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- [00:03]
A
So I got a problem. They barely smoke in the movies anymore. It's probably better for public health, but I'm a little wistful for those iconic hazy shots of a Cary Grant or even a Don Draper.
- [00:14]
B
Look, it's toasted. But thankfully we still have Simon Dushinsky.
- [00:31]
A
Welcome back to the Promote podcast, your insider guide to the money and mania of the CRE markets. I'm Hitan Samtani.
- [00:36]
B
And I'm Will Krasny.
- [00:40]
A
A shout out to our sponsors, Bravo Capital, a leading HUD and bridge lender and loan boss.
- [00:45]
B
The best in class CRE debt management software.
- [00:48]
A
This week we chop it up on how God is smiling upon us Alts. I didn't come up with that. That's a Will thing. Well done.
- [00:54]
B
I stole it from the article in the FT where the head of the distressed lender. I forget the guy's name. He's like, I can't believe God would smile upon me like this.
- [01:04]
A
The federal government has put forward much anticipated regulation that creates a smorgasbord of investment options for retirees. The implications for cre, as co host Krasny likes to say, are tectonic.
- [01:15]
B
Tectonic.
- [01:17]
A
Next, we discuss how Manhattan office has broken the $300 a foot sound barrier twice in a month.
- [01:22]
B
By the way, also the $310 and $320 foot sound barriers.
- [01:27]
A
And finally, we bust out our Marley Slims and head to Brooklyn, where an orthodox dealmaker's unorthodox playbook is dominating the development landscape.
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B
Rabsky is such a legend. I'm really excited to dig in here. Let's kick things off with the punch list, our signature rundown of the newsiest news in cre. However, before we do that ta dung, I want to remind those of you who suffer from FOMO to sign up for the Promote Insider. It's our premium tier filled with exclusive content and behind the scenes analysis.
- [01:58]
A
We just dropped an important piece from an exec at a major apartment landlord. Honestly, I think it's one of the best blueprints for the institutional business going forward that I've read.
- [02:06]
B
It's really, as you said in the
- [02:08]
A
newsletter, the thing about the old days,
- [02:10]
C
they the old days.
- [02:11]
A
And on April 23rd, we're going to be joined by Lightstone Group founder David Lichtenstein for a conversation talking all things dealmaking. Now, David's a titan of the business and he's seen it all. That virtual event is only going to
- [02:23]
B
be for insiders, so go ahead and sign up@thepromote.com upgrade. That's thepromote.com upgrade. And we will drop a 10% discount code in the show notes.
- [02:35]
A
All right, punch list. Let's go. First one. Amazing. The reaction was very. How do I say this?
- [02:43]
B
Burning.
- [02:45]
A
What am I talking about? Andrew Chung of Innova Property Group, former Carlyle guy, has been appointed co CEO of Excel Development, Gary Barnett's firm. I tried to crunch the rationale for this in 10 different ways, and I couldn't get there.
- [02:58]
B
Well, before we even get to that, the chunk of it all this, really the first thing that came to mind for me was the Tobias Junke meme where it's. I mean, these people somehow delude themselves into thinking it might, but. But it might work for us because
- [03:15]
D
I think we've seen this before.
- [03:16]
A
Gary Barnett, who we've waxed eloquent about on this podcast multiple times.
- [03:21]
B
Well deserved. I don't think we talk about him enough.
- [03:23]
A
The whole podcast could just be called the Barnett Podcast. And I think people would be fine with it, by the way.
- [03:28]
B
Oh, yeah, absolutely.
- [03:29]
A
Yeah. So Gary Barnett, in 2019, had brought in Westbrook alum Sush Thorgalkar to be CEO of XTEL. That move didn't even last two years. It's tricky, right? A founder like Gary Barnett, who has such a. Such a way about him and such a chutzpah when he does his deals and is able to take on, as we've talked about, this unbelievable amount of risk, how are you going to get a pro CEO to kind of adopt that and be respected in the same way? I don't know.
- [03:54]
B
I don't think so either. You got to figure out what game you're playing. And if you're coming from Westbrook or you're coming from Carlisle, you're not really playing the same game as the guy who's like, I'm going to go ahead and start this game. Construction project without a construction loan.
- [04:08]
A
Yes.
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B
I'll figure it out.
- [04:11]
A
And get to a point where you can take $1.2 billion in prep across several projects.
- [04:16]
B
It just doesn't compute. And the risk. We talk a lot about how guys in the 80s and 90s, you had to really risk your personal balance sheet. Balls to the wall, max leverage. And Gary's sort of a throwback to that era. And guys coming out of the institutional ecosystem really aren't that. I will say this about Chung. He has put real money in the line. He's been an entrepreneur. I kind of like view him as like the real estate version of Mugatu. Being like, I invented the piano key necktie. I invented it. He's like, I invented the two story warehouse.
