Fugazi First Positions & Cracking Billionaires' Row

Summary

The Promote Podcast

Episode: Fugazi First Positions & Cracking Billionaires' Row
Date: October 29, 2025
Host: Hiten Samtani ("A") & Will Krasne ("B")

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Episode Overview

This episode of The Promote Podcast digs into three headline stories shaking up commercial real estate (CRE):

• Major fraud at regional banks Zion Bancorp and Western Alliance, raising new alarms about systemic risks in CRE lending.
• Walmart’s unexpected new strategy: buying entire shopping malls for urban growth.
• Fresh allegations and ongoing engineering drama at 432 Park Avenue, one of Manhattan’s “Billionaires’ Row” supertalls.

With their trademark mix of war stories and sharp analysis, Hiten and Will go deep into each topic, connecting the latest scandals and strategies to big-picture trends shaping how money moves in CRE.

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1. Bank Fraud in First Position: Zion Bancorp, Western Alliance, and the Hidden Dangers in CRE Lending

[00:53 - 13:13]

Main Points:

• Zion Bancorp and Western Alliance, both regional banks vital to CRE markets, revealed they had been duped via fraudulent title reports and cross-collateralized loans, totaling at least $60 million in losses for Zion alone.
• The scam: Sponsors (notably "Mom Ca Invesco," backed by individuals with ties to both the properties and the “nanobank” lenders) produced fake title reports to obscure the fact that first-lien positions were already encumbered.
• Classic red flags surrounded the deals, including aggressive leverage, related-party lending, and even the use of armed guards in a partner dispute.

Key Discussion Points:

• How the fraud worked: Sponsors faked title reports, making lenders appear to have first claim on properties that were in fact already pledged elsewhere. (“The only way around that is if there’s another bank ahead of you that you didn’t know about because the sponsor showed you a fake title report...” – Will, [02:25])
• Why it unraveled: Infighting between the sponsor partners led to lawsuits and public court filings, exposing the fraudulent structure.
• Systemic Implications: These stories highlight how crucial regional banks are to “real economy” lending for CRE and how such instability can ripple across the market.
• Vibes and Contagion: Will and Hiten stress how much CRE is affected by “vibes” — if enough people fear a banking crisis, it becomes self-fulfilling:
  “If enough people who are important say that the house is on fire, the house actually catches fire.” (Hiten, [07:13])
• Regulatory Fallout: The hosts point to hard lessons from Dodd-Frank and warn that headline fraud often leads to sweeping regulation, making business harder for small banks but not necessarily “fixing” the system.
• The “Mom and Pop” Reality of CRE: Despite the sky-high values and glamorous towers, much of CRE is financed in a surprisingly unsophisticated, relationship-driven way, “the largest and most important mom and pop business there is.” (Hiten, [08:29])

Notable Quotes:

• “This one’s kind of a riddle wrapped in an enigma wrapped in a bunch of fraud.” (Will, [02:10])
• “[Banks] are really regulated, but individual loan transactions aren’t necessarily super well diligence. … If you’re a $7 billion market cap bank, you should be able to know if someone else has primed you.” (Will, [09:39])
• “If you’re committing fraud, don’t take each other to court. It’s like Stringer Bell: you taking notes on a criminal fucking conspiracy. What the fuck is you thinking, man?” (Hiten, [05:44])

Memorable Moment:

• Will tells the story of a “draw request” email during the Great Recession, simply stating “need a million dollars to pay bar tab” — and the bank sending the money, no questions asked ([09:09]).

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2. Walmart’s New Move: Buying Malls to Crack Urban Markets

[14:28 - 19:30]

Main Points:

• Walmart is pivoting from merely leasing big-box space inside malls to outright owning whole malls, spending $100 million+ this year.
• The strategy: sidestep local opposition and planning headaches by buying out malls wholesale (e.g., Monroeville, PA), enabling them to “curate the experience” and introduce multi-use formats (Walmart, Sam’s Club, bowling alleys, entertainment).
• This approach echoes luxury trends — high-end brands buying their way into “retail control,” but now at a populist, Walmart scale.

Key Discussion Points:

• Why Buy Malls?: In affluent or urban areas, public opposition often thwarts Walmart’s attempts to enter. By buying malls outright, Walmart bypasses zoning fights and controls a large, consolidated site.
• Retail as Real Estate: Will underscores how every top retail story is ultimately a CRE story:
  “Every business story is a real estate story. Because Walmart, where are they going to grow? They have to have more penetration. That’s the way for them to grow.” (Will, [18:46])
• Broader Trend: The Walmart play mirrors moves by luxury conglomerates (like LVMH or Prada) buying-up flagship retail spaces in cities like Manhattan and Beverly Hills to fully curate the space.
• Modern Mall Redesign: New Walmart projects aim for a “curated retail experience” — less a classic mall, more a mixed-use, entertainment-centered hub.

