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- [00:03]
A
Being a public company that invests solely in the most competitive, highest stakes and most complicated market in the US makes for a pretty hard job.
- [00:11]
B
And imagine that's your second hardest job. Mark Holliday is also the chairman of Naira, which in this environment, I mean, my God.
- [00:27]
A
Welcome back to the Promote podcast, your insider guide to the money and mania of the CRE markets. I'm Hitan Zamdani.
- [00:32]
B
And I'm Will Krasny.
- [00:35]
A
A shout out to our sponsors, Real Property Captive. It's the first group captive insurance for
- [00:40]
B
mid market GPS loan Boss, the best in class CRE debt management software and
- [00:44]
A
Bravo Capital, a leading HUD and bridge lender that lives and breeds capstacks. This week we're going to dive into the high stakes, higher reward. Not for shareholders though. World of SL Green, the mighty REIT that is New York's largest commercial landlord. Look, from a deal junkie standpoint, Essel Green's king of the hill, no doubt. But no matter what it does, it can't seem to get Wall street to love it.
- [01:05]
B
Very sad.
- [01:06]
A
Next, we convert our dollars to LEK and we head to Albania where Jared Kushner is trying to create the next St. Barth. And finally, we load up those 10 cent bags and go shopping for grocery anchored retail with TPG and friends.
- [01:17]
B
What other real estate podcast is going to mention lek? I mean, come on, like, that's why you guys are here. Seriously, look forward to getting into all that. But before we do, let's get started with the punch list. Our signature rundown of the newsiest news in cre.
- [01:35]
A
Okay, this one. Sorry, I can't see their headlines without laughing. Brookfield is winding down in dc.
- [01:43]
B
This is our weekly Brookfield segment. Sponsors hit us up and man, you hate to kick somebody while they're down. But not the most unsurprising of news, given the foibles they've had in the D.C. office market. They went really big into it pre Covid with suburban office. The stuff that got just absolutely annihilated
- [02:02]
A
during COVID All the stuff that we read about the office parks and all the sprawling things.
- [02:06]
B
Bethesda Towers, which we talked about last week, which they sold for an 87% discount to what they bought it. And unfortunately though, this is what happens. Because if you are one of the folks in that group, you're the carpenter where everything is a nail. You want to go get as much of the capital at Brookfield and allocate it to your thing. You're not looking in Wyoming, you're looking in D.C. office. And so the D.C. office environment is bad. And that's what happened here. You could be the best of the DC Office guys and still have gotten crushed. There's no more Brookfield D.C. office.
- [02:34]
A
The way they put it was quite funny. They said, our operating team has always scaled with acquisitions and dispositions within our portfolio. Just like Orwellian nonsense on dispositions, our
- [02:44]
B
D's and lose included. Will.
- [02:47]
A
This is, I think, a fair question at this point with Brookfield and some of these others are fundraising and investing essentially on parallel tracks, and never the twain shall meet. Because that's how it feels with some of these companies.
- [02:58]
B
To an extent. We say that returns don't matter, and that's mostly true. But what you cannot do, you cannot fail unconventionally. If you fail conventionally, totally fine. Because DC Office people have made fortunes off. It's JPG Smith. That stock's gotten killed, too. Is anyone calling for Matt Kelly's head? No. D.C. office. Oh, my gosh. Bad vintage. What are we going to do? But if you were to go into something and say, you know what we're going to go into? Marina, the Potomac river, you know, or something crazy, and you fail, that's really bad. But D.C. office, you know, it's fine. You know, it's small part of our portfolio. Wipe your hands.
- [03:32]
A
Okay, next one. This is, I think, one of the world's great investment seats. So we've talked a lot here on this podcast and more broadly in CRE about one of the great family offices putting together, I think, a baronial portfolio, $25 billion fromANCIO Ortega's Pontega DEA. The promote took a look at the guy running point on this, Roberto Cebera. What a seat.
- [03:55]
B
It really is the family office. Seats like this, it's almost like commercial brokerage. An average one is not great and basically negative. And the best is worth 10x what you think it should be. You wake up every day, you try to generate returns, you try to find a lot of deal flow, all these things. This guy has one job. You manage one guy and don't get fired. That's really it. The mandate is. It's broad, but it's very specific at the same time. Because this is not get rich. Yeah, Mansor Ortega is already rich, super liquid. You can look up how many hundreds of millions of dollars a year, if not more, are dividended out of Inditex. That's got to go somewhere.
- [04:34]
A
In the course of the Inditex ipo, he created Pontegade. It functions as a combination between A parking spot and a tax shield for a centi billionaire.
