A (2:32)

Was a very, very smart move. They cashed out a bit, but they stuck around.

B (2:36)

Yes, they did. And they're about to cash out quite a bit more.

A (2:39)

So we're talking of 5x in nine years?

B (2:42)

Pretty much, yeah. And that's obviously not counting, like, the interim cash flow. They made any refinancings that occurred over that period, and then whatever capital they put in to buy more stuff. And on the refinancings, one thing I think is really interesting that you highlighted is when they did the $2 billion transaction, there was a $1 billion Fannie loan.

A (3:00)

Right. The agency was involved here. And I think we didn't want to just talk about this deal because of the number, the headline number, which is obviously massive.

B (3:06)

Yeah, we're not. This isn't the deal of the week podcast. It's more emblematic of where large institutional investing is going now that the landscape of commercial real estate has shifted so much over the past five years.

A (3:17)

Right. You need to be putting money to work at SC at serious scale. And it's hard to do, as you've talked about before in office. You can't throw $5 billion into the office market as easily anymore.

B (3:26)

Well, RXR is trying.

A (3:28)

RXR is trying. We're going to talk about that in a bit. But now you've got data centers that have become the darling of the institutional space. And then there's also this true alternative asset investing. Right. You're putting together asset classes that were not necessarily institutional darlings before, and you're putting this institutional cloak on them and thereby they get a lot richer.

B (3:48)

Right. And this is sort of the history of the modern commercial real estate industry is that every single asset class and property type that is now considered institutional wasn't at one point, you can go find articles about when Sam Zell was putting together what became eqr. And Barry Sternlich talks about this in his origin story. We're buying apartments at a 10 cap because people don't want to buy apartments, they only want malls.

A (4:11)

This is after, like the savings and loan crisis and all that.

B (4:13)

Yeah. Then apartments become institutionalized, then office becomes institutionalized.

A (4:18)

Speaking of Zelle, our boy went and bought a bunch of mobile home communities. And that REIT, I think it's called Equity Lifestyle, is now a $12 billion. Yeah, $12 billion vehicle.

B (4:28)

Well, first of all, I think it would have been his 84th birthday today. So RIP to one of the goats. He was very early in this space. And people like it because it's sticky. Tenants, it's often more expensive to move homes than it is just like to wear the rent increase because generally speaking, people own the home and rent the lot.

A (4:46)

You could either rent the home or, or you can own your home and then still rent the land. That's typically the way it's structured.

B (4:52)

Yeah, the latter is a great, great business because you are just selling the land. It's a lot easier. And then it's also, again, really sticky because it's really expensive to unhitch the trailer and move it. This was not considered an institutional asset class just because it's not sexy. It's operationally intensive. These aren't sitting on 57th and 5th.

A (5:13)

I was contrasting this to the other $10 billion deal that we've talked about recently, which is Blackstone and Air Communities. Big multifamily plays well. However, there the difference was like a locations generally top tier assets. This is kind of Midwest, Southeast, the heartland of America, let's say. And it's more of an affordable housing play.

B (5:32)

And it's just emblematic of how this is becoming more and more institutionalized. And we're seeing. We saw this with data centers, for instance. We saw this with industrial throughout the last cycle. And then now, like, more and more folks are looking to these alternatives to the meat and potatoes. Typical asset class. Marinas is another one that's really big.

A (5:49)

When you brought this one up, you're like, marinas. We got to talk about marinas. What's going on?

B (5:53)

Yeah, Sui, which is one of Equity Lifestyle's biggest competitors in the mobile home park space. They bought a huge marina portfolio in the middle of COVID because people are saying they're not making any more waterfront. Same sort of market dynamics that make mobile homes attractive. Because again, these are really hard to build because people don't necessarily always want a giant mobile home community going up next to their house. Same with the marinas.

A (6:14)

Have you talked to any brokers who do slips? It's just like one of those fascinating niches. You can make a lot of money in places like Miami if you're a slip broker.