Notable Quotes:

• “Buy the whole damn thing.” (Will, [16:36])
• “The bowling alley is a Walmart equivalent of the LVMH handbag.” (Will, [17:28])
• “Walmart is a logistics behemoth … Now they’re sort of doing that on the real estate side as well.” (Will, [19:06])

Memorable Moment:

• Hiten reminisces about his Appomattox, Virginia ex-girlfriend’s hometown, where the highlight is Walmart, not Civil War history: “The entire life of that town is … the Walmart.” ([14:28])

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3. Cracks in the Sky: 432 Park Avenue’s Supertall Saga

[19:30 - 29:49]

Main Points:

• 432 Park Avenue, once the Western hemisphere’s tallest residential tower, is the epicenter of a dramatic legal battle. The condo board alleges the developers (Harry Macklowe & CIM Group) concealed serious structural defects — actual cracks in the façade — to avoid jeopardizing property values.
• The allegations include “deliberate and far-reaching fraud,” notably the use of a special white concrete sealant, chosen mainly for aesthetic purity (to match Macklowe’s racing yacht), but which may have compromised integrity.

Key Discussion Points:

• Building’s Infamy: 432 Park, critiqued as “the one where the architect admitted it was inspired by a trash can,” has a long, storied history of engineering snafus and resident complaints ([19:55]).
• Mom-and-Pop Mentality at the Top: Despite billion-dollar values, major NYC developers often run projects with small-operator discipline and cutting-corners when payments come due.
  “This is the quintessential mom and pop operation. Harry Macklowe.” (Hiten, [20:41])
• Nature of Super-Talls: Once you go above 40 stories, “every one of these towers is a prototype,” with unpredictable engineering risks. Tiny design/manufacturing changes cascade into unique problems ([26:49]).
• Façade Fiasco: Macklowe insisted on a pure white “yacht gloss” look, leading to a compromised concrete recipe sealed with materials intended for boats, not skyscrapers — a major risk.
• Legal and Systemic Issues: The diffusion of responsibility in huge tower projects leaves ownership entities with limited accountability. By the time defects emerge, the original developer has often exited, leaving owners (“Mezz Owner 4 LLC”) with no recourse ([28:52]).

Notable Quotes:

• “The quote was deliberate and far-reaching fraud by not disclosing cracks in the facade that could pose real structural dangers down the road.” (Will, [22:43])
• “He wanted the building to be pure and he wanted it to be a certain color... He had seen it and he was very intimately familiar with this color because it is the color on his racing yacht Unfurled.” (Hiten, [23:21]; [24:02])
• “Once you get over 40 stories, every one of these towers is a prototype. You don’t have repeatable results because the shape of the building changes the performance.” (Will reading from consultant, [26:49])
• “The people who put up the buildings are not accountable for their quality. As long as problems don’t crop up before they unload the property, they can do whatever they want.” (Hiten reading advisor quote, [28:33])

Memorable Moment:

• The saga of using yacht-sealant on a supertall, and Will’s deadpan: “Sailing in the Adriatic is like similarly challenging as building a super tall.” ([24:26])

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Timestamps — Key Segments

• 00:53 – 13:13: The Zion & Western Alliance bank fraud saga
• 14:28 – 19:30: Walmart’s mall-buying playbook
• 19:30 – 29:49: The never-ending drama at 432 Park Ave and the risks of supertall development

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Episode Tone & Style

The conversation is insider-y, humorous, and direct — trading reminiscences about “bar tab” million-dollar loans, skewering CRE’s “mom and pop” realities, and poking fun at billionaire developers’ quirks. The hosts blend technical finance analysis with sharp skepticism and a taste for the absurd.

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Final Thoughts

Through colorful examples and vivid language, Hiten and Will show how CRE can be both shockingly informal and a minefield for lenders, developers, and residents alike. Whether you’re an industry veteran or curious outsider, this episode offers a sharp look beneath the glossy brochures — with no shortage of scandal and schadenfreude.

Transcript

[A]

So you know that iconic Patek ad? You never actually own a Patek Philippe.

[B]

You merely look after it for the next generation. Of course it's iconic.

[A]

I tried to rewrite it for billionaires Row condo. Didn't really work.

[B]

How could it? I mean, the things are showing cracks in 10 years. Forget like a generation. By the time the grandkids come, it's gonna fall over.

[A]

Welcome back to the Promote podc, your insider guide to the money and mania of the CRE markets. I'm Hiten Sumtadi.

