January 26, 2010
By Matthew Davies

The Church of England stands ready to lose about $78 million invested in the largest real estate deal in American history after Tishman Speyer Properties announced it was turning over two Manhattan apartment complexes to creditors.

Tishman Speyer partnered with BlackRock Realty in 2006 to complete the $5.4 billion purchase of Stuyvesant Town and Peter Cooper Village on Manhattan's East River. The deal has since lost $3.5 million and the firm decided to surrender the properties after falling behind on loan repayments, according to reports.

The Church of England's £40 million investment in Stuyvesant Town was brokered in June 2007, right at the top of the property market, months before the ensuing global economic crisis set in, and when the exchange rate was 1.96 dollars to the pound.

"Stuyvesant Town offered the opportunity to invest in a large residential complex in a major international city with Tishman Speyer, a respected world-class manager," Ben Wilson, senior media officer for the Church of England, told ENS. "In doing so we believed that the investment would provide strong financial returns and investment diversification. We undertook detailed due diligence in conjunction with external professional advisers and the fund manager, including an assessment of the identified investment risks."

But Wilson acknowledged that the investment was "affected by the sharp fall in residential property values, and a legal ruling that many apartment rents would continue to be regulated regardless of value or the income of residents."

Managed by the Church Commissioners, the Church of England's historic assets are invested in stock market shares and property.

The Church Commissioners identifies one of its main responsibilities as obtaining "the best possible long-term return from a diversified investment portfolio," according to its website, which notes that such investments meet about 18% of the church's total running costs.

News about the property investment loss comes on the eve of a Trinity Institute conference in Manhattan that will bring together leading economists and theologians, including Archbishop of Canterbury Rowan Williams, to address the theme "Building an Ethical Economy." Williams serves as chairman of the Church Commissioners.

"The commissioners are looking carefully at the lessons to be learnt from the loss, as well as from the impact of the financial crisis generally," Wilson said. "This loss comes against a background of the commissioners' property portfolio outperforming its peer group by an average of 4.6 percent every year over the last 10 years, and returning an average of 12.1 percent each year."

Wilson told ENS that the Stuyvesant Town investment "represented less that 1% of our assets."

The total value of the Church Commissioners' assets at Dec. 31, 2008 (their most recent annual accounting) was some £4.4 billion, "of which investment properties accounted for some £1.3 billion," he said. Calculated at the interbank exchange rate for that day, the total value amounted to $6.37 billion, of which the investment properties was $1.88 billion.

According to a New York Times report, Tishman Speyer "manages a $33.5 billion portfolio of 72 million square feet of property in the United States, Europe, Asia and Latin America." The firm's assets include New York's Rockefeller Center and Chrysler Center.

The newspaper predicts that although the firm's reputation might suffer, collateral damage was "expected to be minimal."

Episcopal News Service
Matthew Davies is editor and international correspondent of Episcopal News Service.