B (6:22)

I live at the beach, man. It's like 600 bucks a month off season for slip in the Lewis Delaware harbor. But, you know, Centerbridge has in a massive marina business, like several billion dollars worth of equity or enterprise value. Bain Capital has a huge marina business. But the point being that this is again, like emblematic of how institutional CRE has shifted and we're just not necessarily buying, you know, the Ala Moana Mall or you know, the Mall of America. It's more about finding other asset classes that have really favorable supply demand dynamics and then being able to put in money at scale like that's also what's hard about this is that it's hard to roll these up. And so doing this and being able to write a multi billion dollar equity check into this deal is part of what's appealing.

A (7:10)

It's basically tens of thousands of homes across 300 communities. I'm so curious about the financing environment for such assets because we've talked about obviously with the malls and stuff, you've got the giant cmbs. How does Brookfield fund such a purchase or whatever happens after with it?

B (7:24)

Well, we talked about how there was a billion dollar Fannie loan, which I think was the largest manufactured home loan that had ever been done.

A (7:31)

Oh yeah, yeah.

B (7:32)

That's honestly what partially what drives the institutionalization of this product type is how liquid is the debt market for it. And Fannie Freddie if they're able to write loans on this, that's what makes multifamily so liquid. I mean even when rates are higher, Fannie Freddie offers so much liquidity to the market at such strong terms. So much better than banks, so much better than debt funds for the type of product that you generally want long term Fannie Freddie debt on I. E. Not like a heavy, heavy value add. You have the liquid debt markets that's going to push more capital into the space and that's going to push cap rates down. It's going to going to push values up. So things that historically traded, you know, seven cap, eight cap, if you can get Fanny Freddy debt on it like these can now they trade really, really tight. And that's really all due to the availability of debt because at the end of the day this is all a spread game, right? So it's like where can you stabilize and where can you borrow? And that's really what it's all about, even when it's a $10 billion deal.

A (8:25)

Let's talk about Stockbridge here. Freaking hell, man. They did amazingly well and it sounds like they're going to be owed a nice prize at the end of it too.

B (8:33)

Again, don't know what their deal was, don't know how much they stayed in for, but you can just sort of do the rough math and be like they are owed minimum like mid nine figures of promote, which is a pretty solid deal. Amazing and good for Them. It's funny, you know when you're talking to allocators, they often are like, we're happy to write big promote checks because it means the deal went well. And then like when it's time to get the promote check, they're like, why did we pay these guys so much? Like this was the market, like tailwinds. So for Brookfield, you think about what they're going through right now. They've been giving back office buildings left and right all over the country, which.

A (9:06)

They always say is a very small part of our overall business. They will make sure to say that.

B (9:10)

Yeah, of course, sure. And then same thing though with malls. Like they bought ggp. And yes, the top tier GGP malls are probably doing as well or better than they ever have. Right. There's a whole lot of those GGP malls that are absolute dog shit.

A (9:21)

Yep.

B (9:22)

That are second wind. They see this, I'm sure, as a play backstop by cash flow. These things are not going to go to 75% occupancy. Just structurally they're going to run tight. And if you're betting on like housing in affordability, income inequality, what better asset class to really look at over the next period of time than this?

A (9:42)

This is like their big affordable housing move. Blackstone bought Stuy Town. That one did not work out so well. But this one might be more interesting.

B (9:48)

No black. I think they're going to do okay. They're no.

A (9:50)

They really got rocked by the tenant protection stuff.

B (9:52)

Yeah, I'm still in awe of the. The debt deal that they got where they could borrow against the air rights.

A (9:58)

And they got $144 million interest free loan in which the principal was later forgiven. It's like basically a 144 million gimme from the city.

B (10:06)

Yeah, it's pretty good. But yeah, to your point though, that this is a liquid market, it's very favorable and zeitgeisty as a way to play affordable housing. And you can put a large check into it. And if you put all those things together, you got yourself an institutional asset class.

