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MetLife Outmaneuvered Tishman Speyer on Two Manhattan Properties

Insurers are generally known as plodders who are paid to be careful with their clients' premiums. For them a long-term Treasury is considered a risky investment.

So the decline and fall of prominent New York realtor Tishman Speyer and private equity firm Blackrock Inc.'s investment in two of New York City's biggest apartment complexes deserves a closer look - especially when the winner in this game of Monopoly is MetLife, the nation's largest, and arguably one of the most conservative, life insurers.

In the mid-1940's MetLife developed and then owned two sprawling housing developments, Peter Cooper Village and Stuyvesant Town. But when Steve Kandarian became MetLife's chief investment officer in 2005, he recognized two things early on. First, the commercial mortgage-backed securities market had turned into a bubble, with banks underwriting bad investments and then passing them along to other investors. And second, the Peter Cooper/Stuyvesant Town holdings had become too big a part of MetLife's overall real estate portfolio.

So Kandarian and MetLife took steps to cut back on the insurer's investments in risky mortgages, and put the two big real estate investments on the market.

Tishman Speyer was quick on the draw, perhaps because the realtor and its backers believed they could rid themselves of the subsidized units and make a huge profit, according to a New York magazine story. They paid $5.4 billion for the two complexes at the height of the market.

They were wrong. Tenants at the two projects took the realtor and its backers to court and fought them to a standstill. Meanwhile, New York apartment prices were hammered, as were highly-leveraged deals by private companies like Blackrock that got closed out of the capital markets during the recession, according to the Wall Street Journal.
The two developments are now worth about $1.8 billion, according to some sources, about a third of what MetLife sold it for. And Tishman Speyer and Blackrock just defaulted on the $4.4 billion debt used to finance the project, leaving it in the hands of equity investors like the Church of England, CalPERS and, yes, another insurer, The Hartford.

In an audit of U.S. financial corporations MetLife was found to be one of the healthiest. And, at a time when other insurers held their hands out for TARP money, MetLife refused it. The $5.4 billion it got from the sale of Peter Cooper Village and Stuyvesant Town undoubtedly helped.