Apex Predators: The Reichmanns, Pt. II - The Promote Podcast

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[00:06]
A
We continue our epic saga of the Reichmans, the family behind Olympia in York. At one point, one of the richest in the world and by far the most important real estate developer. If somehow you missed part one, hit pause on this guy and go listen to that first. The family history in Ascent is just as extraordinary as what's to come here. For the rest of you, we've taken you through the great European escape from Nazism, the post war adventures in Tangier.
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B
Tangiers.
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A
Tangiers. And the proving grounds of Montreal and Toronto. Now we're in America. So this is an episode primarily about two balls and risk. Gird your loins, plop your tums and let's go. Welcome back to the Promote podcast, your insider guide to the money and mania of the CRE markets. I'm Hatan Samtani.
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B
And I'm Will Krasny.
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A
Shout out to our sponsors, helping bring this episode to life. Bravo Capital, a leading HUD and bridge
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lender, loan boss, the best in class, CRE debt management software. And also my son the other day
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A
said loan boss and Real Property Captive, the first group captive insurance for mid market owners. The time for preamble and due diligence is over. Going non refundable. Manhattan, 1971. So we talk a lot about the great dynasties of New York. The LaFracs, the Tishmans, the Rudens. There's one name that's almost completely disappeared from the conversation. The Urus clan.
[01:47]
B
Indeed, they were unbelievably significant. They had 13 million square feet. They were Manhattan's largest office landlord.
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A
At one point it was publicly traded. But in 1971, the thing that set all of this off, Percy passed. Harold is now looking to get out of this and he's looking for someone to do a take private of the Urus package.
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B
He wants someone to step in, take it off his hands. Looking to cash out and do a DST into some triple net Arby's on the west coast.
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A
The first couple of serious players that come in. One is British land. It's run by a bloke called John Rittblatt. Very smart property man, as they used to say. He comes up with a structure that takes advantage of some offshore tax benefits available in the uk and he puts out a number. He thinks the deal is going to be his, but he's pipped to the post, as they say.
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B
Ooh, yeah, he is. And it's Steve Ross, but not that Steve Ross, the other Steve Ross.
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A
So who is this other Steve Ross?
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B
Best known as the Warner Steve Ross. So before David Zaslav. Before the Ellisons, there was Steve Ross. He married into a family that I think owned funeral homes in New York.
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A
He realized that the hearse's off hours were just hanging around and he said, why don't we turn this into a limo rental service, turned that into a parking empire, merged that with something else. And then he was off to the races. And eventually he did the modern day equivalent of buying a sports team, which is he bought a movie studio. The pictures.
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B
He's one of the rare guys who actually made money in the pictures. He lived enormously large. The penthouse in New York. All the guys would go stay with him. The place in Acapulco, I highly recommend. Master of the game. He has control of National Kinney, which is the parking operator in New York. So he's very focused on the city. And when this collection of buildings is on the market, he's interested.
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A
It's like an additional vanity plate to tack on.
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B
You're starting off with the grubbiest unsexiest industries. And then what's sexier at this point than being a major Manhattan landlord?
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A
But the timing turns out to be a disaster.
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B
Oh, awful.
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This is the city's fiscal crisis in the mid-70s. The if you remember that infamous headline, Ford to city, drop dead in the Daily News.
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B
You had Summer of Sam, shut that dog up.
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C
Kill.
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B
You had the Bronxes burning, obviously. A major fire in a large building in the South Bronx region of New York City. Panic at Needle Park.
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Yes.
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This whole era. My mom grew up in New York around this time and wasn't allowed to
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go to the park. This fear about where things were headed was focused also on the New York real estate market. If you remember, Lou Rudin banded the landlords together to prepay property taxes during this time.
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B
Can you imagine billionaires actually trying to do something for the city?
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A
What a bygone era.
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B
What's important to note too is that the tax base was hollowing out and a lot of people were moving their corporate offices to the suburbs. So New Jersey, Westchester, Long Island. And so what that meant is there's no demand for office space in New York and there's this huge glut of supply because the market had been so tight. And the families, the Dursts, the Tishmans, the Roots, all these folks had built a ton of buildings right as demand fell off a cliff. So that's the supply demand dynamic that our good friend Steve Ross is staring at after he's made this major purchase.
[05:02]
A
We always think about these non monetary aspects that can make or break deals. In this case, because of all this hoopla around his real estate holdings. It's the whole ship, the Warner Communications empire. This has become a burden that he needs to get rid of.
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B
If you remember too, this was an era where the conglomerate was the big thing in the public stock market, where if you're good management, you can do anything. And so people did bloated, huge cost structure and really levered. And that's really what happened here.
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A
He's looking to get out of this. And the people in New York are pretty strapped. But income in two Canadian players and their names will feature multiple times throughout the Reichman story. Trezik and Cadillac Fairview.
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The 70s and 80s were really solid days for Canadian billionaires. A lot going on north of the border.
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So Triza comes in, takes a look. One of their people said these were crappy buildings, but also they were mired in their own financial mess, so backed out. Cadillac Fairview thought these buildings had a lot of potential, but they thought at this point in time their shareholders would not go for it. Their dilemma perfectly illustrates what's going on with modern office REITs today. There's a great quote from one of their executives, Bernard Kurt. If you're too conscious of the pressure to show quarterly increases on your income statement, you don't take a chance on assets that may be lucrative in the long term but are problematic today.
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B
That's exactly right. It's really what you see writ large across investment management, where so much of this is about cya. To be honest, the right thing to do is sometimes really hard to do. Really hard to do. Structurally, you've got basically every big pubco institutional group looking at this deal.
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A
They can't sell this deal to their people.
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They can't sell it. You couldn't sell it. But I can imagine everyone says this is cheap as hell.
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The estimate was that replacement costs would be about $150 a foot. And this was asking roughly in the $30 a foot range. It really comes back to, are you good for the money? And two, can you sell it to. To whoever your stakeholders are? And on that latter condition, most of these bidders fell by the wayside. So that leaves our favorite group, the Cowboys.
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One who got closest was Samuel LeFrac.
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Yes. Real estate tycoon Samuel LeFrak. Now he already at this time owned about a 50,000 unit portfolio in the outer boroughs. And that's important.
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Staggering.
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Every outer borough kid wants to make a splash in Manhattan. He makes a play for it. He's in serious negotiations with Steve Ross and his team. But hovering in the distance through clouds of cigarette smoke was a certain Paul Reichman of Olympia, New York. And more on that right after this. Okay, I'm here with Aaron Krewitz from Bravo Capital. What are some of the elements of the business that you'd like to see come in or evolve in the next. Let's call it 12, 18 months.
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We're optimizing for quality. And if that's what your goal is, your first question has to be how can I attract more quality borrowers? And of course, higher leverage, lower rate, speed of execution, scalability, those all matter. But if you ask a borrower today what do you want from your lender, they'll tell you, we want off market deals, equity. And I want to bring in teams that can do that. To not have a shoulder shrug when your borrower needs something. Right. And to not say, oh, sorry, like I can't do that. But to say, I will run through a wall for you and I'm going to find a solution.
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A
Thank you, Aaron. And where can people find you?
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C
People could find us@bravocapital.com.
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A
I love that when they wanted to into New York, they hired Ed Minskoff.
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B
It's just great.
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A
Has anyone rocked a pair of suspenders better than Eddie? Oh God.
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B
Sidney Pollock with no shirt though.
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A
So they're looking to break into Manhattan. They make a play for one of the urus buildings called 1633 Broadway. This one Steve Ross has already defaulted on. The German lender goes elsewhere. But the Reichmans are hovering.
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B
They are. And at this point too, lafrac is maybe over negotiating little bit. He's asked for a much decreased purchase price. In addition to that, he wants the lender to basically eat a bunch of payments and defer things years out. He thinks he's the only bidder or assumes he's in the deal.
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A
Isn't this one of the cockiest quotes you've seen? I don't buy anticipation. He said, if you want to sell me anticipation, I'll give you anticipation money.
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B
I miss the arrow. I wish John Gray would give quotes like that.
[09:49]
A
You just don't see that anymore. It's just risk adjusted returns for our shareholders and whatnot. But Steve Ross starts looking elsewhere. And Paul Reichman's bet here was an interesting one. The broader thesis here is just thesis of confidence in New York City more than this specific set of properties which were encumbered by long term below market leases. Paul said if we can just stick around long enough for this to all pass. We might have something.
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B
Their view was, unless there's a permanent impairment of New York, his bet was that the land's worth more than this. And so we don't need a lot to go right to not lose money. Yeah, you're basically buying a call option on New York, which turned out to be one of the better bets. Let's just talk about what These buildings were. 55 Water Street, 2 Broadway, 100 Wall Street, 115 Broadway. 800 53rd Avenue. 1290 Avenue of the Americas. 245 Park.
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A
Yeah.
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And 10 East 53rd. And then 1301 Avenue of the Americas was Park. But then J.C. penney, who was a tenant, had a purchase option that they exercised.
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A
These are trophy buildings in some of the best locations in the city. 245 park, for example, American Brands was paying $6 a square foot on a 13 year term, which was at the time one third of the market rent. There's not much you can do there, but if you can wait it out, the rewards on that other side are,
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and these are enduring buildings.
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245 Park. SL Green just sold a slice at a valuation of $2.2 billion.
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B
There you go. And then 1290, of course, is tied in with 555 California with Vornado and the President. One thing you can't change about a
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building is location, location, location, location.
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B
You can change a lot, but you can't change that. And these locations are great. All you need is a little bit of inflection. You don't need to nail your business plan to hit your renewal in year four at the underwritten number. You need the vibe to change because
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A
the basis is so low. There's a lot of forgiveness built in.
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There's a lot of forgiveness built in.
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A
How did they finance this purchase?
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They assumed a bunch of the debt.
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A
A lot of suitors saw that as daunting. They said, oh my God, there's this mountain of debt. Paul Reichman realized that, hey, this is below market debt. Going rate at the time for debt was 12% and this was well below that. So he said, game on. Game on.
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B
He still has to come up with 50 million of equity in $1977 is adjusted for inflation is what, quarter billion today? It's real dough. However, as we mentioned in the previous episode, which you should go listen to, they have just hit a grand slam on First Canadian Place in Toronto and had a ton of appreciated equity in there. And so they did what would become their trademark, use that building as collateral to raise the equity to buy this portfolio.
[12:38]
A
This is one of the things I really have come to admire about the Reichmans and maybe serve them poorly down the road. But they've always looked at their projects as part of a giant holistic empire as opposed to a deal by deal situation. A lot of people now, they come in, they'll do a deal, they'll make money or not, and then they go on to the next one. The Reichmans are always moving the pieces around the board.
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B