A (10:23)

How to put money to work at scale is pretty much all fund managers dream of. And sometimes dreams are realized in power plants, other times it's data centers and sometimes it's manufactured homes.

B (10:33)

Cocktails and dreams. Young Flanagan, Coughlin's Law. Anything else is always something better.

A (10:45)

If you want to go even deeper down the CRE rabbit hole, the promote has you covered. On October 15th, we're launching the Promote Insider. It is our premium subscription tier with exclusive content you Just can't find anywhere else.

B (10:56)

Yes, yes, yes, yes. Think expert deep dives, in depth interviews and bonus episodes of this podcast. More of Us. What could be better?

A (11:05)

Yes, More of Us. Founding members pay $240 a year and get a two year rate lock. Plus they get to say that they were there at the start of something great. I think that's pretty cool.

B (11:14)

As someone who's trying to rate lock right now, that is about the cheapest rate cap that you're ever going to get. So highly recommend that you click that button.

A (11:22)

Pretty good deal. Yes, sir.

B (11:25)

Yes, yes, yes.

A (11:32)

This is such a fascinating story. There's certain kinds of opportunistic moves that only deep pocketed families, or to quote your phrase, men with deep pockets can make. Right. I'm thinking of the Reichmans in the 70s when they bought what, 10 million square feet in Lower Manhattan for $38 a foot. These generational bets that you can make when you have the money and the conviction in house. But if you're an OPM player like most of the big players out there right now, you sometimes have to find the opportunity in the way that the deal is structured as opposed to the deal itself. And I think RXR is a classic, classic example of this, what they're doing with Gemini. So let's talk about it.

B (12:09)

Gemini. How many names can we have for office stuff with RXR or what we.

A (12:14)

Like Kodak project Kodak.

B (12:16)

One was like digital film, other is like film print, which gets.

A (12:20)

Listen, you knock on the white papers, but I think the white papers have brought us to this moment. So kudos, Scott.

B (12:25)

No, we are here because of the white papers. All I'm just saying is that we got Kodak to get us to Gemini. Got it. Okay.

A (12:31)

Exactly.

B (12:31)

So yeah, I think it's important to understand how GP economics work.

A (12:35)

To be clear, that's the main focus of the segment. The deal itself. Sure. Another big thing, a big article, couple buys, whatever. I think I want to talk a lot here about GPonomics, how deals are structured, how fees work out, and how you can make money even if the asset doesn't really make money. That's the main focus here.

B (12:51)

If you're a real estate gp, again, your product isn't the deal. Your product is the capital that you raise.

A (12:59)

That's the product.

B (13:00)

The great episode of Silicon Valley where Richard hires Jack Barker, the professional CEO, and he's I'm so concerned about product. Like, I just want to make sure your product first. And Jack's like, of course. Like, I only Care about product. That's what we're going to do. And then he does something crazy to like, you know, pump up the stock. And Richard's like, what are you talking about? That's anti product.

A (13:17)

And he goes, richard, Pied Piper's product is its stock.

B (13:21)

Whatever that makes it go up, we're going to do. And that's basically what this is. Whatever you can do to raise the money, whatever the marketing is, like, that's what you do at this scale. And if you're taking a bet like this, like, you have a huge organization because you need all the back office. You need capital raising, you need property management in house, asset management in house, leasing in house. But those are also all levers to get paid so you can turn those cost centers into profit centers. So on a deal like this, you're getting asset.

A (13:50)

Should we spell out what the deal is?

B (13:51)

Sure. So, yeah. So Project Gemini. Sorry, it's not a deal. It's Project Gemini.

A (13:56)

Is it called Gemini Office Venture?

B (13:58)

Yeah, Gemini Office Venture. So RXR has raised money from Liberty Mutual, King Street, Baupost, one or two others, and then they've contributed equity stakes and some deals that they've done thus far into it.

A (14:10)

And they're calling this a $3.5 billion vehicle that has already done $3.5 billion in deals. It's a little bit fuzzy. I'm not exactly sure if it's $3.5 billion of equity that's coming in or what, but anyway, it's being billed as a $3.5 billion vehicle.