[B]

And I'm Will Krasny.

[A]

It's been a wild week in CRE finance with two publicly traded regional banks crying foul about cross collateralized properties. The drama at Zions and Western alliance once again show how vital the regional bank network is to the industry's capital markets and how distress in that space can really ruin the whole party.

[B]

And fraud.

[A]

A lot of fraud. Next we look at Walmart's intriguing playbook. The retail behemoth is on a mall shopping spree. And finally, there's a literal crackdown happening at one of the country's most prominent supertalls. 432 Park Avenue.

[B]

The gift that keeps on giving. The stories from that building are just tremendous.

[A]

Never stops. It's amazing.

[B]

So two emails to know. For feedback on this pod, reach [e-mail] or write us a sparkling review on Apple, Spotify, or wherever you listen to your podcasts. And to advertise to CRE's insider community, write to partnershipsthepromote.com and by the way, we say this every pod, but we actually hit number 80 in Apple's business and investing podcast list.

[A]

Pretty amazing, man.

[B]

Like, take that CNBC's the Exchange. So this is a real podcast. You should really want to advertise on it.

[A]

We're basically CRE's water cooler and number 80 in 33 episodes. Pretty happy with that dude.

[B]

And we're not even doing video really yet. And we're both very handsome. So. So this is like going to be rocket fuel.

[A]

This is very true. All right, so this is pretty crazy. So we had at Zion's Bancorp, which is one of those regional banks pretty active in the CRE markets. We had $60 million of fraudulent loans that were reported. The whole story is pretty bonkers. So where do we start with this one? There's a couple of banks involved here.

[B]

This one's kind of a riddle wrapped in an enigma wrapped in a bunch of fraud. So generally when a bank makes a loan, your senior bank Debt that is the safest piece of the capital stack. You are first in line to get paid if something goes south.

[A]

First position. Yep.

[B]

The only way around that is if there's another bank ahead of you that you didn't know about because the sponsor showed you a fake title report with no liens on it. And that is apparently what happened here. They sent fake title reports to Zion and Western alliance basically saying, there's no liens on these properties.

[A]

So it's unencumbered. This is something you can finance or refinance.

[B]

Your first position, senior debt. All good, and then no one's the wiser if everything goes according to plan. Things did not go according to plan. And Zion goes, hey. They're told, like, this property's in foreclosure. And they're like, that's kind of weird because we're the lender and we don't have it in foreclosure.

[A]

So Zion subsidiary California bank and Trust underwrote these loans maybe about. Just. Just under a decade ago. The sponsor group, which was called Mom Ca Invesco, they filed for bankruptcy protection, and this led to a planned sale of some of the properties. And then it turns out that there were people, lenders ahead of them. And the amazing thing is that the lenders ahead of them were connected to the sponsorship entities as well.

[B]

Right. This is nanobank. The name is Nano. The problems were grande. So the three guys who are part of this, so it's Andrew Stupan, gerald, Marcel and Debashan. We're founding investors in Nanobank and Nanobank alone, the founders, more than $100 million. And Zion's bank, for instance, found that one property, it had a first lien on a building in Laguna Beach. The deeds were actually transferred to nanobank, which is a problem.

[A]

And then there's this other thing. So Mom Ca Invesco, Mom Ca Invesco, whatever you want to call it, is started by two guys, Mo Honorkar and Mahinder Makhijani. And Makhijani, based on that name, is one of my paisan. Sounds like a Cindy guy. They had started this distressed real estate vehicle, and the largest investors in this vehicle were these two guys, Marcel and Stupen.

[B]

Anytime there's like that much related party transactions, it's never really like a good thing. And look like a lot of real estate people are involved in banks because generally, like, banks have the money and they lend it. And so if you're a real estate guy, you can get involved with the bank. That's a good thing. Yeah, like Emigrant Savings bank is owned by the Milsteins. Yeah, the Milsteins. A lot of real estate guys are on bank boards or investment banks. Like this is like not an uncommon thing. It is kind of uncommon to borrow a hundred million dollars and then go get more loans on the same properties.

[A]

You know what's also uncommon is when you're fighting with your partner, which happens in real estate a lot. You used armed guards to take over one of the properties.

[B]

Yeah, that was amazing.

[A]

This happened between Makhi, Johnny and the other guy who.

[B]

I'm so glad you brought that up. That's the other thing is that had there not been this like partnership dispute where resorted to violence a little bit like this probably doesn't get uncovered. It's kind of like what a self inflicted wound.

[A]

So they have these ugly disputes that just blow up. There's lawsuits filed back and forth in the midst of all this paper trail. The banks figure this out is that I'm just trying to figure out how they could.