- [04:44]
B
Precisely. Spain is also notoriously very difficult on taxes for folks both in Spain and out of Spain.
- [04:51]
A
Do you remember when I was in Spain and I was telling you I was in a cab and the driver was kind of ranting about Ortega and him not paying any taxes? Which is exactly here. Yeah.
- [04:59]
B
Yeah. Well, this is why Sean Connery at one point, they're coming after him for back taxes. Winners go home and fuck the prom queen. Shakira recently won a big victory against the Spanish Taxing authority for tens of millions of euros. So people have always been trying to get money out of Spain. It's why all the Real Madrid players, their IP is licensed in Isle of Man or somewhere. That's where they get their salary.
- [05:21]
A
Yeah, yeah, exactly.
- [05:22]
B
It makes a lot of sense. And they're buying creme de la creme stuff, but not necessarily what you see a lot of times from Asia where they're going to buy the Sony building or something super trophy like that in New York. These guys are buying cash flowing assets and then they're paying big prices. It's not just the high class office, the high class retail, the best multi. They bought the largest Starbucks roasting facility in North America in Manchester, Pennsylvania, which is. I'm biased because I invest in that market.
- [05:48]
A
Smells like coffee, doesn't it?
- [05:49]
B
It smells like coffee. It's on espresso way. What else do you want for that? Asset is as good as it gets in the country.
- [05:55]
A
I think it's an interesting seat to be in for another reason. You walk into a market, you could come in brand new, and you're automatically one of the two or three most important people in that market just because of the money behind you.
- [06:05]
B
You're Sydney Sweeney walking into the bar where everyone just Scooter Braun now is her boyfriend, which, oh my gosh, that's news to me.
- [06:14]
A
Really?
- [06:14]
B
Yeah.
- [06:15]
A
What do you think Roberto's getting paid? Do you think he's making as much as a humble fund manager at Brookfield, hemorrhaging money all over the place?
- [06:21]
B
Definitely not. Though he did get appointed to the board of Inditex. Maybe he has some sort of agreement there. But I would be surprised if this was a huge operation. I bet these things run really lean. And a lot of the property management, asset management's outsourced. So it wouldn't shock me if there's 10, 15 people putting out all this capital.
- [06:39]
A
I can picture one red phone directly to Ortega's office and the other red phone to Their go to broker in that market and that's it.
- [06:45]
B
That red phone probably doesn't get called but once a year or something like that.
- [06:49]
A
Okay, next one. The Chicago Bears. Should we call them the Hammond Bears from now on or what?
- [06:55]
B
They might as well be the Pawnee Bears and Ron Swanson's giving the permits for the new stadium or something like that. Are they going to bring back The Coach Ditka versus Gad guys from the 80s? The Bears, they were founded as the Decatur Staleys. Did not know this in 1921. So affiliated with the city of Chicago, one of the largest in the country. And Cook county can't get out of their own way to figure out how to keep them.
- [07:21]
A
And we've seen this more broadly with the Ken Griffin breakup, for one. So many businesses leaving so many headquarters re domiciling. Right. And this is part of it. What is the real estate play here?
- [07:31]
B
The real estate play, I think, is secondary. The real play now is if you're a Chicago Bear, go get the nicest penthouse in Hammond and save a ton of money on taxes. It's also important to note that not all sports teams are created equal. We've talked about sports real estate becoming an asset class unto itself. But in order to fund that, it's hugely capital intensive. And the McCaskey family is one of, if not the poorest, in quotes, NFL owners. One, they don't have the outside business to fund this like, say, Heed Khan of Jacksonville Jaguars or something like that,
- [08:02]
A
or Bob Kraft or Steve Ross or.
- [08:05]
B
Yeah, yeah, or Steve Ross is the best example. And they don't have the ability to go attract and raise that capital like someone like Josh Harris or a private equity person who. Capital raising is their job. So their options to build this new stadium. And especially because Cook county isn't going to step up and give them a ton of private financing because Cook county, as we know, is the mordor of property taxes.
- [08:26]
A
Yeah, next one. So Karen Bass has secured her spot in the mayoral runoff in Los Angeles. And at least the real estate guys in my orbit were convinced Spencer Pratt was going to be alongside her. But not so much anymore.
- [08:40]
B
No, Nichiramin has climbed up.
- [08:43]
A
Yeah, she surged past him the last couple days.
- [08:45]
B
Obviously he's claiming fraud, all these things, but I think it's just real estate people live in a bubble. And we all shouldn't be surprised that a guy who bankrupted a crystal business, which, by the way, I bought one, I bought one for my sister at one point and also bankrupted himself, couldn't put it together and get a lot of votes.
