CRE's Paypal Mafia: The JMB Realty Story

Summary

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The Promote Podcast

Episode: CRE’s PayPal Mafia — The JMB Realty Story

Date: May 20, 2026
Hosts: Hiten Samtani & Will Krasne

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Episode Overview

This special episode of The Promote Podcast, hosted by Hiten Samtani and Will Krasne, explores the remarkable rise, dizzying peak, and dramatic fall of JMB Realty—one of commercial real estate’s most influential and storied firms. Dubbed “real estate’s PayPal mafia,” JMB not only dominated their era, syndicating deals with both retail and institutional capital, but also spawned an entire generation of industry leaders. The hosts dissect JMB’s pioneering business model, their game-changing bets, the regulatory waves that both powered and destroyed the firm, and the enduring impact of their alumni network.

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Key Discussion Points & Insights

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1. JMB's Origin Story and Early Model

• [01:15] The firm began in 1960s Chicago, started by Robert Judelson, Judd Malkin, and Neil Bluhm. Each partner brought a complementary skillset: Judelson was a broker, Malkin an accountant and car dealer, and Bluhm a tax expert.
• [02:35] “They had sort of inside, outside and down the middle. They covered all the lanes, and these guys went back. They each have their own origin stories.” — A (Will)
• The firm started by pooling “country club money”—doctors, lawyers, dentists—relying on tax strategies that allowed passive income to offset active income.

Notable Early Partner:

• Jerry Reinsdorf (later owner of the Bulls & White Sox), originally helped build JMB’s LP network among Chicago doctors.
  • [04:28] “A bar mitzvah is the time in his life when a Jewish boy realizes he has a better chance of owning a team than playing for one.” — A (Will)
• The core pitch: Unlike competitors, JMB aimed not just for tax losses but also genuine real estate returns.

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2. Breakout Growth: From Retail Capital to Institutional Dominance

• [05:19] Early success led Continental Bank’s venture arm to buy 10% of JMB for $130,000.
• [06:11] First major syndication: The Carlyle Public Partnership ($7 million raised in 1971), with strong broker interest and no underwriters (a rarity at the time).
  • [06:23] “The best thing that can happen to you is for people to want to sell your product.” — A (Will)
• [06:36] JMB bought back Continental’s stake in 1978 for $4.3M — “called the dumbest LP sale of all time.” — B (Hiten)

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3. Regulatory Waves and the Power of Early Mover Advantage

• [09:33] “A lot of great real estate fortunes have been built on catching the right regulatory wave.” — B (Hiten)
• [09:51] JMB’s institutional ascendancy begins with the 1974 ERISA Act:
  • ERISA relaxed restrictions on pension fund real estate investments, opening a torrent of institutional capital.
  • [10:32] “Oh, those two words—‘best judgment’—changed everything.” — B (Hiten)
  • [10:44] “Also basically removed liability because it said, if you make your best judgment, we can’t come after you.” — A (Will)

JMB’s Institutional Fundraising:

• [11:40] Launches first institutional realty fund in 1978, lands major pensions (CBS, Inland Steel, Xerox, Chrysler).
• JMB’s syndication attracts retail capital by pointing to trusted, institutional LPs.
• Vertically integrates: Develops, operates, and acquires real estate companies outright (Federated Stores, Aetna’s Urban Investment, Cadillac Fairview, Amfac, Arvida, Randsworth Trust).

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4. JMB's Peak: Scale, Assets, and 1980s Real Estate

• [13:47] At its height (1980s):
  • $22B AUM (~$90B today)
  • 21,000 apartments, 150 shopping centers, 15 hotels, 65M sq ft office.
    [14:10] “Three Hudson Yards, basically.” — A (Will) [14:20] “Can you imagine sending out the K1s to 350,000 LPs?” — A (Will)
• Product innovation: JMB’s “public partnership”—precursor to the modern non-traded REIT. Claimed 13.2% returns vs 6.7% industry average.

Iconic Deals:

• Went beyond real estate: attempted to buy Bears, Viacom, Hilton, and Bloomingdales.
• Sold trophy assets (e.g., Chicago Mercantile Exchange) to foreign (notably Japanese) buyers for massive exits.
  • [15:54] “Owning a piece of the skyline in of itself is a return for some of these people.” — B (Hiten)

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5. Downfall: Tax Reform, Overreach, and Institutional Rebellion

• [18:41] “1986 changes everything... The Tax Reform Act of 1986 was a body blow to not only JMB’s businesses, but also to all the syndication writ large.” — A (Will)
• [19:16] 1986 Tax Reform eliminates passive loss deductibility; made fundraising for syndications nearly impossible.
• [19:40] Pure syndicators are wiped out overnight; JMB is partially insulated (still has institutional business), but its retail syndication halves.
• [20:49] Lehman Brothers quote: “The capital side caused pricing to be completely divorced from supply and demand fundamentals. It was like being drunk.”
• [21:15] [Will] “If your marginal tax rate is 50%...you pay no taxes and then you have the upside of the deal. So even if the deal fails, who cares?”
• Oversupply: Decades-long shadow—“my great uncle...built like 200 shopping centers throughout the Midwest just for the tax shelter.”
• Cadillac Fairview/Icarus Moves: $1.5B raised from 39 pensions in 6 months, all pre-internet. Ultimately becomes catastrophic:
  • [22:25] “Can you imagine those roadshows?—It’s literally like walking around with those little slides they put on the projector. Next slide.” — A (Will)
• Advisory Fee Conflict: When losses mount, JMB’s lucrative advisory fees (sometimes eating all cash flow) enrage pension clients, leading to contract terminations and ultimately a loss of capital pipeline.
  • [23:18] “JMB sues. The crazy part is—they win. But at what cost? They lost all these pensions and couldn’t raise any more money.” — A (Will)
• Aftermath: Institutional arm sold to Heitman for $150M—once-powerful relationships are destroyed.
  • [23:48] “Suing your LPs is kind of a death knell.” — A (Will)