B (14:23)

Something, again, I would be very interested in, which is very much in the minutia, is how are they transferring these interests into a new fund if they're on the loan docks and they have all the meds and stuff? Again, the lawyers are also making quite a bit of money on this, figuring out how to do the transfers.

A (14:39)

So you think RXR's guys are going to Athene and saying, listen, we said that we were the buyer, but it's actually this vehicle. I'm not sure exactly how that works.

B (14:45)

Again, it's all in the background, but it's a very real thing. And there's a bunch of very stressed out lawyers in conference rooms drafting all these docs right now.

A (14:54)

Exactly. So the buys so far are the 590 Madison, which we've talked a lot about on this podcast, the IBM tower, which RXR bought with Elliot Investment Management. Turns out that RXR bought it through this Gemini vehicle. You have Murdoch mission control at 1211 Avenue of the Americas. So News Corp's headquarters, remember, they had come in and bought, I want to say, a 50% stake from Ivanhoe Cambridge. So the last valuation at Ivanhoe Cambridge, it set was $1.8 billion in 2016. It's safe to say that Arcsar bought in here at a pretty nice discount.

B (15:26)

Yeah. So they bought 49% of it. And then most importantly, that property had a massive CMBS loan against it, and they were able to get that extended, which I think is due in no small part to RXR's. The strength of their sponsorship, their reputation. And people know that these guys know what they're doing. They know how to operate, they know how to lease. So I think that was probably part of the way to get the discount is to say, look like we are going to come in here and save your bacon.

A (15:52)

We're speculating here, but do you think so is Project Kodak just basically a way to wash away your sins? Is that the idea? Like, hey, we're going to lose some buildings, but it's all part of this Project Kodak plat. This is baked into the system.

B (16:03)

Yeah, of course, we talked about. I think it was our first or second episode where I was talking about this. Yeah, this is exactly right. The whole thing is like setting it up and making it as palatable as possible to make it look like you know what you're doing. They are very sophisticated, very smart, very good at their jobs. But the whole project Codec thing, we.

A (16:18)

Can tell that Will is scared of Scott Rechler.

B (16:20)

No, I'm not. Come on, Scott, let's go.

A (16:24)

And then the last asset that they've bought so far is that RXR's very own star at Lehigh Building in Chelsea. So Arcstar owned it with Blackstone. They were going through CMBS workout stuff on this one. They got a 900 million loan modification in January. And now RXR has just announced a 1.1 billion recap as part of this Gemini thing.

B (16:42)

That's still a very high leverage CMBS loan at a $1.1 billion valuation.

A (16:47)

I want to talk about the kind of fees available here. And you know what it made me think of? And come on, we're sliding all the way on the other side of the institutional scale. But as we've talked about with the multifamily syndicators, sometimes the money is made no matter what happens to the deal, right? There's the construction management fee, there's the acquisition fee, there's the asset management fee. And so people like Tides and rise and et cetera, et cetera, did very well, even though the projects or the properties afterwards didn't necessarily do that.

B (17:14)

Well, I don't know. I saw the rise. 48 guys selling his house in Scottsdale. So, you know, maybe 6 million bucks.

A (17:18)

Yeah.

B (17:19)

No, but let's also just talk quickly about the structure of Gemini. Not just the fees, but also how it's set up and why it's an appealing vehicle.

A (17:28)

Totally.

B (17:28)

Now think of all of the legacy office buildings in New York that are owned by families for decades, and they're staring down the barrel of having to spend hundreds of millions of dollars in tenant improvements, capex leasing commissions, never mind the vacancy.

A (17:43)

We're talking stuff owned by, let's say the Rudens, the Durst, lafracs, et cetera, that kind of family.

B (17:47)

They're well enough capitalized to where they can do a lot of this themselves. But there's a lot of other buildings where it's like, you know, a family owned a decent office building on Fifth Ave, and they've just been rich for 30, 40 years and they refi it every seven years.