- [09:07]
A
This is the bubble that a lot of our CRE brethren live in. And listen, ignorance is bliss, I guess.
- [09:12]
B
Well, it's also one of those things where you look at his base of support and you look at the people who are actually eligible to vote in the Lama roll race and it's not exactly a concentric circle. Shouldn't be that much of a surprise. La, it's not San Francisco where they've gotten their act together, it's not New York where they've gotten their act together. So clearly there needs to be changes and hopefully at least the scare of Spencer Pratt and that sort of populist, low crime, fix everything, get it done ethos makes its way into the city because LA one of our great cities and we need to see it back on top.
- [09:46]
A
Okay, this one's sad. I was reading the Graydon Carter memoir and he talks about throwing a party for Billy Wilder, the great Billy Wilder, and basically no one showed up. And I thought of it because I read about Paul Massie, his brokerage, selling to some Boston based shop or selling is selling. Big word. Yeah. And I felt the same way. This guy was one of the giants of New York real estate brokerage, but really couldn't figure his stuff out. Once he sold to Cushman and tried his next act, it just didn't work.
- [10:14]
B
No. He had a quixotic attempt to be mayor, founded B6, but never really found purchase there. I think there was a lot of
- [10:21]
A
building by building, block by block. That's what it stands for.
- [10:24]
B
I gotta say, I kind of like the name and. But just could never really find purchase there. It never really worked. You wrote about this very eloquently, that he was really the ops guy. And that's great. It's super important. You need it, but you need the juice.
- [10:37]
A
You need the salesperson.
- [10:38]
B
Yeah, yeah, you need the sales guy. You need to have the pipeline replenished constantly. And he just never really was able to do that. And apparently also lived pretty large personal
- [10:48]
A
and professional financial problems. He struggled to make rent at B6. His house was at risk of foreclosure. He's had his tough times. The main point for us here, brokerage is a sales business. You can put a framework of an operation around it. And Massie certainly did that at Massie Nacal, which was a powerhouse back in the day. His partner in that business, Bob Nacal, is a salesperson. So he can say all this nonsense about AI powered brokerage and stuff with his New venture, Knackle. It doesn't really matter. The fact is Knackle can sell and he can sell himself out of trouble if he ever gets into trouble. Whereas Massie never really had that.
- [11:22]
B
Bob, even in the old days of Massie, Nackle talked about how having good credit is really important because he would float the company on his personal credit card until they got the next big sale and then pay everything down. But yeah, to your point. God, it must have been Paul Krugman spoke to my high school class saying that writers might not have jobs, lawyers might not have jobs, but he knows gonna have jobs. It's the peanut guy at Camden Yards who has the things on his ears. Because that guy can sell. And that's what Bob could do is
- [11:47]
A
Bob could sell and Massie could not sell, unfortunately. All right, that's it for the punch list. When we come back, we'll be riding up the elevators at one Vanderbilt. Well, what if I told you insurance could become an asset instead of just an expense?
- [12:09]
B
I'd say you're trying to sell me something, but also I'm interested.
- [12:13]
A
Fair. Here's the Math. You spent 2 million on insurance annually. Loss ratio is well under 30% over five years. That's about 10 million out the door, zero return.
- [12:22]
B
Painful but accurate.
- [12:24]
A
What if 7 million of that built up in reserves that you actually owned?
- [12:27]
B
That's pretty interesting. Tell me more.
- [12:29]
A
Real property captive built specifically for scattered site gps. Top carriers issue policies for lender compliance. Reserves stay in your account and after a few clean years, you're converting spend into equity.
- [12:40]
B
I like this because that's what the big boys do.
- [12:43]
A
Exactly. And now it's accessible for mid markets drivers like yourselves too. Check out the platform@rpcaptive.com that's rpcaptive.com and tell them the promote sent you. So this has been one of your hobby horses for a while and I figured we gotta ride it to the Belmont Stakes. Let's go.
- [13:15]
B
I really enjoy that. I have a personal brand that certain people know certain things about me. So when something happens I'll get like 12 texts. This is one of them.
- [13:23]
A
SL Green Realty. It is the alpha of the New York real estate world. It's a mighty REIT. I think they own about 31 million square feet and they've got a burgeoning credit division. They're developing a ton, they're doing a lot of things and we're going to get into all of them. But the tension here, the reason this is interesting is that no matter what SR Green does, and they do a lot. They do a lot of good stuff. Wall street just ain't having it.