- [04:50]
A
We're talking about the Bronx last mile plays that he made to give him his flowers. I think it was pretty early to the last mile game pandemic onwards.
- [04:56]
B
Yeah, yeah, it was early and he was successful. He raised a ton of capital. Unfortunately, he didn't quite raise enough capital because he famously lost.
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A
I knew you were going to go there. I knew you were going to go.
- [05:05]
B
The largest deposit I have ever seen of the $30 million hard deposit on HSBC Tower because he couldn't raise the money.
- [05:14]
A
He had a deal in place to buy this tower. It's a hulking office tower in Midtown for about $850 million. This is one of those kind of deals that puts you on the map that can make or break you. And unfortunately, it broke him a little bit here.
- [05:27]
B
It's a lot of money. It's a gargantuan amount of money. But it's not the money itself, it's what it symbolizes because once you do that, there's always a black mark there. And so to me, the biggest question is, what happens to Inovo? They didn't have a fund series, I don't think, but they had a programmatic JV partner, I think, out of out of Asia. What happens to those deals? What happens to that staff? Do they get subsumed in X tell?
- [05:46]
A
By the time this podcast drops, we will probably hear about more departures from Inovo to xtel.
- [05:52]
B
That would probably make sense. And also this comes down to succession. Gary has lived nine lives, but he's not yet even 70. And succession's really hard in real estate. You've got a bunch of examples that you cite about this has not been done well.
- [06:07]
A
Yeah, and it really hasn't worked out. If you think about the major players in New York real estate. Related, I think stands out as an exception where Steve Ross picked Jeff Blau as this guy way back in the 2000s and was CEO since 2012 and as seamless a transition as could be. However, for the most part, Vornado with Mike Facitelli leaving and Steve Rothschild, who's in his mid-80s and has had heart issues, is still running that shop.
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B
He's also had stock price issues.
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A
He has. And then you look at Silverstein Properties, which is when they brought in Marty Berger from Related to institutionalize the shop. But look, he had two major constraints. He wasn't a Silverstein and he wasn't married to a Silverstein So that was kind of a ceiling. At Silverstein Properties.
- [06:51]
B
There's a difference between whether you're setting something up to be an institution or it's a family business. And a lot of it is simply like, whose name's on the door? And Steve Ross's name is not on the door.
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A
Well, not at this company, but it is at related.
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B
Ross.
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A
Yes, absolutely. He's. He's going absolutely bananas in West Palm Beach. Listeners who are new to the promote definitely go into the archives. There is an episode called Ross Takes his Talents to West Palm Beach. Absolutely worth listening to. Anyway, succession's been really hard. What can Chung do here? Excel is probably the most interesting company in New York real estate right now, given all the stuff they're doing.
- [07:25]
B
I wouldn't disagree. I think they've done this stuff without a fund structure, I guess, without a balance sheet. But Barnett backs it personally. You could tell me Gary Barnett's worth $50 million. You could tell me he's worth like $6 billion, and I'd be like, yeah, that sounds right.
- [07:38]
A
Both things are true. Yeah.
- [07:40]
B
One of the things that makes it tough is that you're used to coming from a shop that has a real balance sheet. Any of these big funds, you look at the filings and they have billions of dollars in the balance sheet. There's no risk of liquidity. There are real risks at these shops and you need to keep the machine going. It's really hard. You're playing with live ammo and it's your ammo.
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A
The big question that the industry is going to be asking of Chung is, okay, sure, he had a 20 year career or whatever at Carlisle and started this INOVA property group. But can he do it on a cold, rainy night in Stoke? All right, next one. Doge. Remember that old chestnut?
- [08:16]
B
Haven't heard that one in a while. So the federal government just released a bunch of data, and I think it's the first time this has been put out there. It shows how much of the government footprint, office footprint's being used. The 23 largest federal agencies looked at the utilization rate of their real estate footprint. So both stuff that they lease and then stuff that they own. And what did it show?
- [08:39]
A
So we see that close to 10,000 government spaces, including offices, other properties and such, fell below a utilization rate of 60%. That's pretty staggering. And then some federal agencies were using just 12% of their space in their HQs. That's not very dogey of them.
- [08:56]
B
No, it's not. But the important thing here is the Ripple effects, because we've talked about a lot that education maybe isn't expanding as much.
- [09:04]
A
Meds and ads, yes.