A (17:58)

I can think of a couple names.

B (18:00)

Yeah. And so now if you're like you're staring the barrel, how do I get out of this? And if you give it back, in a lot of cases, you fully depreciated it. So you're also then staring down the barrel of a massive depreciation recapture tax bill in exchange for giving it back for no cash. Yeah. So this is a actually pretty smart way to set up a vehicle where if you're in that situation, you can contribute it here into this vehicle and then you get access to a broader diversified portfolio of assets without having to spend the capital yourself. And you have someone who's very smart, very good at what they do doing that for you. This is a playbook that's been done a lot.

A (18:36)

I was trying to think of parallels in the New York market.

B (18:38)

The one that really sticks out to me always is home properties. The guys in Rochester who built up a entire class B, class C apartment complex empire doing exactly this where they'd buy the stuff for people who didn't want to spend 30,000 a unit renovating. And they built up a massive portfolio, took it public and then sold it to Lone Star. That's the one I think of. But it's not this similar. I mean, a lot of people have these sort of perpetual vehicles, I mean MLG, you know, which is an NMHC top 50 apartment owner. They have a dynasty fund where it's basically this exact thing.

A (19:07)

Dynasty Fund, I like it.

B (19:09)

Bonaventure we've talked about before, they have a long term fund like this. This is not a unique vehicle in real estate, but it is unique that it's being applied to office in New York, which I think is actually really, really smart. So kudos to those guys for putting it together.

A (19:23)

In the last 18 months, RXR has put together at least, this is probably at least the third vehicle that RXR has put together. So they, they announced a $1 billion fund with Ares that was going to invest in distressed office. I don't know how many of those deals came to fruition because there hasn't really been that much pure distress, maybe at the kind of assets they were targeting. They announced a debt vehicle, also a billion dollars with Liberty Mutual, which is an investor in Gemini.

B (19:48)

As we've talked about, some Liberty Mutual guys who listen to the pod. Hi guys.

A (19:52)

Hi guys.

B (19:53)

So they're looking to basically do all parts of the life cycle. They want to do distress, they want to do credit. And then now they're doing sort of higher quality but like more value add type deals here.

A (20:02)

Let's talk about what the upside looks like and what the base case looks like for rxr.

B (20:07)

I mean the base case is that, you know, you are able to fix some of these buildings, you lease them up, but office cap rates sort of stay where they are per foot numbers don't go crazy and you're able to make a nice little risk adjusted return.

A (20:19)

What's your, what's your like swag on how much they're making a year just from, just from breathing right now?

B (20:25)

Tens of millions of dollars.

A (20:26)

So we have acquisition fee tbd. There is definitely an asset management fee, acquisition fee.

B (20:31)

If you're, if you're going to a big institutional fund. Like they're generally not giving you like a asset like an acquisition fee.

A (20:37)

So like they're giving you an asset management fee and a project management fee, right?

B (20:40)

Yeah, yeah, asset management fee. How much equity they put in, it can be calculated on that can be based off of buildings income, some percentage of that property management fee, leasing fees, construction management fees, which on these are all going to be pretty significant.

A (20:53)

Every time they've announced one of these deals they've said oh yeah, we're going to put in a new lobby, we're going to do this to the elevator bank, whatever. There's a lot of action to be had.

B (21:01)

Absolutely. And that all goes into like covering overhead and you know, comes back to the home team.

A (21:05)

Right. And then the upside case seems to be the following net absorption in Manhattan is at the highest level it's been in 25 years. I think it was 5.2 million square feet as of Q2, so highest in 25 years. There's a lot of access for people like this to cheap debt. I think SL Green just refied 11 Madison, I believe.

B (21:24)

Yeah. Massive billion dollar property.

A (21:26)

It was about five and a half, five and a half percent the debt on that. So pretty good. And then you've got these single malt buildings as I think these kind of properties either are or could become as we call them, single malt buildings. Like they're able to command premium price because they're in top tier locations and they can get kind of the best tenants. And you're seeing that market is really, really thriving even as the middle of the pack is getting hit quite badly.