- [13:45]
B
These guys are so smart. They're so good. They are the most sharp elbow, the most creative. They've made so much money doing so many different interesting things. From building the alpha development in this last cycle of one Vanderbilt, which has been phenomenally successful, Vulture credit deals, out elbowing Ben Ashkenazi for ground leases, all of these things. And it has meant jack fucking shit for the stock price.
- [14:10]
A
Stocks down 23% over the past year and 42% over the past five years.
- [14:15]
B
54% over the last 10 years.
- [14:17]
A
Wow.
- [14:17]
B
And the market cap is $3.7 billion.
- [14:20]
A
The entire market cap of SL Green is $1 billion less than the valuation of one Vanderbilt.
- [14:26]
B
That's not the equity value there, but still pretty meaningful data point. Let's go back and figure out how we got here. There were a lot of office investors who put together class B portfolios over the years, but there's only a couple that I would say are on the par of SL Green. So SL Green, Vornado, and then a couple of the families. But even those aren't at the scale and sophistication of these two.
- [14:53]
A
I would put these guys in a class of their own. But let's talk about it. So squash champion Stephen L. Green has amassed a portfolio of largely Class B buildings, most importantly in the Grand Central submarket, which has always been the alpha office market.
- [15:11]
B
Don Draper gets off the train from Ossining, and that's. That's where he goes.
- [15:15]
A
So in 1998, there's a shift, and we talk about the shift a lot at the promote, right, the shift from the cowboys, people who kind of cobble together these portfolios by sheer will and just going balls out, yeehaw. Into an institutional thing. So from the cowboys to suits. In 1996, Steve Roth over at Vornado had hired Mike Facitelli from Goldman Sachs, and that had been seen as the turning point of that company. In 1998, Stephen L. Green pulled his own card and he hired two lads from a company called Gramercy Capital. One was Mark Holliday, who is the current CEO of SL Green, and the second was his deputy, Andrew Matthias. These guys essentially set SL Green up on the path that it is today, this behemoth machine, institutional, blah, blah, blah. The company went public and is now a REIT holiday was talking to me about creating the bones of what became SL Green Realty. And he used to go to the Royalton Hotel with Stephen L. Green. And they would sit there and Holiday said, all I ever had on me at the time was my Wall Street Journal and a pen. We'd pencil out the business plan and adapt it week to week.
- [16:16]
B
What's important to note those the guys such as Stephen L. Green, Larry Silverstein who put together these portfolios with willpower, a little bit of equity, tons of debt, personal guarantees and chutzpah, they were sort of ramshackle. There's the story in power Ground Zero where Larry Silverstein didn't get their bid in on time for the World Trade center because their fax machine didn't work. Why does it say paper jam when there is no paper jam? I swear to God. Piece of shit. These guys, Holliday and Matthias and Mike Facitelli, they are really the guys who turn these from ramshackle. And I say that like in an endearing way, affectionate way for sure. And behemoth isn't even really the right word. We talk a lot about how institutional private equity is just a widget maker and they're sort of being turned into widget makers, albeit a very creative and sophisticated widget maker. But that's really what they're doing. And they're no longer buying and renovating lipstick class B buildings, trying to make a spread to the yield. They're hugely complicated developments, really sophisticated credit types of things or building condos or high end multifamily, but really getting away from the roots of value add office.
- [17:25]
A
What Holiday and Matthias brought to the table was the structured finance capability. So for example, the Sony building in 550 Madison was in play. SL Green tried to buy it. They lost out to the girthy lads, the char treats, but immediately they went to the treats. Robert Ivanhoe talks about this, he's like, I was cornered at the Rebny ball. We've got the financing sorted. So they arranged a 900 million-ish package for the treats on this and then they kept the mez on it. So they've always been able to figure out a way into the deals that they want even if they don't win them. That's been in their DNA now for the last 15 years or so.
- [17:57]
B
They're really early to it because everyone and their mom now wants to do pref mez hybrid and they've been doing this for a long time. A lot of lenders try to say we're really not loan to own. If you listen to certain guys who, you can guess who I'm referring to, we're friendly where you really don't want to own it. But we have the capability, of course, and SL Green is just, we want to own it. You want to close. Well, we want to own it, so pay us back. And it's worked out really well both in some cases where they've taken over and been able to add extraordinary value, or where I think they recently made a massive win buying distressed debt at a huge discount just because they were able to deliver the bag of cash the next day.
- [18:34]
A
Let's talk about a couple of big WINS They've had. So 5:22 Fifth, which is the RFR building, they got into the debt stacked there. The way one source memorably described it to me was Credit Suisse wanted their money in unmarked bills tomorrow.