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B
Is in fact perhaps shrinking in some of these major cities. We talked about meds and ads, but there's also gems, government ED's in beds. And what happens if the G goes away and gets smaller? And it's not just the office buildings. I'm not talking about like, specific stuff, though, to be fair. I can think of one building in particular on Livingston street that Clipper has that signed a lease with the Department of Prisons or something. Yeah, yeah. For like crazy high rent. That is worth nothing. It's more like the ancillary services. So if these buildings get cut or go away, what happens to like the retail around there, what happens to the hospitality around there? Other office buildings that serve with the government, law firms, lobbying firms, all those pop up around government buildings.
- [09:44]
A
Certain regions, the CBDs are dominated by these hulking government agencies and let's say Nova, et cetera.
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B
Yeah. The D.C. office market, for instance, is already one of the worst in the country. What happens if there's a lot more vacancy all of a sudden?
- [09:57]
A
Next one. Scott Rechler is coming into a major office to Resi conversion. This is one of the OG office to resi conversions. 55 Broad Street it is one of
- [10:07]
B
the first with Metroloft and the Rudens. And that deal got recut, I think when Nathan Berman bought it. Rudin stayed in partially.
- [10:14]
A
I was told the reason they stayed in is a ringside seat to watch the process. The master at work, the alchemist, Nathan Berman, and see how he does things. Because obviously Rudin has a lot of buildings that they need to figure out over the next couple decades.
- [10:27]
B
They do indeed. And you want to see how someone does it. And then the answer is it's a mixed bag. Bring in Pref at stabilization. Hooray.
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C
Question mark.
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A
He has a reputation as being the foremost practitioner of office to resi, along with maybe Van Barton. But Nathan Berman's had quite a few defaults. 20 Broad street went underwater and this is the one where 60 guilders stepped in with sentry. And is it a sale? Is it a recap? Who knows? But I think he just got hope noted out there.
- [10:55]
B
The laws of gravity still apply. You can be in the zeitgeist. You can have the asset class that people want, you can have the expertise that people want. But supply and demand matters. Rates matter, and you got to make your debt payments. I think he said at 20 broad, we had a great project. We Had a bad cap stack. But sir, who put on the cap stack?
- [11:14]
A
Word about Rechler here, he's come back with this renewed vigor. Been getting massive deals done. We spent a whole episode talking about Gemini Office Ventures, which is his three and a half billion dollar vehicle with Liberty and a couple big other institutional investors. And then he got 500 million from Apollo for one of his buildings, 61 Broadway. So he's very much in the thick of stuff right now.
- [11:35]
B
So the question is, is he writing more white papers or less? They've been very successful on the pref side of things. So they provided a huge slug of prep to go partners.
- [11:43]
A
Oh, they did great with the GO residential. Yeah, I was just going to say phenomenally.
- [11:46]
B
Well, they had a big minimum multiple and that was part of why GO had to go public was to raise the capital to pay them off. And for pref investment they did really well there and, and I think this is probably a great place to play for them. The guys who made the most money in the gold rush weren't the ones actually like doing gold. It was the people selling the picks and shovels. So maybe you don't want to be doing the office to resi conversions. Maybe you want to be giving them the breath.
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A
Next one. Department of Homeland Security wanted to spend up to $38 billion buying up industrial and repurposing it as detention centers for Trump immigration. That is now on pause.
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B
The dhs, the funding for that has been in limbo for a long time. It's been shut down. So it's hard for them to get any money. Nevermind 38 billion to buy warehouses from people who overpaid for warehouses. It just shows that what the government giveth, the government can also taketh away. So this was a beautiful time to make hay while the sun shined, but
- [12:43]
A
it looks very small. Small window.
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B
A small window in deep.
- [12:47]
A
That's it for the punch list. When we come back, we'll be talking about alts. I'm here with Aaron Krewitz of Bravo Capital. Aaron, $2 billion in deals, 100% HUD approval rate. Five years since launching. How do you keep that streak going?
- [13:06]
C
Comes down to our team. Our underwriters know what HUD wants. We're a pure play HUD lender. Meaning everything we do is HUD and bridge to hud. No taking shots and just hoping when we go, we really go.
- [13:17]
A
You closed a healthcare HUD Express Lane deal in four days. Four days.
- [13:22]
C
Four days from our submission to HUD's approval and it goes back to knowing the ins and outs of the program so that there is no guesswork.
- [13:28]
A
Sniffs, assisted living. It feels like such an arcane world full of very complicated regulations and such a specific cast of characters that you really need to know, Cole, to make this work.
- [13:38]
C
Exactly. We're steeped in in state by state regulations and distinctions. But we're not just about hud. We also have a very strong balance sheet. Bridge affiliate Bravo Property Trust, and we just financed over 170 million out in Miami and 125 million in Dumbo, Brooklyn. If we have conviction, we move fast.