B (21:48)

The thing is there's such a skew here where I don't know exactly what they're like blended last dollar basis is across the portfolio. But you can see a world where if things continue on the way they are and the demand for these buildings comes back, they could make a 2 1/2x in 3 to 5 years. Make a massive return and a massive promote.

A (22:07)

The exit could be a sale, a refi, a minority interest sale to the uplabbies of the world or the Chinese of the world or whatever.

B (22:14)

Or it could be a public company execution. That wouldn't surprise me either.

A (22:17)

A TSX listing perhaps?

B (22:19)

No, I don't know if it's going to be like go partners but you know, wouldn't surprise me if they got to enough scale and the performance is really good that they took this thing public. Also from a tax perspective, if people are contributing buildings. Oh yeah, you know, you get deferred taxes at that basis for contributing the building versus an outright sale. And then again if you take it public, you get another.

A (22:39)

Yeah, it's a pretty good deal. Pretty, pretty good. Of all the players in the market, what is it about RXR that enabled.

B (22:46)

This to go back? I mean Scott had one of the all time calls when he sold Rexen.

A (22:51)

To SL Green for 6 billion.

B (22:53)

Yeah. Right before the recession, I mean one of the all time top tick calls and that buys you a lot of credibility. And then post recession they invested billions of dollars and in office that did quite well until we ran into sort of the 2020 buzzsaw and they had.

A (23:11)

To do projects like the Helmsley building is in trouble for example. They've lost a bunch of buildings we've talked about. It's not all smooth sailing.

B (23:17)

No, but I mean, they did very well for a long time post recession immediately in the sort of initial RXR days. And I think more than anything else, like Scott's on the board of the Fed. Like he was what, Chairman of the Port Authority.

A (23:26)

He's got a lot of juice.

B (23:28)

He's got tons and tons of juice. I do sort of give those guys a lot of crap about the white papers and all that and all the different names for their projects. But you know, when you think of like, who's a safe pair of hands in office, like, you think of these guys and just the way they're set up, it makes it easier to like have structural flexibility. If you're a reit, it's a lot trickier.

A (23:57)

All right, lest you think we're just size queens and only talk about billion dollar this and 10 billion dollar that, we've got something fascinating on the smaller end that we really want to discuss.

B (24:07)

This is smaller relative to some of the New York stuff, but it's still pretty large relative to this market. It's a hundred million dollar loan from an Apollo affiliate for an office to resi conversion, of course, which you might think, oh ho hum, heard that a million times. Except this isn't in Midtown East. It is in Wilmington, Delaware. Hi, I'm in Delaware.

A (24:28)

That's fun. This is a pretty amazing project. So tell us, walk us through a little bit of a history here. This was owned by dupont Chemicals, right?

B (24:35)

So dupont Chemicals, one of the largest companies out there.

A (24:39)

Did you know they invented Teflon?

B (24:40)

I did. What's the company that? I've never even seen another brand for it. When you are like fixing up a house or building a house and you have the stuff on the outside of it to protect it. I've never even seen another brand and that's owned by dupont and stuff like that. What was the Mark Ruffalo movie about? How they poisoned a bunch of people.

A (24:58)

Do you see this word here highlighted? Yes. Would you read it for me, please? Receptors. So who came in here? What happened? Let's break it down for the audience.

B (25:08)

So the Biccini Poland group, which is led by Robin Chris, Puccini brothers, and then also part of the Poland family, who Abe Pollin owned the Washington Wizards, the Bullets rip. They form this company and they're the largest property owner in Wilmington and they've expanded elsewhere. They have a big portfolio of hotels, office buildings, sports facilities. They own the 76ers G League facility which is in Wilmington and is absolutely beautiful. So this got bought in 1999 and it was five buildings and they bought it sort of in pieces and phases.