- [18:49]
B
That's the thing about real estate, is that sometimes people want money and unmarked bills tomorrow. And SL Green, 1 had the capital to do it and 2 could do it quickly enough. This is a big thing, is that the opportunities are there and they're there for a very fleeting moment and a lot of people are going to want to go to a committee and, or go to their co investors or what have you. And these guys in. It's done.
- [19:13]
A
These guys have the mandate to move. Yeah. They step in, they pay 60 cents on the dollar. You don't know what's going to happen with this building. But somehow RFAR finds what I like to call the one of one buyer. Amazon comes in, pays them 350 million, like way above market for the tower and SL Green gets paid in full. You can do the IRR on this, Will, but they made 90 million on $130 million investment in months.
- [19:36]
B
Pretty, pretty good. Here's the whole crux though I think of this issue is that had they done that with somebody else's money, that is infinitely more valuable than doing it with your own. And I think that's really the original sin of this whole thing. Let's look at Related and let's look at SL Green because there are two sort of different things. Related, almost much more purely development, privately held. They also have the huge portfolio of affordable housing which now is throwing off geysers of cash. But look at the enterprise value of Related versus the enterprise value of SL Green. What SL Green does is just as hard. They've delivered probably just as good returns, returns, if not better on the asset level as Related. But they're doing it with their own capital, with their own balance sheet and they're by nature constricted, whereas Related is laying off all the risk. They are doing the most profitable portion of the development, which is buying the land, taking that risk themselves, selling it at a markup or recapping it at a markup, and then getting fees coming in on huge amounts of capital for these large projects. Whereas SL Green isn't. Your dollars go way further if you have somebody else's money coming in.
- [20:38]
A
And this is. Obviously they're constricted by the structure they're in by being a real estate investment trust.
- [20:42]
B
They're really a real estate hedge fund. And being a reit, I think, has really hurt them. And had they just been a privately held concern doing the same amount of deals, the enterprise value of SL Green itself would be much higher.
- [20:54]
A
They're sniping these cap stacks. There's not that many things trading, but there's a lot of action happening in the depths of the cap stack. And Nestle Green's right in there. 63 Madison Avenue, which was Jamestown and George Comfort. Wells Fargo and a consortium of lenders own the debt. SL Green has now stepped in, bought up a lot of the consortium, Not Wells Fargo yet, though apparently they're trying to do that too. And they're buying it at a heavy discount. And they expect to get paid at par. And if they don't get paid at par, they can squeeze. And that's what they do. Just before we got on here, published a piece about the Helmsley Building, which is one of the icons of the Manhattan skyline, is now officially on the market. It's being billed as RXR is marketing it, but that's all nonsense. The lender is pushing for the sale. SL Green also has a special servicer division called Green Loan Services. I was told it's the largest cmbs, SASB special servicer in the country.
- [21:46]
B
Oh, wow.
- [21:47]
A
And it kind of came out of nowhere. Yeah. Pretty crazy.
- [21:49]
B
I mean, where is that embedded in the stock price? Look at the value for Starwood Capital, having L and R, that is hugely valuable.
- [21:56]
A
This is part of it. Someone familiar with the company was describing it to me as they sold an asset on 53rd street at like $100 million markup. Home run deal. And that very day the stock was down. It just doesn't seem to matter. There's three things I want to get into. The Times Square Casino, the people in SL grade, and then the existential nature of what they should be doing. Which one do you want to go with?
- [22:20]
B
Well, let's go to the people first. The stock has struggled. Like, that's just an objective fact. And they've really tried to rearrange the talent. Folks have moved in, folks who've moved out in an effort to reframe the company. Some of these big names have left and are doing other things. Most notably Andrew Matthias.
- [22:36]
A
Andrew Matthias left in 2023. Matthias is related's co gp on 625 Madison Ashkenazi bought the ground. SL Green smacked him around by buying the debt, booted him out and then sold it to Related. And now Matthias, who was very much involved in those machinations for SL Green is now cogp was Related on the tippy top office tower.
- [22:56]
B
It's going to become amazing. Good for him.
- [22:58]
A
Prior to him, the Co CIOs Isaac Zion and David Schonbraun left. With every departure, there's also been an ascension. There's a cult in the mix. Harry Sittomer has become the guy at the company. So he has both the title. He's president and cio. It seems like he has an unlimited level of juice as well.
- [23:16]
B
As Littlefinger said, chaos is a ladder. And this guy is not even 40 and already the President.
- [23:24]
A
35.
- [23:25]
B
35. Oh my God.
- [23:26]
A
Yeah.