- [14:00]
A
Thanks, Aaron. And where can people find you?
- [14:02]
C
We're@bravocapital.com.
- [14:09]
A
This one's big, Will. This is tectonic. It truly is tectonic. There was talk for many months now that the Trump administration was going to look at opening up 401ks to a broader range of investments. They've typically been your cookie cutter, very safe investments. And there's been talk about expanding them into alts, which includes crypto, includes private credit, a whole host of things. One of the recurring themes of this podcast is, is retail money is the holy grail. Much cheaper, better terms that you can secure for yourself as opposed to these giant LPs who can squeeze you a little bit and just a giant pool of capital. We're talking, I think, $12 trillion of capital in the 401k, something like that.
- [14:48]
B
This is like when we discovered fracking or horizontal drilling. It's the fracking of the alternative space is getting into retail like this. And yeah, this regulation is essentially for 90 million Americans and it's going to allow them to invest in a broader array of assets. Because of course, if you were only limited to the 6040 portfolio or the mutual funds of yor, then you didn't have enough freedom and so now you can invest in BDCs.
- [15:15]
A
You couldn't participate in the upside, which is the American way. Will, come on.
- [15:19]
B
I was going to say don't me, Josh Clarkson. I like you a lot, but yeah, I don't know if retirees, people in their 401s need BTC exposure. To be clear, this has been proposed and lobbied for a long, long time. The Department of Labor came out and proposed a new rule which, would, quote, democratize access to alternative investments in 401k plans. And it explains the steps that managers of 401k plans need to take when considering alternative assets as a component in their investment lineups. This is what you have to do to get into blackrock. This is what you have to do to get into bx. And this follows the executive order basically setting the stage for this. And this is again, what everyone has been lobbying for.
- [15:55]
A
The major players, Blackstone, Brookfield, Blue Isle, etc. We're setting up this infrastructure behind the scenes, tying up with the vanguards of the world to create the platform that would then once the floodgates open, they're ready. They're ready to feast. Right? That was the whole idea.
- [16:10]
B
Remember, there's a difference between the investment managers themselves and who custodian these assets. So if you are at a job, you're in a Vanguard 401K, you're in state Street, Fidelity, all these different groups, they don't actually have those options, so they have to partner with somebody else. And also kind of what you're seeing too, which is a little bit different, but kind of the Same, is outsourced CIOs.
- [16:32]
A
My friend Liana at Allocator has been writing about this.
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B
Endowments, pension funds, family offices, they couldn't compete on comp. And so now all of these things are getting outsourced. So instead of having a direct team that does real estate, you hire Blackstone to do it for you. That's also retirement money for the most part. Like all of this is getting shifted over into alts. And what's so interesting about this is that the way the argument is framed, Deputy Secretary of Labor Keith Sonderling, he goes, this proposal is decidedly neutral and refrains from saying that any asset class is any better or worse than any other investment types as the law requires, which is just like gobbledygook.
- [17:10]
A
The decidedly neutral thing is like the very stable genius thing.
- [17:14]
B
It's the same DNA, investments are all the same. So who's to say what's better?
- [17:18]
A
We've talked a bunch before about if you're a registered investment advisor, if you're an RIA, you're getting courted hard.
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B
Now, not just the RIA, it's also the folks who manage these 401k plans.
- [17:27]
A
You know what we should track? Will? We should go and find the trade magazine for whatever that industry's called and start reading it and see what the advertising looks like. I think that'll be a fascinating way to track all this.
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B
Absolutely. Because these are, these are very low margin businesses. So. So if you're managing a mutual fund and you're taking 1%, these guys, if you're managing a 401k plan, you're taking much less to custodian these assets. So it's very thin margins And I wonder if you're going to see private equity try to roll up those providers as well as they've done with RIAs and other investment groups.
- [18:01]
A
When you say wonder, you mean, you know, right?
- [18:03]
B
Yeah, I mean it's happening, it's going to happen for sure.
- [18:06]
A
And this is also happening at a time when, if you are an institutional investor, private credit's getting a lot of heat right now. We just saw Blue Owl, I think was hit with close to five and a half billion dollars of redemption requests. People are gating their funds. There's all kinds of mayhem happening in the private markets. It's not been a pretty set of headlines for the last few weeks.