A (25:43)

I think it was like 1999 to 2017. And the last piece of it was the world famous iconic Hotel dupont. Apparently Prince Rainier was a regular at this hotel. Joe Biden announced his senatorial campaign way back. I mean, if you're ever going to be involved in politics, now would be the time. And then his presidential run here too.

B (26:03)

It's very famous in Delaware for that reason. Again, like dupont was so powerful and so wealthy that you had all these types of people coming through Wilmington. These guys, the Boccini Poland group have bought this enormous complex over the course of like 15 years. And they've been converting it away from office into residential over a period of time. In addition, they've done, you know, a dozen, if not more projects in downtown Wilmington across the river. So they've really rebuilt all of downtown Wilmington, which like a lot of these industrial cities got hollowed out. And they've really sort of, you know, rebuilt it from the ground up.

A (26:41)

It's reminding me a little bit of what Dan Gilbert's doing in Detroit right now with Ultimate.

B (26:45)

Yeah, it's very similar. It's very, very similar.

A (26:47)

To be able to do this again, it's one of those things you really have to be invested in that city. You really have to have a lot of juice in that city, which they obviously do. And you've got to be able to bet long term. You're not going to see rents creep up very, very quickly here. This is like a very long term play. But if you can get in at a low enough basis, the rewards can be amazing.

B (27:07)

You can ride the entire city coming up with you, which is really, really valuable because again, no one can ever replace their basis. This building is, I think, really interesting because they announced that the conversion in 2023, but they just landed again, $100 million loan in Wilmington is massive.

A (27:22)

It's a lot.

B (27:23)

Yeah, that's a lot. And it's real people. So it's Apollo, Pearlmark, Octagon and then S and T Bank, very like PA, MD, DE focused.

A (27:31)

So that's their regional bank, which is what you would have typically expected to be the lender in a case like this.

B (27:36)

Yeah, if this was a $10 million loan, it would just be S and P taking it down themselves. But it speaks to how there's a huge appetite for office to resi. But also again, how Difficult it is to do. And so if you're an operator who knows how to do it, which these guys have done this before, and they've been doing it throughout this project, they can point to. We've done this at this site.

A (27:52)

Yeah, look at this. This is leasing at X. Look at this phase. It's working out.

B (27:56)

You can get Apollo to come down here and take the lion's share of this loan.

A (28:00)

I love this little anecdote about Buccini. I think in the early 2000s, this is how he did the math. He's like, there's about 50,000 workers in downtown Wilmington. I say that if we have enough housing here, I want to say that 10% of people would want to be here, which is 5,000. And that's how he came up with his office to resi. That was the germ of the office to resi idea for him.

B (28:20)

Directionally, I think he's right. Sometimes we might overcomplicate these things. I remember doing a similar calculation when I bought a hotel in Silicon Valley at Soro Capital Group, and there was X million square feet of Google office directly across the street. We're like, well, how many people are going to come visit this office? How many hotel rooms do we have? What could our occupancy be? Overcomplicate this. But again, just to put some numbers to this, they bought the building in 99. It was 800,000 square feet, fully office. And it was Dupont's worldwide headquarters. And they reduced the square footage.

A (28:55)

They did a. I think they did a sale leaseback of sorts.

B (28:57)

Right, right. I mean, it's sort of like a covered. Covered office deal. I say covered land, but it was a property.

A (29:03)

Sure.

B (29:04)

They reduced the office space to about half a million square feet, added 85 apartments, retail, a gym. Then they bought the rest of it from over the period of 20 years. They're all sort of down the street from each other. So it's really been a campus. And so we talk about, like urban campuses a lot. JPMorgan doing this for themselves in Midtown. This is like what Piccini Poland has done in Wilmington. They've completely repositioned into. From dead office into something like more lively.

A (29:30)

There's a couple of levers here that they can tap into. Right. There's a historic tax credit play as well. So there's. Oh yeah, there's a bunch of incentives for things like this. You're creating much needed housing in downtown locations which were in some cases struggling.