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6. The PayPal Mafia Effect: JMB’s Enduring Legacy

• [24:32] Malkin exits quietly (family still owns legacy assets). Bluhm fights for redemption, launches Walton Street Capital ($15B AUM).
• [25:55] “There’s a patent of JMB that has lasted. Part of why we wanted to pod on them: it’s outlived them by generations at this point.” — B (Hiten)

The JMB Alumni Tree ("Mafia"):

• Barry Sternlicht (Starwood Capital): “Laid off from JMB in 1989...origin myth—turned down Goldman to go to JMB.” — A (Will)
• John Schreiber (co-founded Blackstone Real Estate, mentored Jonathan Gray, Blackstone’s current President & COO)
  • [29:13] “John Gray is maybe the best and brightest in his generation—maybe ever. But he also has the benefit of the sage sensei in John Schreiber.” — B (Hiten)
• John Kukral (Northwood Investors)
  • [29:39] “They gave us young bucks a tremendous amount of responsibility. Maybe two tiers above our paygrade. But they trusted us to go figure something out.” — B (Hiten, quoting Kukral)
• Other Notables: Jeff Dishner & Laura Rubin (Starwood), Bruce Duncan (CyrusOne, First Industrial, EQR), Barry Malkin (Gem Realty), John Lillard (Wintrust), Mark Mogul (Pinebridge), Adam Singerman, Carl Tash, Carl Tash, and more.

What Made JMB’s Culture Special:

• Responsibility: Young staffers thrown into deep water, given big projects and chance to prove themselves.
  • [32:42] “You got it young and you could basically—whatever you could put your arms around—you got.” — A (Will)
• Access & Agency: Proximity to senior dealmakers; initiative was rewarded.
  • [30:19] “It wasn’t necessarily a flat organization, but it was one where you had a lot of accessibility to the senior guys.” — A (Will)
• Hypergrowth & Opportunity: Rapid expansion, countless deals gave experience and networks (and “balls”) unmatched elsewhere.
• Timing: Right place, right time—ERISA wave, 1980s boom, regulatory tailwinds.

Counterpoint:

• [31:32] “Controversial thought. If JMB never ended up going south, it would be less important a company than it is now.” — B (Hiten)
  • The diaspora (like PayPal’s) was fueled by the firm’s implosion, scattering talent to reshape the industry.

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Notable Quotes & Memorable Moments

• [01:15] A (Will): “If JMB didn’t exist, real estate syndication would look very different. M&A would look very different. And honestly, the heavenly bed wouldn’t even exist, which I don’t want to live in that world.”
• [09:33] B (Hiten): “A lot of great real estate fortunes have been built on catching the right regulatory wave.”
• [14:20] A (Will): “It’s a lot. Crazy. And then on the LP side, they had 350,000. Oh God, can you imagine sending out the K1s?”
• [20:49] B (Hiten): “The capital side caused pricing to be completely divorced from supply and demand fundamentals. It was like being drunk.”
• [22:25] A (Will): “It’s literally like walking around with those little slides they put on the projector. Next slide.”
• [23:39] B (Hiten): “Those relationships were fractured. [JMB] had to sell the institutional arm…their name was mud.”
• [29:39] (Quoting Kukral): “They gave us young bucks a tremendous amount of responsibility… But they trusted us to go figure something out.”
• [32:58] B (Hiten): “There was no stay in your lane kind of ethos.”

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Timeline of Key Segments

| Timestamp | Segment Description | |------------|------------------------------------------------------------------| | 00:14 | JMB Realty’s founding trio and early ethos | | 03:08 | CRE lawyers-turned-moguls; early career anecdotes | | 06:11 | Carlyle Public Partnership and retail syndication boom | | 09:51 | Impact of ERISA Act and opening of institutional capital | | 11:40 | First major institutional fund and “parabolic” fundraising | | 13:47 | Asset scale at JMB’s peak and product innovation | | 18:41 | 1986 Tax Reform—body blow to CRE syndication and JMB | | 21:00 | How passive loss rules fueled irrational development | | 22:25 | Cadillac Fairview deal and the difficulties of old school fundraising | | 23:39 | Fee conflicts, lawsuits, relationship fallout | | 24:32 | Bluhm and Malkin’s diverging post-JMB paths | | 27:58 | The JMB “mafia”—alumni who changed CRE | | 32:58 | JMB’s unique culture: responsibility, access, and growth |

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Conclusion

JMB Realty’s story is a microcosm of commercial real estate’s modern era: entrepreneurial hustle, regulatory tailwinds, spectacular “go-go” growth, hubristic overextension, and an explosive demise. Yet, its greatest contribution may not have been any single deal or asset, but the wave of industry-defining executives it produced—a diaspora as influential as tech’s PayPal mafia. JMB’s DNA, in culture and risk appetite, continues to shape how major CRE platforms operate. As Hiten and Will highlight, “there’s something in the water—or the root beer.”

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For insiders and newcomers alike, this episode is a masterclass in what fuels CRE empires, what unravels them, and why legacy is often about who you teach, not what you own.