It's something you think about a lot. Each deal has to work on its own, but you also have to think about how it fits into the whole. Right. If you have a lot of core type risk, that allows you to go further out the risk curve. The Reichmans at this point had Flemington park, which was cash flowing, first Canadian Place, which would be cash flowing a lot.
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A
They had a bunch of industrial properties,
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a bunch of industrials that were cash flowing too. And so that base let them go further out the extensible risk curve.
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A
It is extraordinary that everything they had done thus far was in Canada. This was their entry into the New York market. And they choose to enter with a 10 million square foot deal.
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Go big or go home. Seriously, I do wonder about the mechanics of this, because going cross border in 1977, how do you convert that much CAD into USD? Eddie Minskoff, come on the podcast and
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A
tell us, Eddie, you have an open invitation. Come by. National Kinney and Olympia New York agree in principle to a deal in 1976, but there are a lot of little details that still have to be figured out. National Kinney is a little bit shady about how their ground lease structure works. With one of their fee owners, it gets all messy. All told, in the end, this is eight buildings, about 10 million square feet, and the Reichmans pay 46 million in cash and they assume about 280 million in debt. So that per square foot price comes to $33 a square foot. This is the deal of the century.
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B
And rents were about half that. Yeah, think about it. They're buying it two times the grm, which I don't think you'd do that for office buildings, but still, it's staggering.
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A
It's amazing. So the deal closes on Friday, September 16, 1977. After closing the deal of his career, any career, really. Paul hustles back to the Waldorf to his suite to prep for Shabbos.
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B
Of course.
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This is former BMO chairman Bill Mulholland. As soon as I heard about the URIS deal, I told Paul that he'd make a billion Dollars. And he did. In fact, he made a bit more than that. By the late 80s, about 10 years on from this transaction, the Urus portfolio was valued in the $3 billion range.
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C
Pretty good.
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A
Pretty good. Sensational.
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B
When you're buying a portfolio like this, specifically at this time, you're not just buying assets, you're buying into the city. And that means you have to become a member of the ruling class. Is the wrong word.
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A
Not so much the wrong word. You're part of the political elite. You have to kiss the ring a little bit. You have to show face. And the Reichmans at this point, they didn't really do any of that. Deputy mayor at the time, Peter Solomon later said most people weren't schmucks about it. They'd at least call. These guys didn't do any of that. Eventually they smartened up a little bit. They hired John Zuccotti. You remember that name?
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B
Of course. I protested. We have a message.
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A
We have a Veter.
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B
No, I'm just kidding. I didn't purchase there.
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A
Zuccotti park fame, Occupy Wall Street. Longtime Brookfield executive. One of the highlights of his glittering career was he was a fixer for Paul Reichman for so long in New York.
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B
The definitional smoke filled room where things happen. And speaking of other consultants, I think let's just tie the bow here on Minskoff.
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A
Minskoff gets 1.5% of equity, which is very, very rare for the Reckmans to grant to anyone. The going rate is 10 million bucks, but the Reichmans let him borrow that entire amount. Just five years down the line, he sells that equity slice back to the Reichmans for 40 million bucks.
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B
What's the return on invested capital when you put in no money and you get $30 million back? We talked about them shedding their skin and reinventing themselves every couple of years on this way up. And this is really the big inflection point where they go from just rich guys from Canada to these are the guys.
[16:50]
A
And I think at this point, the difference between Albert and Paul really comes to the fore. So in Albert, you have a really competent, driven executive who's excellent, but in Paul, you have almost. So. Maradona was once described as a barilete, cosmico, Cosmic kite. And I think that's the perfect way to describe Paul Reichman as well. Just one of those absolute X factor guys. Someone like him can come in and just completely change the fortunes of a company. And this deal illustrates that better than anything else.
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B
Before I play professional baseball and people ask, oh, how good was everybody who's this that I'm like, I played with Francisco Lindor and everybody was there. So Francisco Lindor could have practice. If an alien came in and had never watched baseball before, and you asked him who's the best player on the team, you'd just be like, that guy? Yeah. And that's sort of Paul, in his case, is that everyone he dealt with is like, that's the guy. Like Lou Ranieri saying that.
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A
And at this point, the myth building that we've already talked about is taking more and more shape here. The secrecy, the reputation, the word is our bond philosophy that the Reichmans had. It really draws a lot of interest and attention. One of the other big themes that emerges is they're capitalizing on fear. They're able to go in and buy the fear. As you very lyrically put it, this
[18:14]
B
is the first time where it's really making a macro bet on this way. The other ones were sort of pretty discreet. The way to add value at Flamingen park, we know how to build this at First Canadian Place. And this was basically saying, we have the capital. We recognize the value of this debt. We are just taking a view. When you're doing these large transactions, you're not as much making discrete bets on discrete properties. They're not saying that 55 Water street is going to outperform. They're trying to express a view on New York through this deal.
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A
Are you saying, Will, that they're making a bet on secular tailwinds?
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B
Exactly. You want to be in sectors with secular tailwinds.
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A
The way they use their balance sheet is so interesting. They have a mature asset that then becomes a source of equity for the next nascent bet.
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B
It's a way to pyramid yourself further, really compound your net worth the fastest, because they're not putting in fresh equity for these things. It's all being reused. It's all super tax efficient. It allows you to keep all of the ownership. You need the balance sheet to get bigger and bigger and bigger to do these larger deals. They're not raising equity. They're not going to pension fund. They're not going to an insurance company. They're doing this themselves. And the way to do that is to be as capital efficient as possible. And so they've figured this out better than anybody else.
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A
New York City, 10 million square feet in the bag. But as a result of this portfolio, they kind of fall into development almost by accident. So as we talked about, there was some ground lease kerfuffle on two of the assets. Now, the fee owner combined that dirt with another property called 466 Lex and put the dirt under these three buildings up for grabs. So the Reichmans make a play for it again. They kick Sam LaFrac's ass on the way. They buy this property and then they decide, all right, we have this building and let's give it a shot. We know how to build. They built something really spectacular. It becomes what is now known today as 237 Park Avenue. So now they're builders in New York.
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B
They did the biggest deal in Canada, they bought the biggest deal in New York. And now they've done sort of an alpha development deal. What does Fergie the florist say in the town? I gave her a taste, put the hook into her.
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A
What Lion's content with just a little taste. It doesn't work like that. There's gotta be a feast. Which we'll get to right after this. Well, you've worn many hats in your glorious life so far. Pro baseball player, thespian, tornado remediation specialist. I want to ask which was your least favorite?
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B
The first two. Ugh, they were dreams. The third was a nightmare turning into a dream though. However, if you asked me a few months ago, I would have said Excel Monkey was my least favorite. Modeling out the dead tab was really, really annoying. Maturity dates, extension options, rate caps.
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A
Ugh.
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B
My spreadsheets were beautiful. But at what cost?
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A
Sounds like you had good roi. But your roi BD return on invested brain damage, not so good. So what changed?
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B
I discovered Loan Boss. All my loans live on one screen. No more. Let me just pull that up while I jazz hands a capital partner. And the extension option tracking with automatic notice reminders. I used to have a post it note on my monitor for that. A post it note?
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A
A 10 in this day and age?
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B
Don't. I'm not proud of it. But the one click DSCR testing every lender adjustment, every unique requirement. Automated oh my God.
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A
No more getting surprised by your own cap stack listeners. Check them out@loanboss.com that's loanboss.com and tell them the promote sent you. They have bought what is already turning into a home run transaction. But now they're going to do something even more daring, even more complicated. So Battery park is this unloved spit
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B
of land downtown that might even be generous.
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A
Apparently it's where the mafia used to dispose of their undesirables.
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B
That's so funny because I remember there's a line in the Sopranos where Tony talks about we need to get into Real estate, like those guys at tribeca,
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A
it's become a political shuttlecock of sorts. The state and the city, everyone wants to see this developed, but they don't really know what to do with it, and no one's really stepped up. The problem is that the state has already issued 200 million worth of bonds on this stretch of land.
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B
Not only have they issued these bonds, they have a massive payment that's due. $50 million. What do you do? You got to sell to a developer. Yeah.
[22:42]
A
So they put out these RFPs, and this is about 6 million square feet of buildable. This is absolutely massive. Right. One third of Hudson Yards for grabs right here. They're loading these things with tax abatements, which would mean the dirt's effectively free.
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B
But the thing is that they have this bond payment that's due. And so when you offer a site this big, practically no one's going to do it all at the same time. They're going to want to do it in phases. There's going to be paced land sales. So even if you agree to a huge headline number, you're not getting all that right away.
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A
But the only person who really understood the true lever of this deal seemed to be Paul Reichman.
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B
If I could pick one instance that showed the genius of this guy and how he was different than everybody else, I think this would be it.
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A
I agree.
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B
So you've got the best developers, not just in New York, but in the country, all gunning for this thing. Gerald Hines, Trammell Crow. And it's funny, we're saying the names of these companies, but it's the guys. When we say Hines, we don't mean, oh, Heinz, the company, the institutional asset.
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A
No, Jerry himself.
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B
No, Jerry Hines. When we say Tramble Crow, it's Trammel crowd.
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A
Such is the size of this opportunity and the promise it brings.
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B
They submit. It's like an entourage. When Vince is thinking about leaving Ari and he goes to every agency, they
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A
pull out all the stops. Yeah.
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B
Coca Cola, McDonald's. Yeah. And he goes and sees Ari last and like, he thinks it's going to be a personalized pitch or whatever. It's the same thing. And that's what all these developers did. They have these big, complicated plans.
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A
Also importantly, they all respond precisely to the RFP, which is looking to build one parcel. And then Mr. Paul Reichman comes in. He doesn't have any fancy proposals or intricate development plans. He walks in, reportedly with a single piece of paper.
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B
And that piece of paper, the bond repayment schedule.
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A
This guy, he meets with Richard Kahn, who's the director of the Battery Park City Authority. And he says I see that you have some bonds you need to repay. How about if we guarantee the payment on $50 million worth of them? Richard Kahn doesn't really react in the moment but he later tells Tony Biancho for that excellent book that has been the basis of so much of this, what I really wanted to do at that moment was to jump from my desk and kiss the man on both cheeks. And the other part of this will. Paul Reichman's not making a run at one of the parcels. He says he'll have all of it, 6 million square feet. He will take it all on and he's going to do it in half the time that the other developers have promised.
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B
This is in full flight. Every single thing here is on display what everyone else didn't see in the rfp, what their real motivation is because that's deal making. Anyone can go pay the biggest number. How do you make a deal? How do you figure out the other guys motivations?
[25:27]
A
You talk about career risk a lot. This is understanding how career risk works and how to manipulate it.
[25:33]
B
Absolutely. You know how the chairman of the Battery Park City Authority gets fired if they fucking default on the bonds.
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A
So they say they're going to take on this whole 6 million square feet. This is a transformative deal not only for the fortunes of the Reichmans in the real estate market because Urus non romantically that's buildings trading hands. This is transforming New York City itself. So it's a different level.
[25:59]
B