[B]

Some of the deals weren't doing well, but like the whole enchilada, so to speak, unraveled through a lot of these filings. So one of the buildings was in trouble. And so that was the one I referenced earlier where there was a foreclosure notice. And the bank's like, we haven't foreclosed on it. What are you talking about? And through this bankruptcy process, a lot of this came out. And that's what's so crazy. It came out because a lot of this infighting guys, like if you're committing fraud, like don't take each other to court. It's like Stringer Bell is you taking.

[A]

Notes on a criminal fucking conspiracy. What the fuck is you thinking, man? This wasn't restricted to just poor Zion's Bank. The same thing pretty much happened with Western alliance, which is another a very active regional bank in the CRE markets.

[B]

Right. And I think that was like supposed to be a hundred million dollar like line of credit for them to like draw down and buy stuff on. And assuming they had first lien on it and they did not, basically what.

[A]

Happened was they took loans with part of this portfolio pledged as collateral. But the properties that were pledged as collateral were already in foreclosure.

[B]

So that's bad. Yeah, that's, that's not good. Like don't do that. Especially if you don't do that, don't then sue your co conspirators. So why are we talking about this? Like, obviously it's a very fun story. Well, not fun for bank investors. These regional banks are sort of like the lifeblood of commercial real estate finance because they are the local folks who like write the construction loans and do a lot of like the smaller mid market transactions.

[A]

Once Signature bank melted down in New York, it was panic city for a long time. Right. And we're seeing the aftermath of that meltdown play out all across the market right now in the West Coast. What, what do we have? Our First Republic.

[B]

Oh, yeah, First Republic.

[A]

Yeah, yeah. Like everyone's lamenting the loss of First Republic and the good old customer service and all that. I mean, those two banks were as important as anything you can think of.

[B]

Yeah. And people are talking about, like how this wave of supply is like tapering off. And like a lot of it is because these banks aren't lending. And so you've seen, when you've seen fraud, when you've seen a lot of these people think systemic contagions, like the smaller banks are the ones that get rolled up.

[A]

I'm so glad you brought up that word contagion, because that is the thing. Right. The way that I think about it is like, if enough people who are important say that the house is on fire, the house actually catches fire.

[B]

We talk about this all the time. The vibes are everything. Vibes can shape reality.

[A]

When this regional bank crisis happened, there was a big void left over. And then this is when all these private credit players kind of up their game as well and they've taken over a big chunk of that business.

[B]

We're talking about $60 million worth of bad loans at Zion Bancorp. I think the market cap of the bank is like $7 billion.

[A]

You said the word market cap. Do you know how much market cap they lost after they disclosed this?

[B]

What, 20% of it.

[A]

A billion dollars? Yeah. When you see these kind of things, I think the whole idea is that if this kind of egregious fraud is not coming out right away, if it's not being stamped out right away and it's got to this level, what else is kind of lurking under the hood? What is the tip of the iceberg? Whatever crappy metaphor you want to use.

[B]

When you think of like real estate investors a times you're thinking like very savvy, tons of systems. That's not the case for the vast majority of.

[A]

I mean, we're going to talk about one of them in a little bit.

[B]

Think about like what it takes to get financing. Like, it's not that much. Like we've talked about this with like the Same PFS being able with the syndicators. If you like sign recourse or put up your balance sheet, they'd run a title report, but you can sort of help finagle that.

[A]

We like to say that real estate is the probably the largest and most important mom and pop business there is.

[B]

Yeah, I've gotten loans from a bank where at closing they asked me if I wanted online banking.

[A]

When people think of big city real estate, et cetera, they forget that a lot of the lending sources for these guys are far flung community banks. Right. Bank OZK is such a major player in the construction game right now. But there are banks that are a fraction of the size and sophistication of OZK that are plying their trades and shaping skylines through the deals that they do. But again, these are very much like good old boy situations.

[B]

Yeah. And a lot of this too is mutually beneficial. Because if you're a small bank and you're a loan officer, it's hard to find deals if times are good and you're not sort of a brand bank and you don't have, you're selling money. It's a commoditized product. So if you find someone who's going to take your money and do a lot of deals like that can be really profitable for you. There's a lot of incentives to like, look the other way. I know the story of this guy who went tits up in the Great Recession. He ended up like getting indicted, all this stuff. But in the indictment, they flagged an email where he sent a draw request to his lender saying, need a million dollars to pay bar tab. And the lender just goes okay and like filled it. Like didn't send invoices or anything. Like that's a real thing. The point being, like, banks are really regulated, but individual loan transactions aren't necessarily like super well diligence. And you can end up with stuff like this because how can you, if you're a $7 billion market cap bank, you should be able to know if someone else has primed you. That's not too much to ask.