- [18:25]
B
No, it is not. Private credit has a place in the portfolio. It is a real asset class. It has benefits. But what the wise man does early, the fool does at the end. And some of these docs that got written, some of these loans that got done and 2022, 2023, you could drive trucks through them. These asset classes go in because you'd say, oh, we want 60, 40 stocks, bonds, we need yield, we need access to these types of investments. You couldn't get that elsewhere in your normal portfolio. And so these loans are made to private companies in a lot of cases. And you're like, oh, well, that's my way to get exposure to this burgeoning AI ecosystem. And it's really not. It's just really an enrichment scheme. They're coming after you because they can get better economics. And you're not necessarily going to be like calling them if they underperform on a sleeve for adia, they're getting some like, angry phone calls. They got to go fly places.
- [19:17]
A
Yeah. Steve from Wisconsin can't really do much if the real estate fund goes south.
- [19:21]
B
Totally. The other thing that always I always wonder about with these 401ks for commercial real estate is that real estate kind of is a shitty business, like low return on capital, hugely capital intensive.
- [19:31]
A
It's like my business is like media. It's a horrible business. Don't get into it. But if you do get into it and you do well, it can be great.
- [19:37]
B
Well, yeah, but the number one thing that's great about real estate, like the tax advantages, only the little people pay taxes, right?
- [19:45]
A
Yes.
- [19:46]
B
So if you're doing it in a 401k, you get this UBTI issue and you can't take advantage of the losses. So it's sort of like, what's the point? You can make good returns, have good assets, all those things, but it's one of the most important things, especially with the changes in tax bills.
- [19:59]
A
I think you're even underselling it. Tax is the be all, end all of real estate investing, period. Full stop.
- [20:04]
B
Yeah, because again, the yield's like not great. Right. It's only good on a tax adjusted basis. So like for private credit, they're like, I tried to raise capital for this thing and my investor said, well, my financial advisor can put me in this blue owl BDC making 12%. Why would I go into your real estate deal for six? Well, depending on where you live, that 12 is really like a seven post tax. It's also not paid in cash. It's picked. There are ways around it. But again, for a 401k, that kind of doesn't matter. The other thing which is interesting though, is that in the operating agreements you can allocate depreciation certain ways. So I wonder if, if, let's say pick a sponsor is like, you know what, we, the company are going to take all the depreciation for this 401k LP, so we're actually effectively putting in 5% of the capital as a co investor, we're getting 100% of the depreciation. That's going to be a thing. I guarantee you that's going to happen.
- [20:58]
A
So will you violate any debt covenants recently?
- [21:02]
D
So funny you should ask. I have been in technical default recently. I mean, who among us, right? But not since Q4. And that's not because I paid off a loan. It's because that's when I started using Loan Boss.
- [21:14]
A
I can't believe how old school some of our listeners are. They're still crunching DSCRS in Excel and all that.
- [21:19]
D
Ugh, total waste of time. Risky business to boot. LoanBoss runs the entire process for me. One click covenant testing. Incredible. Instant cash flow forecasting. Impeccable. And my favorite nerdy delight, the live forward curve. So I hate having to go download the forward curve. And then it's always vertical and you got to alt HVT to have it go horizontal. Make sure the index match works like ridiculous.
- [21:43]
A
They've just got it sorted here for you.
- [21:46]
B
Much better.
- [21:46]
D
So thank you, Loan Boss listeners.
- [21:49]
A
Check them out@loanboss.com that's loneboss.com and and tell them the promote sent you. Let's take it back to 2020, when you were walking the streets of Manhattan and there's nary a soul in sight. And everyone's writing off this market. The Manhattan office, which for decades has been the Safest, most institutional grade asset class class in real estate. And baby, we're back.
- [22:27]
B
Where's James Altucher? I want to go see his face when he saw this lease signed. Was he crying? What we're talking about is we saw a record breaking price per foot lease signed in New York not just once, but twice in the first quarter. Let's talk about the first one. If we were to say what was the highest per square foot rent in New York, you'd probably say one Vanderbilt, one Vandy.
- [22:49]
A
Yeah, absolutely, you're correct.
- [22:51]
B
And who's the tenant?
- [22:53]
A
It's called N scale, which is some kind of Nvidia backed AI infrastructure company.
- [22:58]
B
Those are words.
- [22:59]
A
Yes. They agreed to pay 320 a foot. But let's caveat this. It's only a 7,000 square foot space. It's not the biggest in the world.
- [23:06]
B
That's still $2.2 million a year for what would be like a very spacious five bedroom.
- [23:14]
A
So obviously SL Green feels great about this.
- [23:16]
B
Before we even talk about that, they were 100% leased. So did they kick somebody out?
- [23:20]
A
SL GREEN in general, Steve Durelles is their leasing guy. I think he is a master of reimagining space. I'm assuming if they had to, if SL Green had an office in there, they'd probably move some people around, do whatever they needed to do, do a little buyout here and there. Because you want this lease.