- [23:27]
B
Yeah. I got to wear more moisturizer. Honestly, not unlike what happened with Mark Holiday and Stephen L. Green. I think they're reframing the company. They're trying to really be credit forward because we're the golden age of private credit. Or probably just a little bit past the golden age private credit, given what's happened recently. But there's sort of this existential issue with being a reit. It's the original sin and we've seen it with other companies try to convert
- [23:49]
A
to a C Corp. We've talked about this on multifamily. There's been so much absorption and dissolution of multifamily in the last 18 months or so.
- [23:57]
B
It's also the same thing that happened initially with Blackstone, kkr, all those firms, because they were partnerships for a long time after they went public and then they had to do C Corp conversions and that's really what fueled the stock price. I think the same thing's going through here. If I were them, I would really try to be considering how to not be a REIT and to be an alternative asset manager.
- [24:15]
A
You're forgetting an important point though, Will. REITs are generally very lucrative for the people running them.
- [24:21]
B
This is true.
- [24:23]
A
Mark Holliday's compensation has been an interesting source of drama over the years. He got a $17 million compensation package despite an investor advisory firm describing it as, quote, excessive. In light of the developers disappointing stock Performance. And there's a lot of discretion that a lot of these REIT executives seem to have in how things work out. Mark, slice of the carry on SL Green's new debt fund. Did you know it was 12%?
- [24:46]
B
Woof. Pretty good. Pretty good.
- [24:48]
A
He could also personally direct 33% of the carry to other SL Green employees. So that's just a lot of influence and power.
- [24:54]
B
We're sure it's not going to go to Hark Molliday. Speaking of power, the one that really stuck out to me is what happened with Juan Vanderbilt. I think he invested $1.4 million.
- [25:04]
A
Personally, you mean?
- [25:04]
B
Yeah, personally. And got one and a half percent of the profits interest in it, and then half of his interest of that 1.4 got bought out at stabilization for $17 million or something insane. There's all these little nuggets left and right throughout this thing.
- [25:20]
A
I put Harry Citimer's compensation into Claude and I asked it to do a base case scenario or midpoint scenario and a moonshot scenario. And we had year one, total of 6.4 million on the base case, going up all the way to $19 million. So it can be pretty good if they hit all their targets, whatever those
- [25:37]
B
targets are, if they're restriping their options, it's one thing. But if their stock price targets, that's been a little bit of a challenge recently.
- [25:42]
A
And then obviously there's been one significant black eye over the last few years, which is the casino bid.
- [25:48]
B
Even guys with the most juice and the most expertise can always get it. And we've talked about this previously, but it's one of the run and hide. Yeah, it just so good. And speaks to, again, the difficulty of being in New York. This would not matter if you're an alternative asset manager. We've just talked about it. Brookfield losing all their money in D.C. this wouldn't matter. But it just feeds the narrative that New York's a really hard place to do business. And if that's your sole place of doing business, it's difficult if you're using your own balance sheet.
- [26:15]
A
You know that Holiday was set to get a $10 million bonus if they land at the casino. It was like a one time.
- [26:20]
B
I did know he probably had a couple of yearlings picked out that he wanted to buy there. One of the alpha guys in New York. But really, game selection and market selection is almost more important than individual deal selection. These are really smart guys. They've obviously thought this through, and it wouldn't shock me if they make A conversion to not being a REIT in the next couple of years just because this is where the world's going. These guys are so good at the deals, but unfortunately, if you're a reit, the deals don't necessarily matter.
- [26:48]
A
They're not only good at the deals, they're also good at the other part of it, which is such an important part of it, which is the capital relationships that they have. They sold a stake in one Vanderbilt multiple times to Mori Building Company, most recently at a 2700 a foot valuation, which is a beautiful thing. They're partners with the Koreans, the national pension service. They've built out an incredible global operation. So, yeah, in a different avatar, they could come out and really make it work.
- [27:13]
B
They could. And again, this is all for a company with a market cap that's less than the employee commit to Blackstone's latest funds.
- [27:32]
A
So, will you violate any debt covenants recently?
- [27:35]
B
So funny you should ask. I have been in technical default recently. I mean, who among us, right? But not since Q4.
- [27:43]
A
Ooh.
- [27:44]
B
And that's not because I paid off the loan. It's because that's when I started using Loan Boss.
- [27:48]
A
I can't believe how old school some of our listeners are. They're still crunching DSCRs in Excel and all that.
- [27:53]
B
Ugh. Total waste of time. Risky business to boot. Loan Boss 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.
- [28:17]
A
They just got it sorted here for you.
