in lower Manhattan, much of it waterfront.
11,250+ apartments spread out over 56 buildings.
A small city of 25,000+ people complete with parks and playgrounds.
The decision to sell the complex let loose a frenzy of salivating bidders.  CB Richard Ellis was hired to broker the deal for MetLife.  Dozens of offers were received from investors, pension funds, investment banks, and real estate royalty from all over the world.  The financial world buzzed with the action like it was the Super Bowl.
The winners were the cream of the real estate world.  Tishman Speyer and BlackRock.
They agreed to pay $5.4 billion on October 17, 2006.
Just 39 months later in January 2010, Tishman Speyer defaulted on its mortgage.  It was the largest mortgage default in history.


At the time of the default, Stuyvesant Town-Peter Cooper Village was worth just $1.9 billion.
How did so many of the world's smartest real estate investors get this deal so wrong?  Isn't that really the $3.5 billion question?


The new book, OTHER PEOPLE'S MONEY, by author Charles V. Bagli tells the story of this Deal from Hell in a compelling way, something hard to do when much of your subject matter is accounting details and tax code provisions.
Good real estate books strike a balance between the wonky and the star struck.  Too much GAAP and IRS lingo and the author sounds like they are lecturing at a CPA convention.  It's interesting but not what people want to read at the beach in the summer.  On the other extreme, too many authors are in love with their subjects so they focus on the dealmakers and not the deals.  How much they spend on private jets, French wines, and beautiful women instead of the nuts-and-bolts of how they actually made all their money such as by exploiting arcane provisions of the tax code.
Mr. Bagli hits the perfect balance in his book.  Just when your eyes start to glaze over with the facts and figures he hits you with an interesting tidbit to refresh your imagination and remind you why you are reading his book in the first place.
The collapse of the Stuyvesant Town-Peter Cooper Village was a natural topic for writers because of the drama and the sheer scope of the deal.  I cannot think a more definitive book on this subject could ever be written.  This work is a page turner from start-to-finish.  At times it feels you are reading a novel, and gratefully so.
If you want to learn about real estate and at the same time get carried away in a fascinating tale of driven people driving dangerous deals, this is your book.
OTHER PEOPLE'S MONEY by Charles V. Bagli

Here is a Mr. Bagli in a lecture discussing Stuy Town.  Fascinating stuff.




2 comments:

  1. Thanks for the recommendation--I'll read it! Which other real estate books are on your "top 10" list? Thanks.

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  2. I just finished the book. It was fairly repetitive, but generally as you advertised. In addition to learning about the Stuyvesant Town deal, I gained a better understanding of the financial forces that contributed to the 2008 recession.

    Now, Mr. Abalos...which other real estate books are on your "top 10" list? Thank you.

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