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Transcript

[A]

Imagine there's a real estate company that's the biggest syndicator of retail money out there.

[B]

Now imagine a real estate company that's the biggest destination for institutional capital, pensions, endowments, the whole blue chip shebang.

[A]

Now, dramatic pause. Imagine they're the same company.

[B]

Welcome to the world of JMB Realty Corporation. This is the promote podcast, your insider guide to the money and mania of the CRE markets. I'm Hiten Sumtani.

[A]

And I'm Will Krasny.

[B]

A shout out to our sponsors who helped make this all happen. Bravo Capital, a leading cotton bridge lender that lives and breeds capstacks.

[A]

Real Property Captive, the first group captive insurance for mid market owners.

[B]

And loanboss, the best in class CRE debt management software. This week we're going a little off piste to bring you a special episode. Ooh, spicy. The first in an ongoing series looking at real estate's PayPal mafia, the great Sierra firms that not only dominated their era, but also spawned the next generation of great firms. And of course, we had to start with jmb. You can't spell CRE without jmb.

[A]

You could argue, successfully, I think, that if JMB didn't exist, real estate syndication would look very different. M and A would look very different. And honestly, the heavenly bed wouldn't even exist, which I don't want to live in that world.

[B]

Totally not. So let's crack open some hiers root beers and let's get back to the beginning. 1960s Chicago. What does JMB stand for?

[A]

Well, it depends on what era you're talking about. So good.

[B]

Very good answer.

[A]

At the beginning, the real beginning, it stood for Robert Juddleson, Judd Malkin and Neil Bloom. So jmb and I know Judd Malkin has J, N and M, but it's

[B]

just the M. Bloom and Malkin had been working together since at least the 50s. They were teenagers at the time and they. They talked a distributor of Hire's root beer, which I believe is now absorbed into the A and W family.

[A]

I was like, is there any other kind of root beer?

[B]

They basically convinced him to allow them to split one job into both of them. So they both worked this route and they were delivering the root beer everywhere. As part of the deal, the driver had to buy breakfast and L. After two days, the driver's like, I can't do this anymore. Because according to Mr. Malkin, he ate too much. Juddelson was a broker, Malkin was an accountant. But importantly, he also ran a Toyota dealership. And Blum was the tax wonk.

[A]

You Generally have the partnerships that are like Mr. Inside and Mr. Outside. Yeah, they had sort of inside, outside and down the middle. They covered all the lanes, and these guys went back. They each have their own origin stories. And famously, I think Neil Bloom lived above some shop with his mom.

[B]

There's also a little bit of myth making in there sometimes, right?

[A]

Exactly. You have to have an angle, and that's. And all three of these guys did.

[B]

Bloom's not the only distinguished tax lawyer who then became a real estate mogul. One of the goatiest of goats falls into that category, too.

[A]

Steven Ross.

[B]

Exactly.

[A]

This happens all over the place where the lawyers are doing real estate law, and they're like, you know what? These real estate fellows seem to be making a lot more money than I am.

[B]

They're not that smart.

[A]

Yeah, they're pretty dumb. So let me go throw my hand at that.

[B]

Malkin came up kind of in the car dealership world. At one point, he said the mark of a good Toyota salesman was the ability to sell a car with optional rear speakers but no radio, because the speakers were like 15 bucks a piece, and the customer could come back and then buy that radio for 40 bucks. And he said, I've done it.

[A]

I can just see this now. He's like, it's just optionality, right? You need the optionality. It's a great place to start. And so what these guys were doing at the beginning was just regular syndication. Not different than what Alan Stockop's doing, not different than what Tides did. It doesn't sound groundbreaking today, but in the late 60s, when they started this, it really was. It was pulling capital from country club money, doctors, dentists, lawyers, and buying real estate. And part of it was because they were able to take advantage of different tax laws which allowed for passive income to offset active income. Now, these early doctors, how do you go about pulling that money together? Where does it come from?

[B]

Another great titan involved here, Jerry Reinsdorf, Best probably known as the owner of the Chicago Bulls, but major real estate player.

[A]

And White Sox. And.

[B]

And White Sox. I loved him in the Last Dance, by the way. Underrated character in the show.

[A]

He really was like, I think he made out best of everybody. A bar mitzvah is the time in his life when a Jewish boy realizes he has a better chance of owning a team than playing for one.

[B]

So Reinsdorf apparently had a network of doctors. They were the original LPs for a lot of the JMB bets.

[A]

Part of their pitch, at the beginning at least, was, everyone's doing this for tax Loss. What if we did it for tax loss but actually tried to make money on the real estate?

[B]

What if we were good at real estate instead of just tax art?

[A]

Exactly. What a world.

[B]

That world doesn't exist anymore, huh?

[A]

It kind of doesn't. They say you can sell a ketchup popsicle to a lady with white gloves. Like you can sell optional rear speakers to a guy without a radio. We joke around a little bit, but this, this got purchased really quickly. So they were able to raise money and then up a pretty big bank to buy 10% of the GP.

[B]

This is a typical evolution we've seen with a lot of these syndicators of the modern era as well. Right. They start with the high net worth money, then they find an anchor institutional sponsor. In this case it was Continental Ventures, which I believe is the venture arm of a Chicago based Continental bank.

[A]

Correct. And they were really venturing into this nascent syndicator industry. And they bought 10% of the company for $130,000, which, like real dough.