They're building a huge urban campus. They built a huge campus at Flemington Park. They built a huge office building in First Canadian Place. They know the Manhattan market from having bought the URS portfolio and redeveloped 237 Park. So all of these component pieces have come together that have allowed them to do this next thing and my God, do they do it.
[26:21]
A
A lot of local developers were obviously put out by this. My favorite is Sheldon Solo catching strays here. He's complaining in the papers about this deal. How can you let an out of towner take advantage of such an important tax abatement of such an important site? And Tony Bianco eviscerates the guy referring to Solo in the book as quote a second tier New York developer.
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B
What's the drill? Tweet. It's like I'm not mad. Don't put in the newspaper that I'm mad. It's Brookfield Place today. That's what this thing is. So it's 200 Liberty Street 225 Liberty Street 200 Vesey Street 250 Vesey street and of course, we cannot leave out the Winter Garden Atrium, which most famously features in the phenomenal Eddie Murphy movie Boomerang.
[27:09]
A
A while since I saw that one.
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B
Well, the secret is you got to coordinate about 8 million square feet, including the retail, and they do it in five years.
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A
And Battery Park City is not quite prime lore Manhattan, and they've got to convince people to make the jump over.
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B
Part of what made Battery Park City feasible is they had to extend the shoreline 700ft. So how do you do that? Because it's really expensive to haul dirt. Where does it come from?
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A
I don't know.
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B
Well, just across west street,
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A
They were
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B
building something called the World Trade Center.
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C
Oh.
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B
And so they did huge amount of excavation. And so the dirt and the fill that was used to extend the shoreline literally just went across the street and created Battery Park City.
[27:55]
A
Wow. Man, I love New York. So they go and have conversations with Amex and I thought you would love this. It's Paul Reichman and Sandy Weill going toe to toe.
[28:05]
B
Young Jamie Dimon's in there. Maybe, who knows?
[28:09]
A
Sandy Weill prides himself as being one of the world's alpha negotiators, but he hasn't ever met a guy like Paul Reichman. He'll just sit there and not say anything for 30 minutes and he'll force the other guy to blink. I don't know how to translate that. They have a lease deal in place which is announced to the world. And this is when the Reichman say, welcome to World Financial Center. Eventually, Amex ends up buying their own building.
[28:37]
B
Sort of what happens at Hudson yards, these projects. 10. You talk a lot about with condos that it's like an ipo. You need to organize everything, momentum, get the medium right and create momentum. It's a genius move where you figure out who are the tenants that we would want. Like amex, brand name, massive. Another genius at the helm. How do you get them? They're in their building, buy the building.
[28:59]
A
In this case, it was a couple hundred million dollars that they paid. But Amex is in the building. It is no longer a peripheral financial center. It is the financial center. Simple as that.
[29:07]
B
It's completely financeable. They get to a significant amount of leasing right away, which makes all these things feasible. Very, very successful project. On 12 out of 10, difficulty scale, everything. The creativity, the negotiating, the financial capacity to do this, the construction capacity, all of that's on display here.
[29:27]
A
The myth making is at its absolute peak as well.
[29:29]
B
What does the Globe and Mail say?
[29:30]
A
The Globe and Mail, which is Canada's paper of record, has a front page article about the Reichmans. And they say it is said that their business acumen is second to none. It is said that they are the smartest real estate people in the world. The Reichmans don't talk very much, or at least not publicly. So the secrecy has helped them become these inscrutable geniuses. The Reichmans were famously not very extravagant men, except in one regard, their philanthropy. At this point they have become by far the most important family in the ultra orthodox world. Both by the reputation and just the scale of their largesse.
[30:08]
B
This is all the gentile men starting to read the Talmud to try to figure out how these guys did this.
[30:15]
A
So by 1985, the prophecy is somewhat true. The Reichmans are the best real estate operators in the world. They are one of the richest families in the world and they have essentially unlimited capital. So what do you do when you're in that position?
[30:28]
B
It's time to aom gobble.
[30:30]
A
And we'll get to that right after this. Well, what if I told you insurance could become an asset instead of just an expense?
[30:49]
B
I'd say you're trying to sell me something, but also I'm interested.
[30:53]
A
Fair. Here's the Math. You spend 2 million on insurance annually. Loss ratio is well under 30% over five years. That's about 10 million out the door. Zero return.
[31:02]
B
Painful but accurate.
[31:04]
A
What if 7 million of that built up in reserves that you actually owned?
[31:07]
B
That's pretty interesting. Tell me more.
[31:09]
A
Real property captive Built specifically for scattered site gps. Top carriers issue policies for lender compliance. Reserves stay in your account and after a few clean years you're converting spend into equity.
[31:20]
B
I like this. Because that's what the big boys do.
[31:23]
A
Exactly. And now it's accessible for mid markets drivers like yourselves too. Check out the platform@rpcaptive.com that's rpcaptive.com and tell them the promote sent you. So far they've leveled up over and over again, but they've done it in their domain of expertise. At this level though, they're compelled to play different games and they get into the good old fashioned corporate rating.
[31:56]
B
You know what's really hard is building a building, finding a site, putting up a pg. And you know what seems like a lot more fun? Pressing a button.
[32:06]
A
I would love a little bit of a 101 on corporate rating and how it works.
[32:11]
B
Throughout the 70s we had really high inflation. What you ended up having were companies that had assets that were worth significantly more than what their stock price was. And so what that led to was a entire industry of buying these companies and then selling off the parts.
[32:28]
A
So this is the era of the Go Go M and a banker and hostile takeovers and all of that stuff.
[32:34]
B
Yeah, Concurrent with that is you had a new breed of financing, which was Michael Milken creating the real modern junk bond market with this highly confident letter, basically allowing anybody with a piece of paper to go take over a company with 100% or more LTV financing. And so you could borrow against the company's assets, sell them down to pay off the debt, and then you're left with nothing. The Reichman's benefited from inflation a lot because if you have debt and there's inflation, you're paying down the debt with
[33:02]
A
cheaper dollars, essentially paying back less money.
[33:05]
B
And they see, okay, well we've benefited in this way from inflation. Now we have unlimited capital to where we can go do the same thing. We are experts in this one domain and we can apply those same principles into other domains.
[33:19]
A
They're a little bit out of their depth. So they find an unlikely compatriot in another great Canadian family. The Bronfmans. Yes, the Seagram dynasty. The Bronfmans have this reputation as tough corporate raiders. And having the Reichmans, the esteem that they bring with them is a good counterweight for them. And then for the Reichmans, the Bronfmans are their guides on this wild and exciting journey. And in particular, one employee is a true character that we have to talk about. Jack Cockwell, South African. He is this pugnacious runtish man who's running all the deals. This tyrannical deal making machine that Paul Reichman finds to be very simpatico.
[34:03]
B
There's a lot of similarities between how Jack Cockwell set up the ED perhaps structure and how the Reichmans borrowed instead of their financing structures to keep moving forward. So they would pyramid these assets. And so Jack Cockwell famously would have a Russian nesting doll of entities.
[34:20]
A
You don't.
[34:21]
B
There's an entity 4up that has 1% holding but somehow controls the entire bottom co. And that might be familiar to those who have looked at the Brookfield Corporation today because he is the mastermind behind it and one of the co founders. They're really kindred spirits. So they just go on a spree. They buy Brinko in 1980, they buy a biddeb Price. I'm pronounced that incorrectly, but it's the world's largest Newsprint manufacturer. They buy Trilon with the Bronfmans, it's a big financial services company. And then they do the big one, which is Gulf Canada.
[34:54]
A
So that's the massive oil company at the Canadian subsidiary, right?
[34:57]
B
Yeah. They buy that for $2 billion. And it was controversial because they got a bunch of tax breaks. They tried to buy Hiram Walker, which is a liquor conglomerate. I think they own Canadian clubs of Dom Draper. Really big fan.
[35:07]
A
There's a lumber company that I think a broker pitched to Paul, and Paul just bought $280 million worth of shares on the spot.
[35:18]
B
Unbelievable. The commonality here is that a lot of these are cyclical commodity businesses, natural resources and that inflation play. You think these are things that fare well in that regime, but in a recession, all correlations go to one, and especially things like this. They're also cyclical and hugely capital intensive. Hindsight's 20 20. These are the smartest guys in the room and they have unlimited capital. And this for a while works.
[35:45]
A
You just said they're the smartest guys in the room, but everyone believes they're the smartest guys in the room. And maybe they believe it a little bit too strongly as well. Paul Reichman, fully expressed, is a magnificent creature and deal making machine, but also someone who more and more at this point is unable to hear dissent.
[36:05]
B
Who could blame him? It's really easy when you're feeling it to think you can do anything.
[36:10]
A
And the guy was feeling it for sure.
[36:12]
B
And I mean, has anyone ever felt it like this before?
[36:15]
A
Just to give you a sense of scale, the Reichmans and the Bronfmans are two of the nine families that collectively at this point own half the shares of Canada's answer to the Fortune 300.
[36:26]
B
Unbelievable. The important thing here, though, more so than any one individual deal, is that these things are draining cash. They are adding leverage. And probably most important of all is that they're distracting Paul from real estate. Yes, their portfolio in New York alone is 16 odd million square feet. That is a ton of asset management to do at this point. Paul had a goal, I think to raise $3 billion of debt, help fund Battery Park City. And they go everywhere. It's not just banks, it's not just insurance companies. They're getting us commercial paper, London corporate bonds, some insane Japanese denominated euro bond note issuance or something.
[37:05]
A
Every exotic financial instrument you can think of. If taste had been around then I'm sure the boys would have been on the taste as well.
[37:11]
B
100% to the point though about how they're getting spread a little bit thin is that you're starting to see the cracks a little bit. Asset management's really hard and especially here where a lot of these things are binary. If Amex leaves, that's a huge problem. Not only do you lose the rent, it is so expensive to refit these things both between CapEx, TI LC and so you're seeing across their portfolio, especially in Canada. I think First Canadian Place notoriously was poorly asset managed.
[37:39]
A
You're starting to see reports of tenants moving in early past rent not really being collected efficiently. So these are things that start to add up. And especially when you have an empire that's predicated on constant growth and momentum, you can't really afford to have slip ups like this.
[37:55]
B
When you're really pyramiding your debt in this way, you need the assets to still cash flow. And so when you're losing tenants because of asset management issues that cascades all the way down the road.
[38:09]
A
They understood the real estate game as well as anyone ever did. But when they were in this broader world of corporate raiding, the specific kind of glad handing that you need, they didn't really understand and they never really played that game properly. So even in those companies that they were buying pieces of, there were a lot of operational and management issues embedded within them that the Reichmans for once did not have the skill to recognize.
[38:31]
B
Yeah, indeed.
[38:32]
A
They were out of their depth in a sense.
[38:34]
B
And speaking of their depth, there's one last person we should talk about. One of my favorite characters, maybe just of all time, it's Bobby Campeau. He's the subject of a book called Going for broke. Seminal 80s tome that's criminally underrated. An Ottawa home builder cum developer cum retail magnate had money, maybe didn't have money and bought Allied Stores which was a massive retailer in 19 and then doubled down about Federated department stores in 1988. Basically all debt massively overpays for Federated. One of the bankers that he overpaid by $500 million. Wow. And goes completely sideways. Now how does this impact the Reichmans? They are major shareholders in Campo Corporation because he had eight office buildings of course in Canada that they were like oh well we know these really well, we have great collateral here, we'll back you. They lent him quarter billion dollars to rescue the retail secured by these office buildings. And most importantly they kept throwing good money after bad.
[39:44]
A
This is exactly it. Right. It was a real estate play initially, but what it turned into was beyond their skill set.
[39:51]
B
And they invested $700 million or more essentially try to like save these flailing department store acquisitions and Campo, of course, defaults. And so, just as they are taking on the biggest bet of them all, bigger than World Financial center, bigger than uris, they're starting to deal with all of these little things that are peeking up from underneath the surface. With all their success in World Financial center, delivering to acclaim both architecturally and financially, another big 80s figure peers across the pond and says, I might like one of those in an old dockland that I have in my major financial capital. The Iron lady herself, Maggie Thatcher. No one would remember the Good Samaritan if he'd only had good intentions. He had money as well.
[40:50]
A
And that brings us to July 1987. And that's where we're going to leave you for today with this headline, quiet man will make Canary sing. That's it for the promote podcast this week. We had initially planned to wrap up the tale, but then we decided we couldn't quite do it justice that way. Don't worry though. This isn't just an extend and pretend.
[41:18]
B
No, we're injecting significant capital into this to reposition the asset and set us up for strong future returns.
[41:25]
A
Thank you again to our sponsors, Bravo Capital. You can find them at bravocapital.com LoanBoss,
[41:30]
B
the best in class CRE debt management platform.
[41:32]
A
You can find them at loanboss.com and real property Captive. They're the first group captive insurance for mid market owners. Find them@rpcaptive.com I'm almost a little bit sad for the party to be done on this one. I've had such a blast doing it.
[41:44]
B
Me too. But as Coughlin said in Cocktail, everything ends badly. Otherwise it wouldn't end.
[41:52]
A
Until next time, man. Thank you.
[41:53]
B
Thank you.
[41:54]
A
Ciao.