- [28:19]
B
Much better. So thank you, Lone Boss listeners.
- [28:22]
A
Check them out@ Lone Boss.com that's Lone Boss.com and tell them the promote sent you.
- [28:35]
B
So the Mania in Albania. This is for my elder millennials. If you remember from the movie Little Giants, the o' Shea brothers have the Giants versus the Cowboys. It's called Mania in Urbania. That was the genesis for this. Just a little snippet for everybody out there.
- [28:49]
A
Will finds joy in little moments like that.
- [28:51]
B
I do.
- [28:52]
A
I don't begrudge him.
- [28:53]
B
So what are we talking about here?
- [28:54]
A
So Jared Kushner's investment firm, Affinity Partners,
- [28:57]
B
just call it like Grift LLC.
- [29:00]
A
Jared Kushner is out there planning a $5 billion resort in Albania. Beautiful spot of the Adriatic Sea. And he's going in and trying to build a luxury Resort.
- [29:11]
B
He's trying to do several, actually.
- [29:13]
A
Actually, there's a couple in there.
- [29:14]
B
There's a couple different developments here in Albania. Who doesn't love going to the Balkans? Suzanne wants to build a luxury hotel and villas. It's an island in the south that was a secret military base for submarines.
- [29:27]
A
Incredible.
- [29:27]
B
That's what I think. When I think of a Belmond hotel,
- [29:30]
A
they're already doing some myth making around it. So Ivanka Trump, she said, we were on a friend's boat and we stopped for a swim, and effectively, that's how we found it.
- [29:39]
B
Oh, really? That's how you found it? Not just like the gigantic alleged kickback. Get the fuck out of here. I'm on Trump. Jesus Christ. David Senra, you should be ashamed of yourself.
- [29:49]
A
There's no shame gene in that guy. Anyway, so part of this is more broadly, since Trump has been in office, Jared Kushner, who has no official role in the White House. Right. At least this time around. Correct. Has been able to use his tremendous influence with the First Family to gin up a lot of interest in his investments. He's been able to raise money from the Saudis, from the Qataris, from the Emiratis. He's had a lot of success raising money for these nebulous vehicles.
- [30:16]
B
Riddle me this here, Haten. What do all those people have in common? It's really emblematic of what real estate has turned into in a lot of cases, because we've talked about how foreign capital is leaving the United States because of the political. Not even instability, but just the machinations. It's hard to figure out what regulations are going to happen. And so I guess if the mountain isn't coming to Muhammad anymore and us, Muhammad has to go to the mountains.
- [30:41]
A
Well done. Two Mohammeds, to be precise.
- [30:44]
B
Yeah, it's been really, really controversial, particularly in Albania.
- [30:49]
A
The backlash is that there was no public input into this project, supposed to be public land. And the Albanian prime minister is like, no, we need to open this up to broader international investment to make our economy thrive, et cetera. But it seems like the Kushners kind of got in there, did this thing behind the scenes, and now it's happening, and people aren't very happy about it.
- [31:09]
B
These things have happened in the dark of night. No one really knows why they got approved. The government, which is supposed to be keeping these natural preserves, there's migratory birds that are going to be impacted, and I'm kind of kidding about that, but that's a real thing. The flamingos, where are they going to go? Can you imagine if in Normandy, Omaha beach turns into a Four Seasons? Like, it's kind of ridiculous. We're seeing this all over where in the US land preservation has been a huge thing, not just in NIMBYism, but even in areas like central Pennsylvania, for instance, where a lot of local farms are being deed restricted to avoid development. We've seen it in the US with data center development taking over stretches of Virginia, Texas, the Northwest, where folks are like, we do not want this here. It's impacting the environment, it's impacting their electricity bills. And this is sort of Albanian equivalent of it. And everything can't get out of the way of big commerce.
- [32:01]
A
Part of it is the mixture between statecraft and commerce, which is such a fixture of so many other countries, has become so explicit in the US and now they're exporting that relationship driven business to other parts of the world. The American developers who are in, who have political juice, obviously the Kushner is right at the top of that table, are able to go and make such questionable deals happen. One nugget here that I thought was interesting. The point person for the Kushners on these Albanian projects is a familiar name if you're from the OG Brooklyn real estate investment landscape. Asher Abasera. He's the chief executive of Liftwork and he put together that now very disastrous Dumbo Heights deal for Kushner.
- [32:40]
B
Back in the day, I was going to say they were so successful in Brooklyn, like, we got to go to Albania and take this show on the road.