[B]

Yeah. We've talked on this podcast before about how the early performance can really make you. So they raised that money, the 130,000 we just talked about, in 1970. In 1971 they go back to Continental, their share of the profits is 750,000.

[A]

It was pretty good.

[B]

Yeah.

[A]

And what happened in 1971 is that they did the first, it was called the Carlyle Public Partnership. So they raised 7 million bucks, which they thought was all the money in the world.

[B]

You know what's amazing is they didn't have underwriters on this thing. So they were surprised when they got inbound from brokers. One of the partners there that said the following, he said, the best thing that can happen to you is for people to want to sell your product.

[A]

That's what they call a product market fit nowadays, I think. And what's funny about Continental is J and B bought back the LP stake that they sold for $4.3 million in 1978. Continental bank has called that the dumbest LP sale of all time.

[B]

They said that it was probably worth 100 million if they had held onto it. But again, could have gone south too.

[A]

Yeah, could have gone south too. So anyway, they have this early success, but then in 1973, Juddelson, the broker, the J in JMB splits after feuding with Neil Bloom, ends up leaving to co found Balcor with Jerry Reinsdorf. And so that's how Jerry Reinsdorf made his money. The two of them ended up building a ball core, sold to Amex for $100 million in the 80s. And then that's how Reinsdorf bought the Bulls and the White Sox and all those things. And JMB ended up going from Jodlson, Malkin and Bloom to. It was then called just Malkin and Bloom, which you kind of love.

[B]

What's your takeaway from the early days here?

[A]

They weren't just real estate guys, they weren't just tax guys. They had both. You needed to understand the tax implications of all this, but then you also needed to be able to generate real estate returns. Anyone could put together a tax shelter. Like actually underwriting real estate. Even today is really, really hard. Yeah, especially today is really, really hard. And so the fact that they could do both, that is what separated them, at least at the beginning. But again, like zooming out, like they raised. Yeah, they raised seven million bucks. Okay. So did my Uncle Irv in council boss, Iowa. So these guys, they were the same as anybody else then. They weren't.

[B]

Okay. This is when things really start to pop. We'll get to that right after this break. Okay, I'm here with Aaron Kurowitz from Bravo Capital. Aaron, you've done two and a half billion dollars or so of deals so far. How are you thinking about scale going forward?

[C]

There is a divergence between optimizing for scale and optimizing for quality. And when you're running a debt fund, you have to pick. You have to say, am I really fee driven and do I want to maximize how much I could put out? And the other business model? Model is what we've chose is slow and steady. We want the reputation to proceed ourselves. Investor returns, that's more important for us than volume. If you look at some of the REITs they were forced to deploy in the realm of 2 to 8 billion a month. First the AUM gobbled right, as your sweatshirt says. But then they were forced to regurgitate that AUM more rapidly than they really could and it forced them to pick terrible deals. Their returns are negative. To just go for scale for scale's sake. That's a short lived business model.

[B]

Thank you, Aaron. And where can people find you?

[C]

People could find [e-mail].

[B]

Okay, we're back with jmb and things are about to get full NBA Jam.

[A]

He's on fire. Catching Fire is my favorite Hunger Games novel. So there you go.

[B]

A lot of great real estate fortunes have been built on catching the right regulatory wave. I think that's one of the big underrated parts of these epoch defining real estate companies. They Were able to really seize some kind of change in the federal or state law and really run with that.

[A]

Yeah. I mean, what do they say in margin call? Be first, be smarter or cheat? So these guys were first. And what they were first in was recognizing. Recognizing the importance of the 1974 ERISA Act. Oh, damn.

[B]

ERISA, which is the Employment Retirement Income Security Act. This act essentially opened the floodgates for pension money to come rushing into real estate.

[A]

Yes. So previously, pensions had to have. They were like approved lists of investment vehicles. And it was exactly what you would think, like corporate bonds, municipal bonds, blue chip equities.

[B]

Super safe stuff.

[A]

Super safe. Honestly, like, probably should have stayed there, but ERISA changed it and replaced the approved list with quote, unquote, best judgment.

[B]

Oh, those two words changed everything.

[A]

It mandated diversification. Couldn't just be in bonds, couldn't just be in equities. You had to get into alternative assets. Also basically removed liability because it said, if you make your best judgment, we can't come after you.

[B]

And I'm assuming the bar for best judgment is not very high. Right. You don't have to show too much work to say you've landed on a certain vehicle.

[A]

Correct?

[B]

Yeah, we weren't born at the time, but that's our guess here.

[A]

Yeah, I don't think it's that far afield to assume that. And also we had this just booming amount of. I say booming because of the boomers, folks who had big pensions. And so this is the era of folks with the full vested pension forever. And so all of this capital had to be diversified out.

[B]

Oh, I see what you mean. There was a massive kitty of money that had to go into stuff.

[A]

Yeah. Had to go somewhere. And real estate was one of the places where it went. And the importance of being first is that all of this stuff gets more competitive over time. It's like if you ever talk to your parents and they're like, I went to, you know, Duke, but I got drunk the night before the SAT and I had a B minus average. And it's kind of like this now. In 1978, J&B launches their first institutional realty fund.

[B]

That's akin to what a MESREF or some kind of opportunity fund would be

[A]

today or Zelle Lurie opportunity funds or what have you, they land their first big pension and things are impossible to get. Now, we've talked today how it's shifting back to retail because the sales cycle for these pensions and sovereigns, like landing

[B]

Texas teachers, is like a 15 month courtship with very Very low probability of success.

[A]

I couldn't even fathom trying to land a pension fund today. Give me a break.