Summary7 min read

The Promote Podcast
Episode: Apex Predators: The Reichmanns, Pt. II
Date: August 5, 2026
Host: Hiten Samtani
Co-Host: Will Krasne

Episode Overview

This episode is the dramatic continuation of the Reichmann family saga—developers behind Olympia & York. Picking up after their rise from wartime Europe and their Canadian proving ground, the episode delves into the Reichmanns' pivotal entry into the New York market, their legendary real estate bets, and their transformation from industry outsiders to skyscraper legends. The discussion pulls back the curtain on era-defining deals, risk-taking, and how the Reichmanns shaped the Manhattan skyline, culminating with their audacious move into Battery Park City and hints at the dawn of their Canary Wharf gamble.

Key Discussion Points & Insights

1. The New York Real Estate Chessboard (01:16 - 06:46)

Market Context: 1970s Manhattan, amid economic crisis—industry giants like the Urus family look to exit real estate.
The Urus portfolio (13M sqft, Manhattan's largest office landlord) comes up for sale after Percy Urus’s death.
Surging Risks: Fiscal instability, "Ford to City: Drop Dead" era, office exodus to the suburbs, and depreciation of Manhattan office demand.
- Quote: "The timing turns out to be a disaster." (A, 03:43)

2. Bidding Wars & The Outsider Perspective (06:46 - 10:53)

Early suitors (British Land, Trizec, Cadillac Fairview) back out due to market fears and inability to justify long-term bets.
Standout industry insight:
- Quote: "If you're too conscious of the pressure to show quarterly increases on your income statement, you don't take a chance on assets that may be lucrative in the long term but are problematic today." (Bernard Kurt quoted by A, 06:12)
LeFrak gets close, but ultimately, the “cowboys”—the Reichmanns—emerge from the wings.

3. The Reichmanns’ Manhattan Coup (10:53 - 15:47)

The Deal: The Reichmanns acquire 8 trophy buildings (10M sqft) for $33/sqft (total: $46M cash + $280M assumed debt).
- Notable assets: 245 Park, 1290 Avenue of the Americas, 2 Broadway, 55 Water, etc.
- Quote: “This is the deal of the century.” (A, 14:26)
Key Tactic: Carefully use Canadian assets (First Canadian Place) as collateral—viewing their empire holistically, not deal-by-deal.
- Quote: "They've always looked at their projects as part of a giant holistic empire as opposed to a deal by deal situation." (A, 12:37)
Minskoff’s consultant fee & equity: borrows $10M to get 1.5% equity slice; sells it back for $40M within five years—a huge return.

4. Joining the New York Power Club (15:47 - 17:26)

The Reichmanns’ outsider status: initially don’t “kiss the ring,” but learn to play the game, bringing in heavyweights like John Zuccotti as New York fixers.
The differentiation between Paul (the creative genius) and Albert (the disciplined operator) Reichmann shines.
- Quote: “Maradona was once described as a barilete cosmico… Just one of those absolute X factor guys.” (A, 16:50)

5. Macro Real Estate Bets & Myth-Making (17:26 - 19:25)

Demonstrated a philosophy of "buying fear"—betting on New York's cyclical resurgence rather than on short-term returns.
- Quote: "You're basically buying a call option on New York, which turned out to be one of the better bets." (B, 10:15)
Smart leverage: Assume below-market debt and use mature, cash-flowing assets to pyramid into new deals—capital efficiency at its best.

6. Accidental Developers & Entry into Construction (19:25 - 22:01)

A ground lease kerfuffle leads Reichmanns to their first NYC development: 237 Park Avenue—graduating them from landlords to builders.
- “They did the biggest deal in Canada, they bought the biggest deal in New York. And now they've done sort of an alpha development deal.” (B, 20:04)

7. Battery Park City Masterstroke (22:01 - 29:30)

The Challenge: Battery Park City—6M developable sqft, political hot potato, distressed bonds.
Paul Reichmann's genius: Instead of elaborate plans, he guarantees a $50M bond payment, offers to take the entire site and build it faster than anyone.
- Quote: “If I could pick one instance that showed the genius of this guy and how he was different than everybody else, I think this would be it.” (B, 23:18)
Construction logistics: Use fill from World Trade Center excavations to extend Battery Park shoreline.
Lands American Express as anchor tenant, transforming the site into the World Financial Center—what is today Brookfield Place.
- Quote: "It is no longer a peripheral financial center. It is the financial center. Simple as that." (A, 28:58)

8. The Ascent to Global Real Estate Royalty (29:30 - 31:20)

By mid-1980s, the Reichmanns are secretive, philanthropic, and among the world’s richest families; their Jewish philanthropic legacy matches their business mythos.
Quote: "It is said that their business acumen is second to none. It is said that they are the smartest real estate people in the world… The secrecy has helped them become these inscrutable geniuses." (A, 29:30)

9. From Real Estate to Corporate Raiding (31:20 - 38:08)

Partner with Bronfmans & Jack Cockwell—a deep dive into Canadian “pyramiding,” synthetic control via nested holding companies (foreshadowing Brookfield).
Buys into a slew of cyclical commodity businesses (paper, oil, newsprint); success breeds overconfidence and operational overstretch.
Quote: "The important thing here, though, more so than any one individual deal, is that these things are draining cash. They are adding leverage. And probably most important of all is that they're distracting Paul from real estate." (B, 36:25)

