HUD Clips Starrett Buyer

The sale of Starrett City follows right behind the much publicized sale by Met Life of the huge Stuyvesant Town and Peter Cooper Village complexes in Manhattan to Tishman Speyer Properties for $5.4 billion. That sale was conducted by the same high-octane brokerage team at CB Richard Ellis(CBG) that is handling Starrett City. Strong concerns over maintaining affordability in that deal did not halt the transfer, and the 11,000 apartment units will all eventually be market rate (two-thirds are currently subsidized).

Clipper's winning bid values the complex at roughly $220,000 per unit, which is cheap for Manhattan apartments but steep for a 33-year-old postwar housing project that has had its share of wear and tear. It seems understandable that Tishman Speyer, with nearly $24 billion under management, and its Stuyvesant Town partner, Blackrock, are willing to wade through years of low-single-digit returns at their 80-acre waterfront Manhattan complex as they convert it to market rents. But it's difficult to see the same outcome for the steep price Clipper and its rival bidders are willing to bet on a low-rent apartment complex deep in Brooklyn (although also on the water).

What's more, Clipper has pledged to keep rents low if it acquires Starrett; the current ownership has declared that if the deal falls through, it will opt out of the various subsidy programs and move toward market rents.

Clipper, if it prevails, faces a formidable challenge. Without cutting services at Starrett City (now officially called Spring Creek Towers), it has to maintain quality of life at high-maintenance properties whose tenants have daunting social needs. And it has to do so with its own actions -- perhaps rightly -- under an array of official federal, state and city microscopes and those wielded by housing advocacy groups.

With an ultimate payoff seemingly far down the road at a time when many opportunistic investors want out as soon as possible -- and with this week's market turmoil still reverberating -- Starrett City's affordability for this buyer may actually be out of reach.

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