[B]

Look at this list of LPs, CBS, Enlund Steel. When you get the steel companies in, you really know you're winning right there. Xerox, Chrysler, all the go to corporations of America were investing with JMB at this time.

[A]

Also one thing feeds the other because it also the syndication machine which they had had for a decade had completely just sort of went parabolic. Because you just point to say, hey, Inland Steel trusts us. Xerox trusts us, Chrysler trusts us. They built America.

[B]

So you doctor in the Midwest, you might as well trust us too.

[A]

To the victor belongs to spoils. Why don't you get the fuck out of here before I shove your quotations book up your fat fucking ass. And what they do too is they expand just out of pure play, pooling assets to go buy stuff. They become vertically integrated, so they'll develop things in addition to buying them. We talk about how MA would be different. One thing that really differentiated these guys is they were also early into buying real estate companies whole.

[B]

Not just Aum gobbling here buying the companies, which is what we're seeing now with so many of these REIT movements as well.

[A]

So they bought Federated Stores, Aetna's Urban Investment Development Corporation. Alcoa had a big Century City portfolio number in the 60s and 70s. All these conglomerates were just putting stuff together. Yeah, they bought Cadillac Fairview, which is sort of the beginning of the end. Amfac, the Hawaii Sugarcane Hotels Company. And then two very important ones for later, which were Arvida, which was Disney's Florida Georgia Master plan. Community development that was led by a young Barry. Stuart Sternlich himself led that deal. And then Randsworth Trust, which was UK office. That was the deal that brought him down. GMB had to defend the straight Barry for losing hundreds of millions of dollars though. Says it wasn't his fault.

[B]

Let's talk about the scale. So at the peak, they had about $22 billion in assets. Again, this is 1980s numbers.

[A]

Call it not 90 billion of assets today. How many companies have pure real estate? 90 billion today.

[B]

A handful.

[A]

Yeah, yeah. Staggering. And this is after, you know, decades of professionalization and institutionalization of the real estate asset class.

[B]

This is a massive company. 21,000 apartments, 150 shopping centers, 15 hotels, 65 million square feet of office, three Hudson Yards, basically.

[A]

It's a lot crazy. And then on the LP side they had 350,000. Oh God, can you imagine sending out the K1s. No wonder that Susan from Seinfeld died leaking the stamps, huh?

[B]

They had a vehicle I want to talk about a little bit. They had something called a public partnership which I read as the predecessor to the modern non traded reit.

[A]

Pretty much, yeah. Never missed a quarterly distribution and generated real returns. They claimed 13.2% versus 6.7% industry standard. What do those mean? How are those calculated? Who knows. But it's pretty good.

[B]

So doesn't matter. Doesn't matter. It's part of the narrative, right?

[A]

But then they also fell into sort of all the 80s buccaneering. They bought 20% of the bears Stop Bears.

[B]

They also made a run at the newspaper business just like Sam Zell did a little bit later.

[A]

They tried to buy Viacom.

[B]

Those two didn't take by the way.

[A]

Tried to buy Hilton, the Bloomingdales. They tried to buy all those things

[B]

back to the real estate. For a second they were only buying typically buying kind of market leading properties, top of the line properties. And I think this is important for the exit. These kind of properties are also the magnet for the foreign capital. The Japanese paid more than $600 million for. The Merck anchored the Chicago Mercantile Exchange towers on Wacker Drive. Just huge exits if you have the asset, the one the foreign investors like, you know what, I want to diversify into the U.S. i want to put my name on the map. I'm going to go buy this.

[A]

It also helps on the entrance because Joe Orthodontist is going to be like, oh, the Chicago Murph building. I know that that's a thing and

[B]

we talked about this in a couple episodes ago, right? Like owning a piece of the skyline in of itself is a return for

[A]

some of these people, 100%. They call it a dick measuring contest because the things are big. Even today I talked to a unnamed massive asset manager has a lot of retail money. They were talking about what deals have you done recently? They're like, oh, we only want to focus on cash flow, this, that, the other. I'm like, oh well what have you bought? And they said some like really fancy hotel that they bought like a 63 cat. Literally, I swear to God they said this. They're like, it looks good on the brochure. So they really have defined strategy. That again seems sort of quaint today because it's what everything is kind of based off of institutional real estate. But top of the line properties, they used OPM and they bought developers bought companies wholesale rather than trying to compete with folks and kept them management in place with equity. So it's exactly what we're seeing today.

[B]

What's the capital fueling all this?

[A]

Syndicator money and pensions. They were the best pension fundraisers, the best retail fundraisers. What else is there?

[B]

The Cadillac Fairview deal, I believe they were going to put just 100 million of their own equity and then they were going to raise 1.4 billion from outside sources.

[A]

They did. In six months with 39 different pension funds.

[B]

I just wanted to mention one partner on this deal that we're going to talk about in a minute. But the Cadillac Fairview deal, the other 25% were owned by our guys, the Reichmans.

[A]

They both went full Reichman.

[B]

Unfortunately they both did.

[A]

But in 1988, in the Forbes list, if you were to scroll down from the top before you got to Henry Kravitz, Steven Spielberg, Craig McCaw or even Sam Zell, you'd see Judd Malkin and Neil Bloom.

[B]

That says something.

[A]

So given that epic run, you might ask yourself, why isn't the J and B story more well known? More on that right after this.

[B]

Well, what if I told you insurance could become an asset instead of just an expense?

[A]

I'd say you're trying to sell me something. But also I'm interested.

