The Painful Education of Real Estate Scion Rob Speyer

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From the outset the deal to transform the 11,200 affordable housing units into luxury apartments was controversial. Tenants took the buyers to court over what they claimed were illegal rent increases. Then the recession hit, rental demand slackened, and the tenants won their case.

The Speyers are struggling to turn the property around. The firm has just started signing up new tenants and filling 100 vacant apartments. A temporary agreement with occupants will reduce some rents starting this month. With the property's reserve fund running dry, Tishman Speyer and its partners are trying to restructure $3 billion in debt. "It's clearly been a tough deal," says Rob Speyer. "We're not in a great position."

Despite the problems, the Speyers may not take much of a financial hit. As with many of its purchases, Tishman Speyer put in little of its own money, persuading big institutional investors, including the Church of England, to fork over the rest. The Florida State Board of Administration, the fourth-largest U.S. pension fund, invested $250 million, a stake it's valuing at $0. Tishman Speyer's hit will be limited to its $112 million investment, a person familiar with the structure of the deal says.

Dealmaking Continues

Even after significantly marking down the value of Stuyvesant Town and other properties, Tishman Speyer has earned 20% a year over the past decade, according to the company. The returns have been cushioned by some notable sales. In 2007, Tishman Speyer got $525 million for the former New York Times Building in Midtown Manhattan, which it bought for $175 million three years earlier. The company sold 666 Fifth Ave. to Kushner Cos. for $1.8 billion in 2007, the highest price ever paid for a single U.S. office building at the time.

With $2 billion in cash, the Speyers have so far been able to continue their dealmaking. In November, Tishman Speyer paid $95 million for 114,000 square feet of office space in central Paris. Meanwhile, the Speyers continue to look for trophy properties. "If you're engaged in this business then you will never have every deal that succeeds," says Jerry Speyer. "It's not possible if you take some risks."

Carmiel is a reporter for Bloomberg News. Levitt is a reporter for Bloomberg News.

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