[A]

Yeah. And also what happens is when these cases happen, these headline cases, that when things get this bad, the regulation kind of comes in pretty hot and then puts a damper on the whole market. Almost an overcorrection.

[B]

You're going to have to happen with Dodd Frank. Like that's what happened with like the new capital reserves, like the loan loss requirements.

[A]

Basel for whatever. Yeah.

[B]

For construction loans. Now it makes it hard for smaller banks to do it because you have to reserve so much capital on your balance sheet against it. And that's sort of why we're seeing, I think bank consolidation all over the place. I think regulation's a good thing in general, but like we're making it. So the thing we're trying to prevent is what's going to happen through all this regulation.

[A]

Do you know my boy Rebel Cole on LinkedIn, the Finance. Prof.

[B]

I do not.

[A]

Rebel Cole is the super cantankerous finance professor who puts together these really great analyses from call data, publicly reported call data on bank exposure to cre. And every time something like this happens where there's a major crisis, this guy's probably in his 70s or 80s, he puts that wave of distress graphic on his LinkedIn. It's fantastic. I love it.

[B]

These guys are the meat and potatoes of the real estate industry. And if they're going away and it becomes more expensive to run a bank and you have to have a certain level of deposits and assets to just make it all work. Like we're going to take away a huge source of financing and like what's going to fill it? Maybe, you know, athene ends up doing like, you know, $6 million build to suits for like a dentist. You know, if they find a way.

[A]

To roll that up into some new, that they could charge some crazy retail fees. You could see that happen.

[B]

We're really going to have to standardize title financial reporting like to make sure that it's not fraudulent. Because I'll tell you this too, like the way you upload financials to each lender is like not standardized. And a lot of times like they will take your Excel or like your PDF and for a lot of loans, like you're really relying on the honor system in some cases to like what goes below the line, what goes above the line.

[A]

So and to that point, I think just more broadly, there was a big article, I think in Bloomberg about the rise of hard money lenders and how, yeah, in Baltimore, some of these lenders will not ply their trades in Baltimore. Other markets that have, let's say, a concentration of such questionable activity, right, because.

[B]

These two guys took all these fraudulent loans, they borrowed a ton of money and like didn't renovate the properties and just took it.

[A]

I don't want to be too Cassandra about it, but in all this great wave of standardization that we're alluding to, there's going to be a lot of opportunity for companies who figure this out, right? Imagine going to fricking some regional bank in Utah and saying, okay, this is the way we're going to have to do things. But I imagine that at some point the regulation will require it, and that's going to be pretty big opportunity for the right company.

[B]

I borrowed from a lot of these, like, smaller community banks and whatever, and they're like, oh, we use Encino now. Like, like, we know. I mean, so that company. I don't know what Encino's market cap is, but, like, that went public. There's going to be a ton of opportunity here, but it's going to clamp down on a lot of these people because sponsors, like, if you're not a professional real estate. A lot of real estate's done by not professional real estate people. And it's a lot to expect them to have, like, super standardized financials, super clean financials, and a lot of the other precautions that, like, a professional real estate group would have. This could be just more debt funds. These guys actually came to New York.

[A]

Who?

[B]

These guys. Canner.

[A]

They came to New York for what?

[B]

Oh, they bought stuff.

[A]

Oh, they own a bunch of stuff on the Upper east side.

[B]

Yeah. So a canner group, which is like, again, these guys are all an amalgamation of each other. They bought a deal in 2019 from a guy who went to prison for six years for running a Ponzi scheme.

[A]

That's the way you got to do it.

[B]

They bought it for 38 million, got a $29 million loan. They bought it reo from Preferred bank, which I think is a big bank that caters to Asian real estate investors. Then they refi it in 23 and then tried to sell it in 2024 to the Swiss group. And the Swiss group was like, they refused to close. Like, we had the money in escrow and they wouldn't close for whatever reason. So this whole thing, like, stinks. Cash going back and forth between these groups is pretty sketch.

[A]

I'm a little disappointed in you, Will.

[B]

Why?

[A]

You didn't use the word sluicing.

[B]

Sluicing. Ugh, I'm losing it.

[A]

We want to tell you about the Promote Insider that is our new premium tier. And listen, if you want to go even deeper down the cre rabbit hole, this one's for you.

[B]

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[A]

That's right. Plus a whole new interview section and so much more. Founding memberships start at $240 annually, that's 20 bucks a month. Go to thepromote.com upgrade to get started. That's thepromote.com upgrade. I used to date a girl who hailed from Appomattox, Virginia. The highlight of that town is a Walmart. Like the entire, the entire life of that town is. What are you talking about? No, the Civil War thing. No one cares about it anymore. It's all about the Walmart. General Lee, I'm telling you, the Walmart is, is the main attraction. I think these super centers are such a dominant force in the cities that they're in. They're one on average, 180,000 square feet.

