Hedge Fund Moves on Stuyvesant Town - City Room Blog - NYTimes.com.

A hedge fund that has acquired a significant portion of the debt on the troubled Stuyvesant Town and Peter Cooper Village complexes in Manhattan is seeking to take control of them. … 25,000 tenants who are already worried about the future.

Stuyvesant Town and Peter Cooper Village were bought by a partnership of Tishman Speyer Properties and BlackRock Realty in 2006 for a record-breaking $5.4 billion. But the owners defaulted on their mortgage in January and have since agreed to turn the properties over to lenders.

Appaloosa Management, a New Jersey-based hedge fund led by David Tepper, filed papers in United State District Court on Tuesday afternoon challenging the company overseeing the two sprawling complexes overlooking the East River on behalf of lenders, saying that the company has acted “irrationally and imprudently” in pursuing a course that could cost debtholders hundreds of millions of dollars. …

Mr. Tepper, whose company has acquired control of more than $750 million of $3 billion in mortgages, said in an interview Wednesday that he wanted to CW Capital to fulfill its fiduciary interest to debtholders to maximize the value of the property. …

Appaloosa made a profit of about $7 billion last year, including $2.5 billion for Mr. Tepper. Mr. Tepper said that his interests were not at odds with those of tenants of the complexes. “We recognize the fact that at some point, there needs to be some degree of rent-controlled apartments there,” he said.

The most recent appraisal of Stuyvesant Town and Peter Cooper Village put the worth of the complexes at about $1.8 billion. But many analysts and investors say that the complexes, which contain more than 11,000 apartments, will be worth far more in the future.

So who should reap that benefit of “will be worth far more in the future”? Should it be Mr. Tepper and his “Hedge” Fund and his wealthy shareholders? Should it be the Church of England and CALPERS, the California pension fund?

Or should that increase in value be the common treasure of the City of New York, via taxes on the land value?

Buildings do not appreciate. They depreciate. What appreciates is land value.

These buildings are not new, and they are not high rise, and they’re not densely built. Even massive renovations will likely not raise the building value by as much as the cost of the renovations. They’re still old buildings, and an underuse of this fine urban land.

NYC ought to assess this land at its 2010 value, and collect the land rent from whoever has title to the property. In return, NYC should remove taxes from the buildings. Next year, they ought to revalue all the land in NYC, and tax according to that value.

This property is 80 acres. There is an acre property close to Grand Central Terminal (perhaps 2 miles away) which was valued a couple of years ago – as a teardown! – at $400 million to $1.2 billion. Valuing the buildings at $0, and

The owners of the buildings – be it an existing private entity, some combination of same, or the tenants’ association – will then be in a position to make a judgment about whether these buildings are the highest and best use of the land, or whether it makes sense to replace these buildings with something more appropriate to 2010, one or two buildings at a time. Redevelopment would create more housing and jobs in the segment of the income spectrum that most needs them.

The land value of NYC would be recycled WITHIN NYC, rather than falling into California, British and other private pockets.

Best of all, the private sector would do it. All they need is the right incentives.

And yet better than that, shifting taxes onto land value would permit NYC to remove some of the taxes which burden the poorest of working people: taxes on sales and wages.

Mr. Tepper’s 2007 profit of $2.5 billion likely places him in the top 400 income recipients – though perhaps not in the top 400 income tax payers, since he has likely deferred much of that income.