[B]

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.

[A]

Painful but accurate.

[B]

What if 7 million of that built up in reserves that you actually owned?

[A]

That's pretty interesting. Tell me more.

[B]

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[A]

I like this. Because that's what the big boys do.

[B]

Exactly. And now it's accessible for mid markets drivers like yourselves too. Check out the [e-mail] that's rpcaptive.com and tell them the promote sent you.

[A]

It's 1986. I'm in the first grade. I'm working real hard to get Mario laid. 1986 changes everything. And not just because it was when Haten was born. We're violating all sorts of hiring laws by aging him. But the Tax Reform act of 1986 was a body blow to not only J&B's businesses, but also to all the syndication writ large. Because previously you were able to write off passive losses against active income, which I think is basically what syndicators try to pitch a Lot of people today, which is not true.

[B]

It's not true anymore.

[A]

So it killed passive loss deductibility and basically made fundraising much harder. So if you were a pure syndicator, your business kind of went away overnight. JMB was somewhat insulated.

[B]

Right. Because they had the institutional business as

[A]

well, they had the pensions, but the syndicating money, I think they raised half as much money in 87 as they did in 86. And you had folks who literally were worth $200 million and then were worth negative $200 million like six months later. This happened all over the place.

[B]

We talked up top about how regulatory tailwinds can make a company. Right. Regulatory headwinds can even crush a company. And this is somewhat what happened here. This is the comedown after the go go 80s. A lot of the big LBOs that JMB participated in, they started coming apart

[A]

a little bit at the peak. Everyone's timeline is forever and a lot of these got bought. Assuming you're going to be able to refinance your bridge debt or sell off assets at certain values and just ride off into the sunset, that was not the case. So specifically, Cadillac, Fairview, AMFAC and Randsworth really blew up big time. We've talked about Randsworth, like Barry has mentioned that about that was the reason he got fired is lost $400 million or something like that. What happened is the syndicating went away really because of the tax law. And then they lost all this money for the pensions and then the pensions kind of went away.

[B]

Yeah, they were pretty pissed. A couple of takeaways. One is the broader macro environment that they were operating in. Great quote here from Lehman Brothers, then director of real estate research, Lehman Brothers, which was ironic in of itself. He said the capital side caused pricing to be completely divorced from supply and demand fundamentals. It was like being drunk.

[A]

What he's saying about supply demand is because of the passive deductibility. People just could build anything and people would fund it because of the tax losses. And so what happened is you have just a massive oversupply.

[B]

There's no due diligence required if you're

[A]

going to get back 100% of your loss of your investment year one with passive losses that can offset your active income, the deal is good. That's just a bonus.

[B]

Oh, so it's like an artificial safety net, basically under every deal.

[A]

Yeah. If your marginal tax rate is 50% and you're able to offset everything you would have paid in taxes with a deal, you pay no taxes and then you have the upside of the deal. So even if the deal fails, like who cares, you've saved on taxes. So what happened is it meant that things got built that didn't offense, that didn't have any reason to exist. It's something that's really taken decades to work through. So we're still oversupplied from a retail perspective because of this. You have guys like my great uncle who built like 200 shopping centers throughout the Midwest just for the tax shelter. And that's still getting absorbed today. And so what happened is not only did you have eventually an economic slowdown, it was paired with massive, massive oversupply, particularly in office and retail, the most institutional asset classes at the time. So these people got absolutely wiped.

[B]

So as we said, they raised one and a half billion dollars for Cadillac, the deal. I think my other takeaway is just don't buy Canadian malls. It never works out for anyone. Sorry, man.

[A]

Catalytic Fairview, Canadian real estate developer, had their hands in everything. They're like the Zellig of like 80s finance in Canada. They've been through everything. And Neil Bloom raised 1.5 billion in six months from 39 pensions to do that deal.

[B]

Astonishing. Can you imagine what those roadshows look like? This is pre email, it's pre Internet.

[A]

It's literally like walking around with like those little slides they put on the projector. Next slide.

[B]

Do you think he had the Ivan base key phones and stuff going at all times?

[A]

I'm sure, I'm sure. So anyway, the deal losing a ton of money is bad enough, but JMB had these massive advisory fees that were coming in. So they were the developer, owner, chief cook and bottle washer. And they're paying themselves tens of millions of dollars a year to manage these deals. And that's all well and good if deals are going well and people kind of don't notice, but there were a couple of years in the late 80s, early 90s where literally every dollar of cash flow went to pay JMP's advisory fees. The pensions are going, huh? Not sure. We're like really big fans of that. So the pensions, they restructure the company and then terminate these contracts.

[B]

That's $100 million advisory contract that's gone.

[A]

So JMB sues. The crazy part is they win.

[B]

Listen, this is America. Yeah. You got someone to agree to a thing, you gotta honor it. Why'd you let him play?

[A]

Got this. America, man. But this was like a real Pyrrhic victory because they won. But at what cost? They lost all these pensions and Couldn't raise any more money.

[B]

Those relationships essentially were fractured. They had to go on and sell the institutional arm of their business. They sold it to heitman for what, $150 million, which isn't much.

[A]

They couldn't raise any money. Their name was mud. It's one thing of, like, you lose a bunch of money and you're like, we're sorry. We're going to do better. We're going to work through this. We've talked about this before, but suing your LPs is kind of a death knell. And so JMB ceases to exist, really, in a handful of years. And now, let's say, like Judd Malkin, I think his family still owns a bunch of these assets, legacy assets today. They've done very well.