10. Cracks in the Empire: Asset Management & Bobby Campeau (38:08 - 40:49)

Asset management starts to slip; operational hiccups cascade through the pyramid.
The Bobby Campeau saga: The Reichmanns back him with $700M to save overleveraged department store acquisitions, only to see massive losses.
- Quote: "They kept throwing good money after bad… What it turned into was beyond their skill set." (A/B, 39:43-39:51)

11. Setting up for the Next Act (40:49 - End)

As their NY and global empire soars, Maggie Thatcher in London eyes them for the Canary Wharf project—setting the stage for an even bigger, riskier play.
Closing Quote: "Everything ends badly. Otherwise it wouldn't end." (B, 41:44)

Notable Quotes & Moments

"If you want to sell me anticipation, I'll give you anticipation money."
— Samuel LeFrak, illustrating a bygone era of bold personality (A quoting LeFrak, 09:38)
"Maradona was once described as a barilete cosmico… Just one of those absolute X factor guys."
— A, on Paul Reichmann (16:50)
"It's a way to pyramid yourself further, really compound your net worth the fastest, because they're not putting in fresh equity for these things."
— B, describing the Reichmans' capital efficiency (18:56)
"Anyone can go pay the biggest number. How do you make a deal? How do you figure out the other guy's motivations?"
— B, on true dealmaking (25:04)
"It is no longer a peripheral financial center. It is the financial center. Simple as that."
— A, on Battery Park City's transformation (28:58)
"Asset management's really hard and especially here where a lot of these things are binary. If Amex leaves, that's a huge problem."
— B, on operational weakness creeping in (37:10)

Timestamps for Key Segments

1970s Market & Urus Portfolio – 01:16 to 06:46
Canadian Bidders & Market Psychology – 06:46 to 10:53
Reichmanns’ Manhattan Entry & Deal Mechanics – 10:53 to 15:47
Political Connections & Power Brokering – 15:47 to 17:26
Macro Real Estate Betting & Empire Philosophy – 17:26 to 19:25
Becoming Developers: 237 Park – 19:25 to 22:01
Battery Park City Genius – 22:01 to 29:30
Reichmanns’ Philanthropy & Reputation – 29:30 to 31:20
Corporate Raiding Era – 31:20 to 38:08
Asset Management Cracks & Campeau – 38:08 to 40:49
Setup for Canary Wharf (Next Episode) – 40:49 to End

The Reichmann Playbook: Strategic Themes

Betting on Downturns: Willingness to “buy fear” and take macro bets on entire markets.
Portfolio as Ecosystem: Prioritizing the empire over individual assets—using leverage in one place to catapult into another.
Reluctant but Creative Developers: From landlords to builders, always seizing opportunity in adversity.
Myth-Making & Secrecy: Low-key personal style but outsized impact, cultivating an enigmatic legend.
Philanthropy as Prestige: Their philanthropy cements them as both market icons and cultural leaders.
Hubris & Overreach: Success in real estate breeds overconfidence, leading to risky forays and cracks in operational discipline.

For listeners and insiders, this episode delivers a masterclass in real estate dealmaking, risk, and the double-edged sword of scaling an empire both sky-high and far beyond its core. The conclusion hints at even bigger risks ahead, setting up the next chapter in this epic, true-life business saga.