B (29:43)

It also speaks a little bit to how we talk about return to office how important that is. But you also have these markets, which are sort of the shoulder cities that can be really attractive. The rents here are what, 25, 30% cheaper on the residential side than Philly, and you're one train stop away. Cheney Poland owns like, 20. The article in the Philly Business Journal about this, they have 2,500 apartments in downtown Wilmington. They're 96% leased. So it's a lot easier to get the financing for another big bet like this when you've got a pretty big portfolio to choose from.

A (30:13)

One of the things in the New York office to resi market is a lot of these projects are not penciling out. They're getting massive loans. But we're already seeing, like, Nathan Berman, for example, underwater on a couple of things. 60 Gilder stepped into one of them. I don't know if the economics make sense there.

B (30:27)

At the end of the day, everything in real estate outside of, like, a handful of products is a commodity. Like, whatever Nathan Berman's building, it's a commodity. And the most important factor above, like, a baseline level of demand. The only thing that matters really is supply. And so in New York, you have so much supply of this type of product, and it's so expensive to do that maybe it doesn't really work in Wilmington, but, gee, Poland, like, there's some other developers who've delivered product.

A (30:53)

They've got this on lock, kind of. They've got this area unlocked.

B (30:55)

Yeah. And they have the best data because they can point. Like, here's. We know what the rents are half a block down the street. Like, they just opened Crosby Hill in December. It is a half mile from this building. They know exactly what all the rents are. They know exactly what the costs are.

A (31:07)

I don't know enough about Wilmington, and nor do I care about the landscape there as much. What I do want to know, though, is what's the vibe at Boochini Poland? Is this like, are we talking like a Tom Cousins situation or what?

B (31:17)

These are like the great men of Wilmington. I mean, it really kind of is 76G league facility is like. Is beautiful. Like, it's worth. If you're ever driving down 95 to go to the beach, like, go check it out. They've done stuff that's not just like, let's stick up some office, let's stick up some resi. If you're building a campus and you just do one of these things, it doesn't work. Everything has to be additive and build upon itself. And you need to create the full360 lifestyle to make everything work together in concert. So who arranged this $100 million financing?

A (31:48)

I'm glad you asked. It was Morris Patesh, the former Meridian Capital rainmaker who's now got his own shop called Arrow. We did a column in the promote called Betanon Batesh and it's worked out pretty well. The guy is all over everything in this, in this range, call it like 70 to 200 million. He's got a lot of activity.

B (32:05)

I give him a lot of credit because this is probably the biggest construction loan in the history of Wilmington, Delaware. And he got it done with some brand name lenders in the capstack.

A (32:15)

If he can make a reputation for being the guy in these secondary tertiary markets, that could be a very, very lucrative niche.

B (32:22)

Absolutely. And that's going to be a great business to be in.

A (32:32)

That's it for the Promote podcast this week. So much money to put out, so little time. So you have to keep finding new asset classes to institutionalize. RXR finds a way to fee up and continue being on the offense. And downtowns all across the country, not just in headline markets, are waking up to office to resi.

B (32:49)

So the takeaway from this podcast is that you need to do office to mobile home bar conversions and tertiary markets and structure it to get all of the construction management fees. That's the key.

A (33:01)

And then you have Lowell Baron on.

B (33:02)

Speed dial from there, 100% brands.

A (33:06)

Hit us up@partnershipsthepromote.com for advertising. That's partnershipsthepromote.com and stay tuned for the Promote Insider, our premium subscription offering. Founding membership starts at $240 a year.

B (33:19)

Can't beat it. And again, please continue to give us love via review on Apple or a rating on Spotify. We got some good ones this past week that we'd like to shout out.

A (33:27)

Yeah, I love this one from Jonathan Law. He says well crafted and highly entertaining without the usual pandering to industry players. That felt really nice because that really is how we feel. William, I'll see you next week, man. Thank you.

B (33:40)

Thank you. This was fun.

A (33:42)

Ciao.