[B]

We should have prefaced this. Don't feel bad for anyone in the story. Neil Bloom is worth probably about $10 billion today.

[A]

The best way to be worth a ton of money is to owe the bank a ton of money at some point anyway. So there's really this schism, right, because these guys have made a lot of money. They're going to have to start from scratch, essentially, and rebuilding the company. Malkin stays on it for the sale to Hypeman, but he sort of is checking out a little bit, as Bill Simmons will say. He's moving into a different phase of his career.

[B]

And I think it brings up an important point. So what happened here is Malkin essentially cites a new marriage, grandchildren and golf. Right. He says, I have some outside interests and I'd like to spend more time with them. But it's like, are you up for that whole fight? Not many people can do that once, let alone going for round two of having that kind of pressure and that kind of action, defining your life for so long.

[A]

Yeah, and he's like late 50s ish at this time, too. He's not a young man anymore. Whereas Neil Bloom takes the opposite act.

[B]

Yeah, he does. He says, I don't have grandchildren, I don't have a new wife, and I don't golf. And then he also says, I want to get my reputation back. He says, it's mostly the action, but a part of it is redemption.

[A]

There's something to it because he was. Bloom, I think, was considered really the architect of this.

[B]

When you think about jmb, he's the one that pops up first.

[A]

Barry even makes this point after Randsworth, that Judd didn't want to buy anything, and so he fired all of Neil's acquisitions guys.

[B]

He just took the talent out of the equation.

[A]

So Neil puts together Walton Street Capital, which turns out to be a massive firm. 15 billion of AUM. I will say this too. It's very funny. I worked with an ex Walton street guy and when I moved over to Starwood, he's like, oh, do they still do the models this way? That's how JMB did it. And I was like, yes, they do.

[B]

And we're going to talk about all of that. There's a patent of JMB that has lasted. Part of why we wanted to pot on them. It's outlived them by generations at this point.

[A]

Yeah. And so Neil built a company, it wasn't as big as jmb, but really successful in its own right.

[B]

Has a rush. Street gaming, Right?

[A]

Yeah. He owns a bunch of casinos. Minority in the Bulls and the White Sox. Neil's doing great. He's doing all right, Doing totally fine. But again, part of the reason why we're talking about this is there are a lot of successful firms that kind of blew up in the 80s, early 90s. This firm is still around today. Just exists in the people who are elsewhere who have founded other companies. And so like we said at the top, PayPal sort of created this diaspora of tech executives. And there's been a lot of talk about why that was. And we'll get into why we think that JMB created that right after the break.

[B]

Will, 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?

[A]

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 debt tab was really, really annoying. Maturity dates, extension options, rate caps.

[B]

Ugh.

[A]

My spreadsheets were beautiful. But at what cost?

[B]

Sounds like you had good roi, but your roibd return on invested brain damage, not so good. So what changed?

[A]

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, a 10. But the one click DSCR testing every lender adjustment, every unique requirement. Automated. Oh my God.

[B]

No more getting surprised by your own cap stack listeners. Check them [e-mail] that's loanboss.com and tell them the promote sent you. The most defining trait of Jambi is not the incredible enterprise that it built, but really the incredible enterprise that it spawned. Do you want to just run through the names?

[A]

What do they say about Velvet underground? It's like 50 people listen to them. But they all started bands kind of same thing here. So most notably had a jmb. Barry Sternlich founded Star Wars Capital. Have you heard of it? Laid off from JMB in 1989. The origin myth, as we've talked about, is he turned down Goldman snacks to go work at jmb. Was the wunderkind, as he would say. And then Neil stopped buying stuff and Mal fired all the acquisitions guys.

[B]

Just fired all the acquisition guys. John Schreiber, big, big name. Co founded Blackstone's real estate division also.

[A]

Have you heard of it? But he's really like an unsung hero in a lot of ways. This name doesn't get thrown around that often.

[B]

Blackstone named some new scholarship after him.

[A]

This is potentially apocryphal, but maybe not. Barry says that Steve Schwarzman tried to hire him to run Blackstone Real estate and he turned it down and to go start his own thing. And then John Schreiber stepped in.

[B]

So there's two monumental things that Schreiber did. One is he co founded the real estate division which eventually overtook private equity to become Blackstone's biggest division.

[A]

Yeah, Blackstone's real estate business.

[B]

Blackstone is a real estate based business. Yeah. So that's one thing. But he also mentored a young whippersnapper called Jonathan Gray.

[A]

Yes. And it's been called out by no less than Roy Marsh.

[B]

This is an amazing quote. John Gray is maybe the best and brightest in his generation, maybe ever. But he also has the benefit of the sage sensei in John Schreiber.

[A]

Tremendous. Let's go to another John. There's so many Johns.

[B]

Oh, God.

[A]

John Kukral spent a dozen years at jmb, went to Blackstone.

[B]

He was high up in the real estate leadership as well.

[A]

Founded Northwood Investors, which is owned among others at the Palace Hotel. It's very eminent for.

[B]

I can't really make sense of their book. They have maybe a few billion dollars worth of assets, but it's kind of all over the place. Pocral said something very interesting about jmp. We should get into my first day on the job. I show up and they give me a ticket to Denver and they say, here are three apartments that we're thinking about buying. We want you to go figure out what the real rents are and come back, report to us. This is completely fresh. No idea about the business. Go figure it out over and over. When you look at the patterns of Jambi alumni, one of the things they say is they gave us young bucks a tremendous amount of responsibility. Maybe responsibility that was a couple tiers above our current pay grade. But they trusted us to go figure something out because we're young and hungry.