Loading summary

Transcript209 lines

[00:06]
A
We continue our epic saga of the Reichmans, the family behind Olympia in York. At one point, one of the richest in the world and by far the most important real estate developer. If somehow you missed part one, hit pause on this guy and go listen to that first. The family history in Ascent is just as extraordinary as what's to come here. For the rest of you, we've taken you through the great European escape from Nazism, the post war adventures in Tangier.
[00:31]
B
Tangiers.
[00:32]
A
Tangiers. And the proving grounds of Montreal and Toronto. Now we're in America. So this is an episode primarily about two balls and risk. Gird your loins, plop your tums and let's go. Welcome back to the Promote podcast, your insider guide to the money and mania of the CRE markets. I'm Hatan Samtani.
[01:03]
B
And I'm Will Krasny.
[01:07]
A
Shout out to our sponsors, helping bring this episode to life. Bravo Capital, a leading HUD and bridge
[01:11]
B
lender, loan boss, the best in class, CRE debt management software. And also my son the other day
[01:17]
A
said loan boss and Real Property Captive, the first group captive insurance for mid market owners. The time for preamble and due diligence is over. Going non refundable. Manhattan, 1971. So we talk a lot about the great dynasties of New York. The LaFracs, the Tishmans, the Rudens. There's one name that's almost completely disappeared from the conversation. The Urus clan.
[01:47]
B
Indeed, they were unbelievably significant. They had 13 million square feet. They were Manhattan's largest office landlord.
[01:54]
A
At one point it was publicly traded. But in 1971, the thing that set all of this off, Percy passed. Harold is now looking to get out of this and he's looking for someone to do a take private of the Urus package.
[02:07]
B
He wants someone to step in, take it off his hands. Looking to cash out and do a DST into some triple net Arby's on the west coast.
[02:15]
A
The first couple of serious players that come in. One is British land. It's run by a bloke called John Rittblatt. Very smart property man, as they used to say. He comes up with a structure that takes advantage of some offshore tax benefits available in the uk and he puts out a number. He thinks the deal is going to be his, but he's pipped to the post, as they say.
[02:34]
B
Ooh, yeah, he is. And it's Steve Ross, but not that Steve Ross, the other Steve Ross.
[02:40]
A
So who is this other Steve Ross?
[02:42]
B
Best known as the Warner Steve Ross. So before David Zaslav. Before the Ellisons, there was Steve Ross. He married into a family that I think owned funeral homes in New York.
[02:54]
A
He realized that the hearse's off hours were just hanging around and he said, why don't we turn this into a limo rental service, turned that into a parking empire, merged that with something else. And then he was off to the races. And eventually he did the modern day equivalent of buying a sports team, which is he bought a movie studio. The pictures.
[03:12]
B
He's one of the rare guys who actually made money in the pictures. He lived enormously large. The penthouse in New York. All the guys would go stay with him. The place in Acapulco, I highly recommend. Master of the game. He has control of National Kinney, which is the parking operator in New York. So he's very focused on the city. And when this collection of buildings is on the market, he's interested.
[03:34]
A
It's like an additional vanity plate to tack on.
[03:36]
B
You're starting off with the grubbiest unsexiest industries. And then what's sexier at this point than being a major Manhattan landlord?
[03:44]
A
But the timing turns out to be a disaster.
[03:47]
B
Oh, awful.
[03:48]
A
This is the city's fiscal crisis in the mid-70s. The if you remember that infamous headline, Ford to city, drop dead in the Daily News.
[03:55]
B
You had Summer of Sam, shut that dog up.
[04:00]
C
Kill.
[04:02]
B
You had the Bronxes burning, obviously. A major fire in a large building in the South Bronx region of New York City. Panic at Needle Park.
[04:11]
A
Yes.
[04:11]
B
This whole era. My mom grew up in New York around this time and wasn't allowed to
[04:16]
A
go to the park. This fear about where things were headed was focused also on the New York real estate market. If you remember, Lou Rudin banded the landlords together to prepay property taxes during this time.
[04:27]
B
Can you imagine billionaires actually trying to do something for the city?
[04:30]
A
What a bygone era.
[04:32]
B
What's important to note too is that the tax base was hollowing out and a lot of people were moving their corporate offices to the suburbs. So New Jersey, Westchester, Long Island. And so what that meant is there's no demand for office space in New York and there's this huge glut of supply because the market had been so tight. And the families, the Dursts, the Tishmans, the Roots, all these folks had built a ton of buildings right as demand fell off a cliff. So that's the supply demand dynamic that our good friend Steve Ross is staring at after he's made this major purchase.
[05:02]
A
We always think about these non monetary aspects that can make or break deals. In this case, because of all this hoopla around his real estate holdings. It's the whole ship, the Warner Communications empire. This has become a burden that he needs to get rid of.
[05:16]
B
If you remember too, this was an era where the conglomerate was the big thing in the public stock market, where if you're good management, you can do anything. And so people did bloated, huge cost structure and really levered. And that's really what happened here.
[05:31]
A
He's looking to get out of this. And the people in New York are pretty strapped. But income in two Canadian players and their names will feature multiple times throughout the Reichman story. Trezik and Cadillac Fairview.
[05:46]
B
The 70s and 80s were really solid days for Canadian billionaires. A lot going on north of the border.
[05:52]
A
So Triza comes in, takes a look. One of their people said these were crappy buildings, but also they were mired in their own financial mess, so backed out. Cadillac Fairview thought these buildings had a lot of potential, but they thought at this point in time their shareholders would not go for it. Their dilemma perfectly illustrates what's going on with modern office REITs today. There's a great quote from one of their executives, Bernard Kurt. If you're too conscious of the pressure to show quarterly increases on your income statement, you don't take a chance on assets that may be lucrative in the long term but are problematic today.
[06:26]
B
That's exactly right. It's really what you see writ large across investment management, where so much of this is about cya. To be honest, the right thing to do is sometimes really hard to do. Really hard to do. Structurally, you've got basically every big pubco institutional group looking at this deal.
[06:46]
A
They can't sell this deal to their people.
[06:48]
B
They can't sell it. You couldn't sell it. But I can imagine everyone says this is cheap as hell.
[06:53]
A
The estimate was that replacement costs would be about $150 a foot. And this was asking roughly in the $30 a foot range. It really comes back to, are you good for the money? And two, can you sell it to. To whoever your stakeholders are? And on that latter condition, most of these bidders fell by the wayside. So that leaves our favorite group, the Cowboys.
[07:15]
B
One who got closest was Samuel LeFrac.
[07:19]
A
Yes. Real estate tycoon Samuel LeFrak. Now he already at this time owned about a 50,000 unit portfolio in the outer boroughs. And that's important.
[07:28]
B
Staggering.
[07:29]
A
Every outer borough kid wants to make a splash in Manhattan. He makes a play for it. He's in serious negotiations with Steve Ross and his team. But hovering in the distance through clouds of cigarette smoke was a certain Paul Reichman of Olympia, New York. And more on that right after this. Okay, I'm here with Aaron Krewitz from Bravo Capital. What are some of the elements of the business that you'd like to see come in or evolve in the next. Let's call it 12, 18 months.
[08:03]
C
We're optimizing for quality. And if that's what your goal is, your first question has to be how can I attract more quality borrowers? And of course, higher leverage, lower rate, speed of execution, scalability, those all matter. But if you ask a borrower today what do you want from your lender, they'll tell you, we want off market deals, equity. And I want to bring in teams that can do that. To not have a shoulder shrug when your borrower needs something. Right. And to not say, oh, sorry, like I can't do that. But to say, I will run through a wall for you and I'm going to find a solution.
[08:42]
A
Thank you, Aaron. And where can people find you?
[08:44]
C
People could find us@bravocapital.com.
[08:58]
A
I love that when they wanted to into New York, they hired Ed Minskoff.
[09:03]
B
It's just great.
[09:04]
A
Has anyone rocked a pair of suspenders better than Eddie? Oh God.
[09:07]
B
Sidney Pollock with no shirt though.
[09:10]
A
So they're looking to break into Manhattan. They make a play for one of the urus buildings called 1633 Broadway. This one Steve Ross has already defaulted on. The German lender goes elsewhere. But the Reichmans are hovering.
[09:22]
B
They are. And at this point too, lafrac is maybe over negotiating little bit. He's asked for a much decreased purchase price. In addition to that, he wants the lender to basically eat a bunch of payments and defer things years out. He thinks he's the only bidder or assumes he's in the deal.
[09:39]
A
Isn't this one of the cockiest quotes you've seen? I don't buy anticipation. He said, if you want to sell me anticipation, I'll give you anticipation money.
[09:46]
B
I miss the arrow. I wish John Gray would give quotes like that.
[09:49]
A
You just don't see that anymore. It's just risk adjusted returns for our shareholders and whatnot. But Steve Ross starts looking elsewhere. And Paul Reichman's bet here was an interesting one. The broader thesis here is just thesis of confidence in New York City more than this specific set of properties which were encumbered by long term below market leases. Paul said if we can just stick around long enough for this to all pass. We might have something.
[10:15]
B
Their view was, unless there's a permanent impairment of New York, his bet was that the land's worth more than this. And so we don't need a lot to go right to not lose money. Yeah, you're basically buying a call option on New York, which turned out to be one of the better bets. Let's just talk about what These buildings were. 55 Water Street, 2 Broadway, 100 Wall Street, 115 Broadway. 800 53rd Avenue. 1290 Avenue of the Americas. 245 Park.
[10:43]
A
Yeah.
[10:44]
B
And 10 East 53rd. And then 1301 Avenue of the Americas was Park. But then J.C. penney, who was a tenant, had a purchase option that they exercised.
[10:53]
A
These are trophy buildings in some of the best locations in the city. 245 park, for example, American Brands was paying $6 a square foot on a 13 year term, which was at the time one third of the market rent. There's not much you can do there, but if you can wait it out, the rewards on that other side are,
[11:13]
B
and these are enduring buildings.
[11:14]
A
245 Park. SL Green just sold a slice at a valuation of $2.2 billion.
[11:20]
B
There you go. And then 1290, of course, is tied in with 555 California with Vornado and the President. One thing you can't change about a
[11:27]
A
building is location, location, location, location.
[11:31]
B
You can change a lot, but you can't change that. And these locations are great. All you need is a little bit of inflection. You don't need to nail your business plan to hit your renewal in year four at the underwritten number. You need the vibe to change because
[11:47]
A
the basis is so low. There's a lot of forgiveness built in.
[11:50]
B
There's a lot of forgiveness built in.
[11:51]
A
How did they finance this purchase?
[11:53]
B
They assumed a bunch of the debt.
[11:55]
A
A lot of suitors saw that as daunting. They said, oh my God, there's this mountain of debt. Paul Reichman realized that, hey, this is below market debt. Going rate at the time for debt was 12% and this was well below that. So he said, game on. Game on.
[12:09]
B
He still has to come up with 50 million of equity in $1977 is adjusted for inflation is what, quarter billion today? It's real dough. However, as we mentioned in the previous episode, which you should go listen to, they have just hit a grand slam on First Canadian Place in Toronto and had a ton of appreciated equity in there. And so they did what would become their trademark, use that building as collateral to raise the equity to buy this portfolio.
[12:38]
A
This is one of the things I really have come to admire about the Reichmans and maybe serve them poorly down the road. But they've always looked at their projects as part of a giant holistic empire as opposed to a deal by deal situation. A lot of people now, they come in, they'll do a deal, they'll make money or not, and then they go on to the next one. The Reichmans are always moving the pieces around the board.
[13:01]
B
It's something you think about a lot. Each deal has to work on its own, but you also have to think about how it fits into the whole. Right. If you have a lot of core type risk, that allows you to go further out the risk curve. The Reichmans at this point had Flemington park, which was cash flowing, first Canadian Place, which would be cash flowing a lot.
[13:20]
A
They had a bunch of industrial properties,
[13:22]
B
a bunch of industrials that were cash flowing too. And so that base let them go further out the extensible risk curve.
[13:28]
A
It is extraordinary that everything they had done thus far was in Canada. This was their entry into the New York market. And they choose to enter with a 10 million square foot deal.
[13:39]
B
Go big or go home. Seriously, I do wonder about the mechanics of this, because going cross border in 1977, how do you convert that much CAD into USD? Eddie Minskoff, come on the podcast and
[13:51]
A