- [23:37]
B
No, you absolutely want this lease. And it's great headlines and you always want to break records. It's really unfortunate though when the record lasts for two. I don't even think they had time to like schedule the closing dinner or the record breaking dinner for this.
- [23:50]
A
So what happened next? Soloviev, one of your favorite characters, one of your picks for your reality show that we will do someday.
- [23:56]
B
Yeah, indeed. They got it done. They broke the record by seven and a half bucks.
- [24:01]
A
So 327.5 per square foot at. And now this is what I find fascinating. We're talking about two record breaking leases on two opposite ends of the class A plus spectrum, let's call it.
- [24:15]
B
Yeah, you've got one Vanderbilt, which is
- [24:17]
A
the new state of the art, state of the art, super, super prime, blah, blah, blah.
- [24:20]
B
You got the Centurion Club right on top of transit, all these things. And then you've got sort of the grande dame of New York office, which is where this other lease was signed at 9 West. Slightly smaller space. So you know, maybe SL green can be like, oh, we got more rent per year, but 5,000 square feet on the 50th floor of Nine West.
- [24:40]
A
I have a fun spoiler for you because you you didn't know who signed this. You have since learned who it is.
- [24:44]
B
I just knew it was a private international family office.
- [24:46]
A
It's a Mexican billionaire called Gonzalo Evia Balleris.
- [24:50]
B
All right, okay.
- [24:51]
A
But I think to the world he would be better known as Mr. Emma Watson. Really? Yeah. He's dating Hermione.
- [24:57]
B
Huh. It's Leviosa, not Leviosar. Did he make the money or his dad?
- [25:03]
A
Excellent question. Will, this is why I love you. His grandfather was known as Mexico's King of Silver. I think that is a fucking gangster nickname.
- [25:13]
B
It could be for like anything. Was he trading silver? Did he make things out of silver?
- [25:17]
A
No idea. He was of means for sure. And then his grandson, who's I think 28 years old, has a cute little AI company called Lok Lock and it's the parent company of this AI company that did this deal at Nine West.
- [25:29]
B
What?
- [25:32]
A
King of Silver makes the money. Grandson starts an AI company because that's the vibe thing to do right now. And grandson signs a lease in a building that is owned by another scion. So it's perfect poetry here.
- [25:46]
B
I do love it though. What's interesting, I think too about this as well is that it's what it says about the New York office market. So we've talked about office is a four letter word. I literally was talking to a bank today. It was like we don't do office, period, period. And office has been quite successful in New York. Good friend of the prod opera has been talking about banging this net absorption drum for years.
- [26:07]
A
Almost highest in 25 years. Yeah, yeah.
- [26:10]
B
And we've seen like really high valuations for class A office. 1 Vandy, they aforementioned $3 billion project, they sold a stake to Maury Building Company last year for what?
- [26:19]
A
4, 7, $4.7 billion. After that stake sale that made it the most valuable office tower in America by a distance. And then they sold more and more to Maury. So Nine west was obviously assembled and built by the great Sheldon Solow, the late father of Soloviev. Do you want to say what Sheldon Solow paid to assemble this prime property?
- [26:38]
B
Basically what like a West Chelsea four bedroom costs like $12 million.
- [26:43]
A
$12 million. $8 a buildable foot.
- [26:47]
B
And what's crazy is that Stefan took over. I think there was really high vacancy because they had super high rates. The building was dated and he has since reinves in the building quite a bit. The move if you were pruning the portfolio to sell these for estate taxes like he was doing would have been to keep the multi, sell the office. He sold the multi to go and kept the office and reinvested in the office and now is printing these huge numbers. The occupancy rate at 9 West, I don't have it off the top of my head but it's I think in the 80s or 90s. He's done pretty well up from the 50s or 60s. So that building is just dumping cash right now.
- [27:24]
A
I love what he said about this lease. He said the price speaks for itself.
- [27:27]
B
It really does.
- [27:28]
A
Until what, next month?
- [27:29]
B
Yeah. Well, in putting the 12 million in context, we're now at a point where the family office for 5,000 square feet in this million plus square foot tower, over their 10 year lease term, they're going to pay almost twice as much in rent as it costs to assemble the site.
- [27:45]
A
Manhattan, baby, you got to love it.
- [27:47]
B
Also this net absorption number really speaks to the lack of A plus space. It's really kind of a game of musical chairs because this is not something you can fake if you are mid block, if you are not state of the art amenities, you have to actually be creme de la creme and you have to be new and there's not a lot of that space and a lot of it's getting spoken for before it even goes up.