[B]

Chris Cagle has a song called Walmart Parking Lot. Obviously one of the biggest companies in the country and they really made their name by going to these smaller underserved places.

[A]

When you basically put a Walmart into one of these towns, you activate the entire town in a sense, right?

[B]

Well, I mean, you kill all the local retailers.

[A]

You activate as a, maybe a euphemism for what could happen. So because of that, because of the kind of the impact that a Walmart has when it comes in everything from traffic to, you know, killing the local competition, there's often a lot of backlash when a Walmart tries to get into a spot.

[B]

And the places that can really like activate the backlash are the urban centers that are more affluent. And so Walmart has had a trickier time getting one that just their footprint because they're such a logistics heavy company, they need like all the space and the stores like their deliveries done a certain way. Like for instance, like I was looking at an industrial building that has a packaging company that services Walmart and they're like, Walmart doesn't stock anymore. They only want the pallets. And then they want to take a knife and like cut it open and then throw the thing on there. The point being they need that real estate, but it's like hard to find that real estate in like Dallas. As you said, a lot of backlash when they want to come into those types of places. So like, what's one way to avoid the backlash?

[A]

Buy the whole damn thing.

[B]

Buy the whole damn thing. So Walmart has spent over $100 million buying malls this year.

[A]

Wait, malls? Just like actual shopping malls?

[B]

Actual shopping malls in the year of our Lord 2025.

[A]

I love the smell of commerce in the morning.

[B]

So they generally own most of their stores like within existing malls. So it's not real estate ownership, not crazy for them. But like buying whole malls is the.

[A]

Example that jumps out is the one in Monroeville. Right. They had tried to go there in 2005. The community said, no, you can't, we're not going to have this happen. This is a community of about 30,000 people. So they come back 20 years later and they just buy the mall. They buy that mall and they're going to reimagine it now. So it's not going to be a traditional Walmart in the sense there's going to be. They're kind of using the terms curated retail experience, which will include a Walmart, include a Sam's Club, have entertainment options, maybe even a bowling alley.

[B]

I mean this is. The bowling alley is a Walmart equivalent of the LVMH handbag.

[A]

Yeah, it totally fits the brand, but they would basically control, curate the entire retail experience as opposed to just have that megastore that we think about.

[B]

It ties into a trend we're seeing really across office. We've talked about a bunch retail where people want to own their own space and curate it themselves. And so we've seen a lot of owner user buyers on the office front. We've seen a lot of owner user buyers on the retail front too.

[A]

This is all across the super high end locales like Beverly Hills, what LVMH is doing, what Prada is doing in Manhattan. This is happening all over.

[B]

This isn't taking one of the corners on 57th and 5th. There's more than four corners in Monroeville. But it was the way for Walmart to get in. They tried to do this forever and then it's like, you know, in the rock green smoke, they did it, they're in. They don't have to ask for planning permission and they're just going to buy the malls and like do it that way because they're not doing ground up a lot more of a streamlined process. And it is also a way to figure out how to operate their model in potentially less square footage or in like tighter confines.

[A]

They're not trying to run this process entirely in house. They've tied up on a couple things with Cypress Equities. So they're leaning on someone who has a lot of experience in this style of broad based retail master plan development to get this done.

[B]

But so why is Walmart doing this? And this is one of the things I love about real estate and why I love doing this podcast. Like every business story is a real estate story. Because Walmart, like where are they going to grow? They have to have more penetration. That's the way for them to grow. And so it's like, how are we going to choose the stock price?

[A]

Do you think at some point Walmart's going to be competing with Namdar and the other bottom feeders for the.

[B]

Probably not, because I think they want like slightly higher quality stuff that doesn't have holes in the parking lot and like, has paid their property taxes. Walmart is a logistics behemoth and really grew their company by becoming like this vertically integrated machine. Now they're sort of doing that on the real estate side as well.

[A]

All right, Mr. Patek. So 432 Park Avenue. We've talked about this building quite a bit. Everyone's talked about this building quite a bit. But again, it's one of those things that's just continuously replenishing in narrative. It's amazing. To set the stage, Harry Macklow and CIM Group developed the Supertall Tower. It was the tallest residential building in the Western hemisphere when it came along. It's one of the most prominent of the early batch of billionaires Row towers.

[B]

For those who've looked at the skyline, aren't sure which one it is. It's the one where the architect admitted that it was inspired by a trash can.

[A]

What the architect admitted was that this building has a couple of screw ups. Yeah, but it has integrity. That's what Raphael Vignoli, rest in peace, said about this tower.