tell us, Eddie, you have an open invitation. Come by. National Kinney and Olympia New York agree in principle to a deal in 1976, but there are a lot of little details that still have to be figured out. National Kinney is a little bit shady about how their ground lease structure works. With one of their fee owners, it gets all messy. All told, in the end, this is eight buildings, about 10 million square feet, and the Reichmans pay 46 million in cash and they assume about 280 million in debt. So that per square foot price comes to $33 a square foot. This is the deal of the century.
[14:29]
B
And rents were about half that. Yeah, think about it. They're buying it two times the grm, which I don't think you'd do that for office buildings, but still, it's staggering.
[14:38]
A
It's amazing. So the deal closes on Friday, September 16, 1977. After closing the deal of his career, any career, really. Paul hustles back to the Waldorf to his suite to prep for Shabbos.
[14:50]
B
Of course.
[14:53]
A
This is former BMO chairman Bill Mulholland. As soon as I heard about the URIS deal, I told Paul that he'd make a billion Dollars. And he did. In fact, he made a bit more than that. By the late 80s, about 10 years on from this transaction, the Urus portfolio was valued in the $3 billion range.
[15:12]
C
Pretty good.
[15:12]
A
Pretty good. Sensational.
[15:15]
B
When you're buying a portfolio like this, specifically at this time, you're not just buying assets, you're buying into the city. And that means you have to become a member of the ruling class. Is the wrong word.
[15:26]
A
Not so much the wrong word. You're part of the political elite. You have to kiss the ring a little bit. You have to show face. And the Reichmans at this point, they didn't really do any of that. Deputy mayor at the time, Peter Solomon later said most people weren't schmucks about it. They'd at least call. These guys didn't do any of that. Eventually they smartened up a little bit. They hired John Zuccotti. You remember that name?
[15:48]
B
Of course. I protested. We have a message.
[15:53]
A
We have a Veter.
[15:57]
B
No, I'm just kidding. I didn't purchase there.
[15:59]
A
Zuccotti park fame, Occupy Wall Street. Longtime Brookfield executive. One of the highlights of his glittering career was he was a fixer for Paul Reichman for so long in New York.
[16:08]
B
The definitional smoke filled room where things happen. And speaking of other consultants, I think let's just tie the bow here on Minskoff.
[16:16]
A
Minskoff gets 1.5% of equity, which is very, very rare for the Reckmans to grant to anyone. The going rate is 10 million bucks, but the Reichmans let him borrow that entire amount. Just five years down the line, he sells that equity slice back to the Reichmans for 40 million bucks.
[16:32]
B
What's the return on invested capital when you put in no money and you get $30 million back? We talked about them shedding their skin and reinventing themselves every couple of years on this way up. And this is really the big inflection point where they go from just rich guys from Canada to these are the guys.
[16:50]
A
And I think at this point, the difference between Albert and Paul really comes to the fore. So in Albert, you have a really competent, driven executive who's excellent, but in Paul, you have almost. So. Maradona was once described as a barilete, cosmico, Cosmic kite. And I think that's the perfect way to describe Paul Reichman as well. Just one of those absolute X factor guys. Someone like him can come in and just completely change the fortunes of a company. And this deal illustrates that better than anything else.
[17:26]
B
Before I play professional baseball and people ask, oh, how good was everybody who's this that I'm like, I played with Francisco Lindor and everybody was there. So Francisco Lindor could have practice. If an alien came in and had never watched baseball before, and you asked him who's the best player on the team, you'd just be like, that guy? Yeah. And that's sort of Paul, in his case, is that everyone he dealt with is like, that's the guy. Like Lou Ranieri saying that.
[17:52]
A
And at this point, the myth building that we've already talked about is taking more and more shape here. The secrecy, the reputation, the word is our bond philosophy that the Reichmans had. It really draws a lot of interest and attention. One of the other big themes that emerges is they're capitalizing on fear. They're able to go in and buy the fear. As you very lyrically put it, this
[18:14]
B
is the first time where it's really making a macro bet on this way. The other ones were sort of pretty discreet. The way to add value at Flamingen park, we know how to build this at First Canadian Place. And this was basically saying, we have the capital. We recognize the value of this debt. We are just taking a view. When you're doing these large transactions, you're not as much making discrete bets on discrete properties. They're not saying that 55 Water street is going to outperform. They're trying to express a view on New York through this deal.
[18:42]
A
Are you saying, Will, that they're making a bet on secular tailwinds?
[18:45]
B
Exactly. You want to be in sectors with secular tailwinds.
[18:48]
A
The way they use their balance sheet is so interesting. They have a mature asset that then becomes a source of equity for the next nascent bet.
[18:56]
B
It's a way to pyramid yourself further, really compound your net worth the fastest, because they're not putting in fresh equity for these things. It's all being reused. It's all super tax efficient. It allows you to keep all of the ownership. You need the balance sheet to get bigger and bigger and bigger to do these larger deals. They're not raising equity. They're not going to pension fund. They're not going to an insurance company. They're doing this themselves. And the way to do that is to be as capital efficient as possible. And so they've figured this out better than anybody else.
[19:26]
A
New York City, 10 million square feet in the bag. But as a result of this portfolio, they kind of fall into development almost by accident. So as we talked about, there was some ground lease kerfuffle on two of the assets. Now, the fee owner combined that dirt with another property called 466 Lex and put the dirt under these three buildings up for grabs. So the Reichmans make a play for it again. They kick Sam LaFrac's ass on the way. They buy this property and then they decide, all right, we have this building and let's give it a shot. We know how to build. They built something really spectacular. It becomes what is now known today as 237 Park Avenue. So now they're builders in New York.
[20:04]
B
They did the biggest deal in Canada, they bought the biggest deal in New York. And now they've done sort of an alpha development deal. What does Fergie the florist say in the town? I gave her a taste, put the hook into her.
[20:19]
A
What Lion's content with just a little taste. It doesn't work like that. There's gotta be a feast. Which we'll get to right after this. Well, you've worn many hats in your glorious life so far. Pro baseball player, thespian, tornado remediation specialist. I want to ask which was your least favorite?
[20:40]
B
The first two. Ugh, they were dreams. The third was a nightmare turning into a dream though. However, if you asked me a few months ago, I would have said Excel Monkey was my least favorite. Modeling out the dead tab was really, really annoying. Maturity dates, extension options, rate caps.
[20:56]
A
Ugh.
[20:58]
B
My spreadsheets were beautiful. But at what cost?
[21:01]
A
Sounds like you had good roi. But your roi BD return on invested brain damage, not so good. So what changed?
[21:07]
B
I discovered Loan Boss. All my loans live on one screen. No more. Let me just pull that up while I jazz hands a capital partner. And the extension option tracking with automatic notice reminders. I used to have a post it note on my monitor for that. A post it note?
[21:21]
A
A 10 in this day and age?
[21:22]
B
Don't. I'm not proud of it. But the one click DSCR testing every lender adjustment, every unique requirement. Automated oh my God.
[21:31]
A
No more getting surprised by your own cap stack listeners. Check them out@loanboss.com that's loanboss.com and tell them the promote sent you. They have bought what is already turning into a home run transaction. But now they're going to do something even more daring, even more complicated. So Battery park is this unloved spit
[22:01]
B
of land downtown that might even be generous.
[22:06]
A
Apparently it's where the mafia used to dispose of their undesirables.
[22:10]
B
That's so funny because I remember there's a line in the Sopranos where Tony talks about we need to get into Real estate, like those guys at tribeca,
[22:16]
A
it's become a political shuttlecock of sorts. The state and the city, everyone wants to see this developed, but they don't really know what to do with it, and no one's really stepped up. The problem is that the state has already issued 200 million worth of bonds on this stretch of land.
[22:32]
B
Not only have they issued these bonds, they have a massive payment that's due. $50 million. What do you do? You got to sell to a developer. Yeah.
[22:42]
A
So they put out these RFPs, and this is about 6 million square feet of buildable. This is absolutely massive. Right. One third of Hudson Yards for grabs right here. They're loading these things with tax abatements, which would mean the dirt's effectively free.
[22:56]
B
But the thing is that they have this bond payment that's due. And so when you offer a site this big, practically no one's going to do it all at the same time. They're going to want to do it in phases. There's going to be paced land sales. So even if you agree to a huge headline number, you're not getting all that right away.
[23:12]
A
But the only person who really understood the true lever of this deal seemed to be Paul Reichman.
[23:19]
B
If I could pick one instance that showed the genius of this guy and how he was different than everybody else, I think this would be it.
[23:26]
A
I agree.
[23:26]
B
So you've got the best developers, not just in New York, but in the country, all gunning for this thing. Gerald Hines, Trammell Crow. And it's funny, we're saying the names of these companies, but it's the guys. When we say Hines, we don't mean, oh, Heinz, the company, the institutional asset.
[23:40]
A
No, Jerry himself.
[23:41]
B
No, Jerry Hines. When we say Tramble Crow, it's Trammel crowd.
[23:44]
A
Such is the size of this opportunity and the promise it brings.
[23:47]
B
They submit. It's like an entourage. When Vince is thinking about leaving Ari and he goes to every agency, they
[23:54]
A
pull out all the stops. Yeah.
[23:55]
B
Coca Cola, McDonald's. Yeah. And he goes and sees Ari last and like, he thinks it's going to be a personalized pitch or whatever. It's the same thing. And that's what all these developers did. They have these big, complicated plans.
[24:07]
A
Also importantly, they all respond precisely to the RFP, which is looking to build one parcel. And then Mr. Paul Reichman comes in. He doesn't have any fancy proposals or intricate development plans. He walks in, reportedly with a single piece of paper.
[24:22]
B
And that piece of paper, the bond repayment schedule.
[24:25]
A
This guy, he meets with Richard Kahn, who's the director of the Battery Park City Authority. And he says I see that you have some bonds you need to repay. How about if we guarantee the payment on $50 million worth of them? Richard Kahn doesn't really react in the moment but he later tells Tony Biancho for that excellent book that has been the basis of so much of this, what I really wanted to do at that moment was to jump from my desk and kiss the man on both cheeks. And the other part of this will. Paul Reichman's not making a run at one of the parcels. He says he'll have all of it, 6 million square feet. He will take it all on and he's going to do it in half the time that the other developers have promised.
[25:04]
B
This is in full flight. Every single thing here is on display what everyone else didn't see in the rfp, what their real motivation is because that's deal making. Anyone can go pay the biggest number. How do you make a deal? How do you figure out the other guys motivations?
[25:27]
A
You talk about career risk a lot. This is understanding how career risk works and how to manipulate it.
[25:33]
B
Absolutely. You know how the chairman of the Battery Park City Authority gets fired if they fucking default on the bonds.
[25:41]
A
So they say they're going to take on this whole 6 million square feet. This is a transformative deal not only for the fortunes of the Reichmans in the real estate market because Urus non romantically that's buildings trading hands. This is transforming New York City itself. So it's a different level.
[25:59]
B
They're building a huge urban campus. They built a huge campus at Flemington Park. They built a huge office building in First Canadian Place. They know the Manhattan market from having bought the URS portfolio and redeveloped 237 Park. So all of these component pieces have come together that have allowed them to do this next thing and my God, do they do it.
[26:21]
A
A lot of local developers were obviously put out by this. My favorite is Sheldon Solo catching strays here. He's complaining in the papers about this deal. How can you let an out of towner take advantage of such an important tax abatement of such an important site? And Tony Bianco eviscerates the guy referring to Solo in the book as quote a second tier New York developer.
[26:40]
B
What's the drill? Tweet. It's like I'm not mad. Don't put in the newspaper that I'm mad. It's Brookfield Place today. That's what this thing is. So it's 200 Liberty Street 225 Liberty Street 200 Vesey Street 250 Vesey street and of course, we cannot leave out the Winter Garden Atrium, which most famously features in the phenomenal Eddie Murphy movie Boomerang.
[27:09]
A
A while since I saw that one.
[27:10]
B
Well, the secret is you got to coordinate about 8 million square feet, including the retail, and they do it in five years.
[27:17]
A
And Battery Park City is not quite prime lore Manhattan, and they've got to convince people to make the jump over.
[27:24]
B
Part of what made Battery Park City feasible is they had to extend the shoreline 700ft. So how do you do that? Because it's really expensive to haul dirt. Where does it come from?
[27:34]