- [28:05]
A
Or you've got to be super name brand like Seagram Building I think has done very well. They got Blue Owl in there. Expanded incredibly high. Two hundreds I think they're for now. Yeah.
- [28:15]
B
But you have to be at that level and if you are like that market's being really driven. There's always like the hot sector. It's driven. Right. It was Tammy for a long time and now it's really AI. So of that 11.8 million square feet, I think 600,000 was just these random AI firms.
- [28:29]
A
And this is in a city which has no real AI ecosystem the way that SF does. If you permit me to be a little catty always N scale is a real shop and I think they probably have some go to market reason to be in New York. Locke is probably there just because this guy wants to be there. And Emma Watson probably shoots there and he's like, ah, might as well get space here.
- [28:53]
B
Doesn't he know that New York doesn't have a monopoly on talent? So there's been a rush of development in Downtown Brooklyn. Gowanus for 421A. We've seen a lot of these buildings go up. And now we are seeing some of the biggest refinances as these buildings are getting constructed and getting leased up that have happened for single assets across the entire city. And it's not a family, it's not private equity firm, all of whom are building in this area. It's Simon Dushinsky of the Rabsky Group.
- [29:34]
A
So I first heard about Rabsky, I want to say, in 2014, the real deal was doing this biggest developer annual countdown. We ran the numbers and you see the usual suspects, related TF, Cornerstone, etc. And laughably high up on this list, really high podium finish type of thing, was the Rabsky Group. And everyone in the newsroom said, huh, what? And we thought it was a mistake. We thought there was some kind of error in the data. But no, the Rabsky Group, which is a portmanteau of Simon Dushinsky and Isaac Rabinowitz, they're real builders. They're one of the most important and active and rapid builders in New York City. They're multifamily tycoons. Barely a photo of them out there. There's one now.
- [30:17]
B
I think there have been a lot of big loans, but the lender here isn't Madison. I was sort of stunned when I saw this. It is JP Morgan balance sheet.
- [30:26]
A
It's super interesting that JP Morgan's doing this. Let's say more about why the balance sheet part of it is interesting too.
- [30:32]
B
This isn't in some sort of securitization. It's just the bank being like, here's some money. I will tell you, that is a higher bar to clear as a sponsor than some sort of securitized product where it's going out to a million different people, none of whom can actually do anything, but they have to get in, into your shorts financially, personally. There's a warm body at the end of this thing. It is not like a, oh, we'll have some, like, blocker entity. Here's a screenshot of a. Of an account with some money in it. This is like a real full proctological exam.
- [31:01]
A
Rabsky famously doesn't have the thickest books. I've actually spoken to some lenders who've been through his finances and they said it's not like the record keeping is pristine. It's just that this guy's track record is outstanding. He knows how to build, he knows how to make money. Lenders will give someone like that a lot of leeway.
- [31:18]
B
This is Jamie Dimon sitting across the table being like so when are you going to pay me back? You got to have liquidity, you got to have net worth. There needs to be an entity or something with net worth, like equal to the amount of the loan and liquidity.
- [31:30]
A
It's pretty astonishing.
- [31:31]
B
I would guess 100 million of liquidity to qualify for this loan would be my guess. And they've got it, you know, or someone has it who's backing them because this is like a big boy, serious, serious thing.
- [31:45]
A
Rapsky is a big boy, serious group. As I said, very little is known about this guy. The myth around him is you're basically either going to find Simon Dashinsky outside the Vishnitz Shul in Williamsburg crushing Marley Slims or you're going to find him on a development site. That's pretty much it. They've never defaulted on a, on a major project as far as I know. A lot of these Brooklyn, the class of acidic orthodox dealmakers in Brooklyn that we've talked about, Yoel Goldman, Abe Lesser, et cetera, et cetera, they've had a lot of defaults, a lot of troubles, a lot of lawsuits. Dushinski Rabsky does not fall into that category at all.
- [32:19]
B
Part of it too is they're always taking these super expensive loans, super high leverage.
- [32:23]
A
They took two loans from Madison on this project.
- [32:25]
B
It's Madison on the land loan, it's Madison and the construction loan. And then it's like JP Morgan for the mid construction loan. So it's like, how much has this guy paid in origination fees over the last four years? It's staggering. But again, this is indicative of how New York development works. It's so capital intensive, so balance sheet.
- [32:41]
A
What I love about this kind of deal is the other side characters in it. So the deal was brokered by a guy called Henry Bodick. And if you haven't met Henry Bodick, let me tell you, this guy would get carded going into a bouncy castle. Very young looking guy, but he's in the thick of some of the biggest refis and construction loans in New York City development. He's done a bunch of deals for Chitreat. I love that New York throws up every so often characters like Bodak. It just makes it so much more exciting than oh, Newmark did the deal right. This guy has like three people working for him. It's nuts.