[B]

We could do a 666 Fifth Avenue style pod just on 432. Broad strokes for those who aren't quite as familiar. So Harry, coming off the biggest success of his career, which was the refinancing of the GM building.

[A]

Yeah.

[B]

Where he took out Jamestown, took out his prep. So he owned the GM building free and clear and took out like a billion dollars liquid. What's a guy like that going to do? He's going to spend $400 million buying the Drake Hotel just up the street. Y and to build something really grand about doing the most audacious development of his career, ended up getting wiped on.

[A]

The top of this podcast. We talked about mom and pop accounting when it comes to real estate. This is the guy. This is like the quintessential mom and pop operation. Harry MacLeod.

[B]

You can go down a rabbit hole with him. He also still has like, amazing case studies on his website. Go check those out.

[A]

We'll drop a couple of them in the show. Notes. Amazing little details about the business. So Harry Macklow is sitting on 432 Park Avenue's development site. It's a prime, prime, prime site. But he Finds him way in the red on it. So who comes in? Structure is Alpha, baby.

[B]

Cim, they parachute it. Yeah, they parachute in from la, structure is alpha and give maclow basically a hope note on the equity and finance this tower.

[A]

Very successful tower in the beginning. I mean I think they cleared $2 billion in sales. The priciest unit was something like $88 million to the Saudi retail titan. Pretty astonishing pricing here.

[B]

Yeah, and CIM I think did phenomenally well there too because they structured an incredible deal. Anywho, later maclow was getting divorced and put up a billboard of him and his mistress, his new 132, 432 Park Avenue as well. And honestly, he may have done that kind of crazy like a fox because it hid the cracks in the side of the building.

[A]

And this is, this is what we're primarily focused on today. Look, there's been a lot of coverage. The New York Times has had multiple front page stories and all the problems at 432 Park. Apparently when you throw the trash in that building, it sounds like a bomb's going off.

[B]

They didn't angle the trash can. So when it goes down any floors, it doesn't slow down, it just like.

[A]

Drops straight vertical limit. So there's a lot of coverage and we'll put some in the show notes about just the downsides of living in a super tall. But these allegations, the ones we're going to talk about right now, are far more serious. What the condo board is alleging is that the developers knowingly concealed structural problems in this building. We're talking about actual cracks in the fricking building, cracks in the facade.

[B]

I think the quote was deliberate and far reaching fraud by not disclosing cracks in the facade that could pose real structural dangers down the road.

[A]

One structural engineer advised them to hold, quote, hold the pour on the concrete and they disregarded it. Yes, we should obviously say these are all allegations made in the suit. CIM has vehemently denied all these allegations and says that the condo board doing this is disastrous because it's going to backfire and it's going to crater property values. That being said, these allegations are fucking.

[B]

Crazy and the details too are insane. So like Harry Macklow, who notably not.

[A]

A concrete expert, but his aesthetic expertise cannot be questioned.

[B]

So he wanted the building to be pure and he wanted it to be a certain color. It had to be white, which apparently is like really hard for concrete to.

[A]

Maintain the integrity of the white. You have to basically compromise the mix.

[B]

I feel like blackout Gatling in little big League when they're doing the math problem. And he's like, why don't they just.

[A]

Get a house that's already painted? You know, maybe there is no answer.

[B]

Maybe it's one of those trick questions. Why don't you just paint the concrete white afterwards? That joke was for like one person. And I'm really glad you got it.

[A]

They're gonna love you for it.

[B]

Matcloud, not a concrete expert. So he's like, let's use this invisible sealant. And Hatan, where, where did he come across this in?

[A]

So Mr. Maclow has had. He's prided himself on having a wide variety of inspirations, right? This color, he had seen it and he was very intimately familiar with this color because it is the color on his racing yacht Unfurled, which we've talked about before. So he's like, listen, this sealant is good enough for Unfurled. It's probably good enough for a thousand foot plus tall skyscraper.

[B]

Sailing in the Adriatic is like similarly challenging as building a super tall.

[A]

Listen, it's the price you pay, Will, for purity, for absolute purity. The New York Times had a new front page story on this whole saga. The court filings. They have included emails that go like this. One of the development team's own engineers, Mr. Marcus, sided with consultants who had endorsed the more inelegant coding. Even though it could, quote, have appearance impact. You are not being at all helpful. Bill Unger, a Senior member of 432 Parks Development Team, shot back in an email. Honestly, I prefer to disappoint today rather than installing something that even the manufacturer has doubts will work. Mr. Marcus replied, so it's pretty good.