A
I don't know.
[27:35]
B
Well, just across west street,
[27:42]
A
They were
[27:42]
B
building something called the World Trade Center.
[27:44]
C
Oh.
[27:45]
B
And so they did huge amount of excavation. And so the dirt and the fill that was used to extend the shoreline literally just went across the street and created Battery Park City.
[27:55]
A
Wow. Man, I love New York. So they go and have conversations with Amex and I thought you would love this. It's Paul Reichman and Sandy Weill going toe to toe.
[28:05]
B
Young Jamie Dimon's in there. Maybe, who knows?
[28:09]
A
Sandy Weill prides himself as being one of the world's alpha negotiators, but he hasn't ever met a guy like Paul Reichman. He'll just sit there and not say anything for 30 minutes and he'll force the other guy to blink. I don't know how to translate that. They have a lease deal in place which is announced to the world. And this is when the Reichman say, welcome to World Financial Center. Eventually, Amex ends up buying their own building.
[28:37]
B
Sort of what happens at Hudson yards, these projects. 10. You talk a lot about with condos that it's like an ipo. You need to organize everything, momentum, get the medium right and create momentum. It's a genius move where you figure out who are the tenants that we would want. Like amex, brand name, massive. Another genius at the helm. How do you get them? They're in their building, buy the building.
[28:59]
A
In this case, it was a couple hundred million dollars that they paid. But Amex is in the building. It is no longer a peripheral financial center. It is the financial center. Simple as that.
[29:07]
B
It's completely financeable. They get to a significant amount of leasing right away, which makes all these things feasible. Very, very successful project. On 12 out of 10, difficulty scale, everything. The creativity, the negotiating, the financial capacity to do this, the construction capacity, all of that's on display here.
[29:27]
A
The myth making is at its absolute peak as well.
[29:29]
B
What does the Globe and Mail say?
[29:30]
A
The Globe and Mail, which is Canada's paper of record, has a front page article about the Reichmans. And they say it is said that their business acumen is second to none. It is said that they are the smartest real estate people in the world. The Reichmans don't talk very much, or at least not publicly. So the secrecy has helped them become these inscrutable geniuses. The Reichmans were famously not very extravagant men, except in one regard, their philanthropy. At this point they have become by far the most important family in the ultra orthodox world. Both by the reputation and just the scale of their largesse.
[30:08]
B
This is all the gentile men starting to read the Talmud to try to figure out how these guys did this.
[30:15]
A
So by 1985, the prophecy is somewhat true. The Reichmans are the best real estate operators in the world. They are one of the richest families in the world and they have essentially unlimited capital. So what do you do when you're in that position?
[30:28]
B
It's time to aom gobble.
[30:30]
A
And we'll get to that right after this. Well, what if I told you insurance could become an asset instead of just an expense?
[30:49]
B
I'd say you're trying to sell me something, but also I'm interested.
[30:53]
A
Fair. Here's the Math. You spend 2 million on insurance annually. Loss ratio is well under 30% over five years. That's about 10 million out the door. Zero return.
[31:02]
B
Painful but accurate.
[31:04]
A
What if 7 million of that built up in reserves that you actually owned?
[31:07]
B
That's pretty interesting. Tell me more.
[31:09]
A
Real property captive Built specifically for scattered site gps. Top carriers issue policies for lender compliance. Reserves stay in your account and after a few clean years you're converting spend into equity.
[31:20]
B
I like this. Because that's what the big boys do.
[31:23]
A
Exactly. And now it's accessible for mid markets drivers like yourselves too. Check out the platform@rpcaptive.com that's rpcaptive.com and tell them the promote sent you. So far they've leveled up over and over again, but they've done it in their domain of expertise. At this level though, they're compelled to play different games and they get into the good old fashioned corporate rating.
[31:56]
B
You know what's really hard is building a building, finding a site, putting up a pg. And you know what seems like a lot more fun? Pressing a button.
[32:06]
A
I would love a little bit of a 101 on corporate rating and how it works.
[32:11]
B
Throughout the 70s we had really high inflation. What you ended up having were companies that had assets that were worth significantly more than what their stock price was. And so what that led to was a entire industry of buying these companies and then selling off the parts.
[32:28]
A
So this is the era of the Go Go M and a banker and hostile takeovers and all of that stuff.
[32:34]
B
Yeah, Concurrent with that is you had a new breed of financing, which was Michael Milken creating the real modern junk bond market with this highly confident letter, basically allowing anybody with a piece of paper to go take over a company with 100% or more LTV financing. And so you could borrow against the company's assets, sell them down to pay off the debt, and then you're left with nothing. The Reichman's benefited from inflation a lot because if you have debt and there's inflation, you're paying down the debt with
[33:02]
A
cheaper dollars, essentially paying back less money.
[33:05]
B
And they see, okay, well we've benefited in this way from inflation. Now we have unlimited capital to where we can go do the same thing. We are experts in this one domain and we can apply those same principles into other domains.
[33:19]
A
They're a little bit out of their depth. So they find an unlikely compatriot in another great Canadian family. The Bronfmans. Yes, the Seagram dynasty. The Bronfmans have this reputation as tough corporate raiders. And having the Reichmans, the esteem that they bring with them is a good counterweight for them. And then for the Reichmans, the Bronfmans are their guides on this wild and exciting journey. And in particular, one employee is a true character that we have to talk about. Jack Cockwell, South African. He is this pugnacious runtish man who's running all the deals. This tyrannical deal making machine that Paul Reichman finds to be very simpatico.
[34:03]
B
There's a lot of similarities between how Jack Cockwell set up the ED perhaps structure and how the Reichmans borrowed instead of their financing structures to keep moving forward. So they would pyramid these assets. And so Jack Cockwell famously would have a Russian nesting doll of entities.
[34:20]
A
You don't.
[34:21]
B
There's an entity 4up that has 1% holding but somehow controls the entire bottom co. And that might be familiar to those who have looked at the Brookfield Corporation today because he is the mastermind behind it and one of the co founders. They're really kindred spirits. So they just go on a spree. They buy Brinko in 1980, they buy a biddeb Price. I'm pronounced that incorrectly, but it's the world's largest Newsprint manufacturer. They buy Trilon with the Bronfmans, it's a big financial services company. And then they do the big one, which is Gulf Canada.
[34:54]
A
So that's the massive oil company at the Canadian subsidiary, right?
[34:57]
B
Yeah. They buy that for $2 billion. And it was controversial because they got a bunch of tax breaks. They tried to buy Hiram Walker, which is a liquor conglomerate. I think they own Canadian clubs of Dom Draper. Really big fan.
[35:07]
A
There's a lumber company that I think a broker pitched to Paul, and Paul just bought $280 million worth of shares on the spot.
[35:18]
B
Unbelievable. The commonality here is that a lot of these are cyclical commodity businesses, natural resources and that inflation play. You think these are things that fare well in that regime, but in a recession, all correlations go to one, and especially things like this. They're also cyclical and hugely capital intensive. Hindsight's 20 20. These are the smartest guys in the room and they have unlimited capital. And this for a while works.
[35:45]
A
You just said they're the smartest guys in the room, but everyone believes they're the smartest guys in the room. And maybe they believe it a little bit too strongly as well. Paul Reichman, fully expressed, is a magnificent creature and deal making machine, but also someone who more and more at this point is unable to hear dissent.
[36:05]
B
Who could blame him? It's really easy when you're feeling it to think you can do anything.
[36:10]
A
And the guy was feeling it for sure.
[36:12]
B
And I mean, has anyone ever felt it like this before?
[36:15]
A
Just to give you a sense of scale, the Reichmans and the Bronfmans are two of the nine families that collectively at this point own half the shares of Canada's answer to the Fortune 300.
[36:26]
B
Unbelievable. The important thing here, though, more so than any one individual deal, is that these things are draining cash. They are adding leverage. And probably most important of all is that they're distracting Paul from real estate. Yes, their portfolio in New York alone is 16 odd million square feet. That is a ton of asset management to do at this point. Paul had a goal, I think to raise $3 billion of debt, help fund Battery Park City. And they go everywhere. It's not just banks, it's not just insurance companies. They're getting us commercial paper, London corporate bonds, some insane Japanese denominated euro bond note issuance or something.
[37:05]
A
Every exotic financial instrument you can think of. If taste had been around then I'm sure the boys would have been on the taste as well.
[37:11]
B
100% to the point though about how they're getting spread a little bit thin is that you're starting to see the cracks a little bit. Asset management's really hard and especially here where a lot of these things are binary. If Amex leaves, that's a huge problem. Not only do you lose the rent, it is so expensive to refit these things both between CapEx, TI LC and so you're seeing across their portfolio, especially in Canada. I think First Canadian Place notoriously was poorly asset managed.
[37:39]
A
You're starting to see reports of tenants moving in early past rent not really being collected efficiently. So these are things that start to add up. And especially when you have an empire that's predicated on constant growth and momentum, you can't really afford to have slip ups like this.
[37:55]
B
When you're really pyramiding your debt in this way, you need the assets to still cash flow. And so when you're losing tenants because of asset management issues that cascades all the way down the road.
[38:09]
A
They understood the real estate game as well as anyone ever did. But when they were in this broader world of corporate raiding, the specific kind of glad handing that you need, they didn't really understand and they never really played that game properly. So even in those companies that they were buying pieces of, there were a lot of operational and management issues embedded within them that the Reichmans for once did not have the skill to recognize.
[38:31]
B
Yeah, indeed.
[38:32]
A
They were out of their depth in a sense.
[38:34]
B
And speaking of their depth, there's one last person we should talk about. One of my favorite characters, maybe just of all time, it's Bobby Campeau. He's the subject of a book called Going for broke. Seminal 80s tome that's criminally underrated. An Ottawa home builder cum developer cum retail magnate had money, maybe didn't have money and bought Allied Stores which was a massive retailer in 19 and then doubled down about Federated department stores in 1988. Basically all debt massively overpays for Federated. One of the bankers that he overpaid by $500 million. Wow. And goes completely sideways. Now how does this impact the Reichmans? They are major shareholders in Campo Corporation because he had eight office buildings of course in Canada that they were like oh well we know these really well, we have great collateral here, we'll back you. They lent him quarter billion dollars to rescue the retail secured by these office buildings. And most importantly they kept throwing good money after bad.
[39:44]
A
This is exactly it. Right. It was a real estate play initially, but what it turned into was beyond their skill set.
[39:51]
B
And they invested $700 million or more essentially try to like save these flailing department store acquisitions and Campo, of course, defaults. And so, just as they are taking on the biggest bet of them all, bigger than World Financial center, bigger than uris, they're starting to deal with all of these little things that are peeking up from underneath the surface. With all their success in World Financial center, delivering to acclaim both architecturally and financially, another big 80s figure peers across the pond and says, I might like one of those in an old dockland that I have in my major financial capital. The Iron lady herself, Maggie Thatcher. No one would remember the Good Samaritan if he'd only had good intentions. He had money as well.
[40:50]
A
And that brings us to July 1987. And that's where we're going to leave you for today with this headline, quiet man will make Canary sing. That's it for the promote podcast this week. We had initially planned to wrap up the tale, but then we decided we couldn't quite do it justice that way. Don't worry though. This isn't just an extend and pretend.
[41:18]
B
No, we're injecting significant capital into this to reposition the asset and set us up for strong future returns.
[41:25]
A
Thank you again to our sponsors, Bravo Capital. You can find them at bravocapital.com LoanBoss,
[41:30]
B
the best in class CRE debt management platform.
[41:32]
A
You can find them at loanboss.com and real property Captive. They're the first group captive insurance for mid market owners. Find them@rpcaptive.com I'm almost a little bit sad for the party to be done on this one. I've had such a blast doing it.
[41:44]
B
Me too. But as Coughlin said in Cocktail, everything ends badly. Otherwise it wouldn't end.
[41:52]
A
Until next time, man. Thank you.
[41:53]
B
Thank you.
[41:54]
A
Ciao.