- [33:13]
B
It's just kind of epic. And again, that's such a good business. The profitability of Galaxy Capital is just off the charts, I would imagine. And just a little bit more on Dushinsky you wrote this because you've got the hammer here a little bit. You said you've seen as like a hyper positive guy. And I think it's something to really focus on is that you have to be a psycho to do this.
- [33:34]
A
Yes, 100%.
- [33:36]
C
We all go a little mad sometimes.
- [33:38]
A
Henry El Thani, the founder of Rockrose Development, one of the biggest developers in the city, he described it as a sickness. He said it's not just that you have to be positive. You have to have this hyper optimistic view of life. You have to believe that everything is going to go right. Because if you look at the actual reality of development and the odds of success, they're so low you would never do a project. So you have to kind of be sick in the head in a way.
- [34:01]
B
You do. And you have to put your net worth up personally, even on these loans. Henry Ogamian signing on stuff. Larry Silverstein signing on stuff. Maybe just carve outs, but they're signing on stuff. You have to believe it. Because the effort to build something is so much higher than the effort to even just buy something and operate it. The returns have to be so much higher to justify it. So you have to believe all of this stuff for a project like this. I think they bought the site in 2015. They're just delivering it now.
- [34:25]
A
It was 11 years, so some people like Henry called it a sickness. The tacitic world that Simon Dashinski is part of. The word that's used is bitachon.
- [34:35]
B
Bitachon. Oh, I love it.
- [34:37]
A
The belief that God has your back and everything's going to be okay. Which is a really nice way to think about it.
- [34:41]
B
We all should go through life like this a little quickly on the site. All these sites tell these stories of New York, like just in one address. So Forest City, Ratner owned it.
- [34:52]
A
Remember them?
- [34:53]
B
Yeah, right. They were really big on Brooklyn. They did.
- [34:57]
A
Atlantic Yards, now known as Pacific Park, Right now known as Atlantic Yards. Again, I forget what the last name is.
- [35:02]
B
What's the office building that faces inward because it was such a bed area. But anyway, they sold this in 2015. Rabsky bought this site and then they bought an adjacent site to allow for two towers. This is a massive full, more than a full city block in downtown Brooklyn. And they've really been on fire here too.
- [35:20]
A
And it's not just Brooklyn, by the way. They're tearing it up in Tribeca. It was a distressed property that they took over and went from there.
- [35:25]
B
Yeah, 106 Franklin. I think in Tribeca, they Took over Gary Barnett's Crown lease at 356Fulton. So they've been all systems go. And again, where's the equity coming from? Would love to know. It's so much bloody money.
- [35:37]
A
The Tribeca one is fascinating. The assemblage was owned by HAP Investments. Does that name ring a bell? No. HAP Investments is run by a guy called Eran Polak, former diamond guy who just completely imploded. His site is offline. All the projects have been defaulted on. But one of those Icaruses that we think about so much here at the Promote, he had this in so many other sites and he lost this in the carcass, is now becoming the Rabsky project.
- [36:04]
B
It's the third developer that always makes the money. So Rabsky is putting themselves in position to be that guy on several sites. What's really unique here is that this isn't a typical lender to part of the orthodox community. This is the biggest stamp of approval that you can get, really, as a commercial development sponsor is getting a balance sheet loan from somebody like J.P. morgan. And for the Rabsky to do this going back to 2014, when you saw them in a podium finish on New York's most active developers. When's the last time Gary Barnett got a JP Morgan balance sheet loan?
- [36:44]
A
That's it for the promote podcast this week. Landmark 401k regulation promises to open the floodgates of retail money, warts and all. Will Manhattan remain a barbell office market with defaults on one side and 320A foot on the other side? And boy, would I love to be a fly on the wall when Jamie Dimon and Simon Dushinsky share a bowl
- [37:01]
B
of kugel at the JP Morgan Cafe that no one can get a reservation to. We'll be back next week with more CRE Insider goodness. Thanks again to our sponsors, Loan Boss and Bravo Capital.
- [37:13]
A
You can find them at loanboss.com and bravocapital.com and don't forget to check out the Promote Insider, which is@thepromote.com upgrade. There's a lot of great content. Content there for you.
- [37:23]
B
And we have our April 23rd conversation with David Lichtenstein that I didn't know about until just now, so sign up for that as well.
- [37:28]
A
He's really fun. He's really fun. I'm really looking forward to it. I'll see you next week, dude. Thank you.
- [37:33]
B
Thank you.
- [37:34]
A
Ciao.