[A]

They would talk about, almost to a man, about. It wasn't necessarily a flat organization, but it was one where you had a lot of accessibility to the senior guys. John mentions in the same interview with Ulis. Like going to Neil's house on Saturdays to chop up deals and underwrite things. And if you had a good idea, they wouldn't stop you.

[B]

Imagine an analyst today flying into Schwarzman's compound by helicopter dropping. It doesn't happen anymore.

[A]

Sometimes you have to catch private jet flight with somebody and then, like, fly back, which is like the worst. But, you know, whatever. But basically the whole high agency, you can just do things. Ethos of the moment. This was JMB in the mid to late 80s. And that really was how a lot of these big companies started. Star with that was a big thing. Like, Barry was a young guy, he's like, I want to go buy Westin. I'm going to go buy our igt Sheraton. And if you had a good idea, like, they wouldn't stop you and you could sort of just go. And now the business is just different. If you're an analyst at Blackstone, you're going to try to buy, like, shares. Give me a fucking break. But that experience is something that they all talk about. I think it's the same at PayPal where everyone did everything.

[B]

And it was also everyone did everything. Everyone worked like an absolute maniac.

[A]

And it was hard and it didn't totally work all the time. And so for jmb, I think the fact that it blew up is part of why the legacy lasted. You had a full cycle.

[B]

Controversial thought. If JMB never ended up going south, it would be less important a company than it is now.

[A]

I kind of see what you're saying. It would just be Aries or something.

[B]

Which doesn't have the same imprint or footprint on the industry that JMB does.

[A]

No, definitely not.

[B]

We had a couple more. So we had Jeff Dishner from Starwood as well, and Laura Rubin.

[A]

Jeff and Laura from Starwood. Carl Tash from Starwood. Carl Tash, who asked the most questions in ic. If you worked at Starwoods, you know what I mean? Bruce Duncan, he was the CEO of eqr First Industrial and Cyrus One. Like, good Lord.

[B]

The data center giant now.

[A]

Yeah. Oh, wow.

[B]

Okay.

[A]

Barry Malkin, Jug's Kidd. Founded GEM Realty Capital. Could be gem. I don't know. I've actually never heard anyone say it. John Lillard, chairman of Wintrist Financial.

[B]

John's the one who pioneered the.

[A]

He got the pensions.

[B]

We also had Mark Mogul. What a great name for a deal maker. Mark Mogul.

[A]

Bill Ackman loves this nominative determinism.

[B]

He's of Pinebridge. They do a lot of stuff in Europe. And then we had Adam Singerman. We've just talked about mostly top executives, but think of the analysts and the canvassers and the young developers who have probably gone on to so many of these different companies now.

[A]

Yeah. And I think it really came down to sort of three things that caused this. So the first, as you talked about, was responsibility. You got it young and you could basically whatever you could put your arms around, you got. And Barry talked about this, talk about all the time, that if you could find things to do, they would do them.

[B]

There was no stay in your lane kind of ethos.

[A]

They had access to capital, and if you had a good idea, it was a good idea.

[B]

The other part of it is specifically is giving young people more than they were equipped for at the time and seeing them figure it out. That's the important bit.

[A]

Well, that's how you grow, because people want to go there when you get responsibility. And so they're like the opportunity to make a ton of money and the opportunity to do a lot of cool shit. And if you work somewhere else, couldn't really do that in the same way. And so Tram le Crowe, which I'm sure we'll do an episode on at some point, had the same thing where it was like the hottest job out of Harvard mba. Can you imagine moving to Houston to go do real estate? That's what everyone at Harvard MBA wants to do. It's kind of crazy.

[B]

There was so much opportunity. It was crazy. The second part was growth. JMB was just a juggernaut. There was so much going on. If you were on that you just saw so much that your peers at other companies just did not see. So you had the experience, you had the network. You had the balls, frankly, to get big things done on your own when you left.

[A]

Barry led the Arvida deal, which a little bit inside baseball because he worked there at HBS in the summer. And then Richard Nunnula, who ended up being the CFO of Disney, was his best friend for business school. And so they kind of worked that out. But they bought public companies, they were buying the best real estate, the coolest real estate, and they had all the money in the world, it seemed. And then the third really timing.

[B]

You take advantage of the ERISA legislation and you just get on your way. And so many things coalesced. The pension money is coming in. Syndicators money is coming in. The 80s is just overall, real estate

[A]

values are going up, Real estate values are going up.

[B]

Capital is plentiful. Right. There was just so much happening. So Jambi is definitely a creature of its time in that sense too.

[A]

Indeed. And they have that other intangible thing that all the truly great firms have, which is just there's something in the water. Or in this case, the root beer.

[B]

That's it for the promote podcast this week. We trust you enjoyed going down the JMB rabbit hole with us. It was a story that I felt needed to be told.

[A]

Legends, LBOs and industry shaping legacies felt like we had to do it. And if you didn't like it, who cares?

[B]

We had a great time. Thanks again to our sponsors for their support here. Bravo Capital. You can find [e-mail] real property captive.

[A]

Find out how you can get dividends back on unused premiums by going to rpecaptive.com and Loan Boss so you can

[B]

[e-mail] I'll see you next week. Will really fun one. Really fun one for sure. Thank you.

[A]

Thank you. And I'm a Celsius guy, but if I could find a Hars root beer, might try one.

[B]

Ciao.

[A]

It.