[B]

Back and forth again, like kids. They can't subpoena air, just pick up the phone, call the guy. But they're finding cracks, like, during construction. Like, this is not something that just came about in the last couple of years. This has been an issue essentially since the tower was stood up.

[A]

I used to live in Toronto, and as I was about to leave for New York, a lot of my friends started buying these shiny condos. And at the time we thought these were the coolest things ever. They were gorgeous. Toronto famously has incredibly shoddy construction standards. So when I was in New York and I would go back to visit these same friends, they're like, the glass is falling off of the facade. And this had been a handful of years, right? So take that and extrapolate it to these incredibly giant towers in Manhattan, which is the most complex and expensive place to build. The whole idea is when you're developing for sale units. I think there's like a original sin in there. You're kind of incentivized to cut corners and move on because everything, and we've talked about this a bunch on this podcast, it's all about creating that illusion of desire and brilliance and scarcity with sales velocity. Right at the beginning though, it's like that 18 month, 24 month, 3 year period where you're selling everything, that everything has to be perfect, but once you've sold it, it's the other guy's problem.

[B]

Yeah. And two, when you're building, this is different than building, you know, a 10 unit condo building, like in Park Slope. If you could build in Park Slope, if they would let you. But I think there was an elevator consultant who had a really insightful take on this.

[A]

Oh yeah, I thought he was a great. This was the best take on it. Yeah, go ahead, read that.

[B]

Yeah. And he said once you get over 40 stories, every one of these towers is a prototype. You don't have repeatable results because the shape of the building changes the performance. And that makes a lot of sense.

[A]

Let's go to formula one for a second.

[B]

Right.

[A]

Like any tiny tweak in the shape of the car impacts, understeer impacts everything. Right. So basically it's the same principle, but.

[B]

Way high are the corners, rounded. Like where are the mechanicals? And they were saying at 432 every certain number of floors they had vents so like the air could go through so it wouldn't like make the building shake. And like no one had done really that type of construction before. The other part too is like, it's one thing if you're building a massive super tall on a giant piece of land that is like, has a lot of base support. 432, that, that site is so thin.

[A]

Yeah. What are the height to width ratios on these things?

[B]

They're crazy.

[A]

Yeah. Like, look at 111 West 57th, which I believe is the, the skinniest of this generation of towers. I mean, like, yeah, there's no room whatsoever to fuck up. Like you have to be really on it again.

[B]

Like no one's ever done this. And like, it's not a surprise that there's been like construction has taken forever on all these things.

[A]

So there's the engineering intricacy and complications that come with it. I think one of the other things that we haven't quite talked about as much is like capitalizing these towers. These are multibillion dollar jobs. Isn't Easy, Right. Sometimes you're flush and sometimes you're broke in the construction phase as well, right?

[B]

Yeah.

[A]

So there may be times that you feel like you want to do everything right and check all the boxes that you need to check. And sometimes you just have a limited pool of cash in your construction account. And maybe you don't, maybe you don't do what you're supposed to do.

[B]

Yeah, it takes what it takes. It's a little scary if you're ve' ing a building this tall, but like, that's what happens.

[A]

I mean, that's precisely what it is. I think there was another structural consultant who said something equally insightful. He said, it's the way that development operates in New York. The people who put up the buildings are not accountable for their quality. As long as problems don't crop up before they unload the property, they can do whatever they want.

[B]

If there are issues at this building, do you think they Want to sue? 432Park Mezz Owner 4 LLC like, go for it. Like, there's nothing in there.

[A]

I think of it as like the Kitty Genovese effect playing out in super tall skyscrapers. Like there's so much diffusion of responsibility in these buildings. Right. There's the developer, there's the gc, there's all the subcontractors. The subs have subs. Right? Who fucked up here? Who's really to blame? Who can tell?

[B]

I would say it's the guy who's like, use what I used on my sailing yacht to seal this building. But, you know, what do I know?

[A]

Well, I thought New York was going to bail him out.

[B]

Yeah, fair enough. Sometimes you win, sometimes you lose. And sometimes it rains. And our stories really had a lot of rain this week. So between the mortgage fraud and cracks in the super tall building, we'll try to keep it more upbeat next time. But that's the.

[A]

Hey, listen, we've had, we've had plenty of triumph on this show. Sometimes you need a little bit of disaster to balance it out.

[B]

That's true. Fair enough.

[A]

That's what Kipling would say, you know. Yeah.

[B]

If you.

[A]

That's it for the promote podcast this week. We'll be back next week with more cre Insider goodness. Will, it's a pleasure to see you back in the pink of health, dude.

[B]

Thank you. I am glad that my ulcer is healing.

[A]

I'll see you next week.

[B]

Ta ta.

[A]

Ciao.