- [32:47]
A
You know how much I think about these things. But I remember Asher was kind of a nobody or two trees executive. The Dumbo Heights deal happens. I go to the holiday party circuit the following year. Super Persian guy in the center of the room and like people are coming at him. It's just the power had changed so much because he was in the Kushner orbit.
- [33:03]
B
We talk about what type of epoch are we in. And I think this story is about as emblematic of it as it gets.
- [33:14]
A
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?
- [33:22]
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 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 they AUM gobbled, right, as your sweatshirt says. But then they were forced to like 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.
- [34:11]
A
Thank you, Aaron. And where can people find you?
- [34:13]
C
People could find us@bravocapital.com.
- [34:22]
A
So there's been a run on institutional capital buying. Not just retail assets, but the operators behind them. And this TPG deal is emblematic of all that.
- [34:30]
B
Right? A big consortium of tpg, Norges and Lecais buying Echo Realty. It's a big operator, more than 230 retail centers, mostly Midwest, Southeast. What's interesting is they're not just buying the assets, they're buying the opco, the company. There's been a handful of these types of deals in the last six months alone. We've seen Town Lane buy Shop one. Not just the assets, but the whole platform.
- [34:52]
A
Did a massive deal about a year or so ago, right, with roic, was it?
- [34:56]
B
They took that private, but yes. And then MCB bought Epic again, same thing. They bought not only the assets but also the platform. Bain Capital formed a new platform with 11 north partners. They raised a billion, six to go do a bunch of assets. What's interesting is real estate, what you're able to raise for always shifts, right? And if you're the big platforms, MCB is sort of the outlier here. But they've been phenomenally successful in raising capital and broadening their base outside of a fund series. What's really able to get raised for now is sharpshooters, operations, acumen on the asset level. And I think the clearest way to demonstrate that is through buying an operator. You've talked to Town Lane, if you talk to mcb, if you talk to Main Capital, what they'll say is that oh yeah, these guys were excellent operators. Great. Leasing, forming capital, capital allocation, debt capital markets. That's where they struggle. That's where we can come in. Fusing boots on the ground, leasing operations, property management with institutional asset management, debt capital markets, capital allocation, investment decisions.
- [35:57]
A
So it's tpg, Mega Asset Manager. You've got Norgis, which is the Norwegian sovereign fund which has taken quite a bath in office. And then we've got La Qies which rose out of the ashes of Ivanhoe, Cambridge and Otera there now have moved from being a quote investor operator to pure investor. So they were just putting the money and shutting up. That seems to be what's happening. You've also got PSP Canadian pension fund which has also had its struggles in office.
- [36:22]
B
So they're shifting over to grocery anchored retail which is one of the hotter asset classes right now. You talk about data center, digital industrial, but grocery anchored has really had a moment because we saw Amazon take care of all the retail. That was a real bloodbath similar to office. But grocery Anchorage is doing phenomenally well and really the sales per foot in some of these asset classes have never been higher. It's really gotta be with the grocer to drive traffic to the other inline stores. And they've been really, really strong performers over the last five years. You can be a great property manager and a shitty asset manager and if you can fuse those two things together and have them all talk to each other, that's really the best strategy. And you pair it with most importantly the ability to go get debt. Because you look at a tpg, they can lever up, lever up and do things that you can't do if you're just a company that doesn't have that type of balance sheet.
- [37:22]
A
That's it for the promote podcast this week. New York's raining heavyweight REIT keeps getting rope a doped by Wall Street. The Kushers continue to combine statecraft and real estate dealmaking, this time in the crystalline waters of the Adriatic Sea. And the biggest institutional investors want a piece of your shopping cart.
- [37:39]
B
I'm bringing it back to the lek. I can't get over it. I'm just so excited that we got to talk about lek.
- [37:44]
A
You feel like a king when you have that currency man. It's incredible.
- [37:46]
B
It's like in Eurotrip when he's like can't get over that exchange rate. And Bratislava. Thank you again also to all our sponsors who make all of this possible loan boss.
- [37:57]
A
The best in class CRA debt management software. You can find them@loanboss.com Bravo Capital, a
- [38:02]
B
leading HUD and bridge lender that lives and breathes cap stacks.
- [38:04]
A
They're@bravocapital.com and Real Property Captive, the first group captive for mid market GPS. You can find them at rpcaptive.com I will see you next week. Well this is a fun one, challenging one, but a fun one, challenging one. Listen listeners, you have no idea what we went through to get you this episode, so I hope you like it. Well, thank you so much.
- [38:23]
B
Thank you.
- [38:23]
A
See you next week. Ciao,
- [38:26]
B
Sam.