Pinnacle's Bankruptcy Summit & Life Sci's Midlife Crisis

Summary

The Promote Podcast – Episode Summary

Episode Title: Pinnacle's Bankruptcy Summit & Life Sci's Midlife Crisis
Date: January 14, 2026
Hosts: Hiten Samtani (A), Will Krasne (B)
Theme:
A deep dive into three high-stakes stories shaking up commercial real estate: MCR’s failed Soho House take-private, ongoing turmoil and failed bets in the once-hot life sciences sector, and a closely watched bankruptcy auction for New York’s Pinnacle rent-stabilized portfolio.

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Episode Overview

This episode brings the insider’s lens to the distress and drama inside three corners of the CRE universe. From Tyler Morse’s MCR defaulting on a major hotel deal to the unraveling of “can’t lose” life science investments, and finally the pivotal bankruptcy of Joel Weiner’s Pinnacle portfolio, the conversation is packed with insight, war stories, and dose of irreverence that’s become the show’s hallmark.

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Segment 1: Soho House Take-Private Implosion (00:43–07:07)

Context & Key Players

• Tyler Morse’s MCR: Third-largest select-service hotel operator in the US.
• Deal Structure: MCR and partners (Goldman Sachs Asset Management, Ron Burkle, Ashton Kutcher, Apollo) agreed to privatize Soho House at a $2.7B valuation (including debt).
• Event: MCR failed to produce $200M in equity at closing. The board capped damages at $10M.

Highlights & Insight

• Extinction-Level Event?
  • “At first blush, this is a potentially extinction level event for MCR because they might get sued for specific performance… You can be forced to close. It’s the same thing that happened with Twitter.” (B, 01:31)
  • “This is a public company. Stock plummeted right after this was disclosed in Soho House's filings." (A, 03:36)
• Why Did It Happen?
  • “Why sign the equity commitment letter if damages are capped at 10 million? It doesn’t matter.” (B, 02:55)
• MCR’s Brand Drift
  • “Tyler Morris built his brand and built MCR on select service… The rooms business is the only good business in the hotel business.” (A & B, 03:51–04:14)
  • “Yet they own three enormous New York union hotels… The exact opposite of what they were doing.” (B, 04:39)
• Salvaging the Deal
  • The recap group will likely add more equity and get it done, since Soho House is a controlled company. “They’ll cover this to get it done because again, it’s a controlled company and they’re basically taking it private because they don’t like the stock price.” (B, 05:48)

Notable Quotes

• On legal exposure:

  “It’s almost like, is Tyler stupid – like a fox – where he’s like, I got a $10M option to be in this take private because someone’s lawyer really screwed up and someone’s lawyer did very well.” (B, 06:53)

Industry Fallout

• Reputation risk is huge; fewer will trust MCR after this.
• Comparison to Andrew Chung’s failed tower buy: “This is way worse. Don’t syndicate or like not have the money for a take private... not for a public company.” (B, 06:31)

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Segment 2: Life Sciences’ Midlife Crisis (08:23–16:47)

Context & Key Players

• Life science properties: Once pandemic-era darlings, now struggling.
• Beacon Capital’s Headache: Sued by operating partner Portal Innovations for missed capital calls.

Highlights & Insight

• Beacon’s Roots & Recent Pain
  • “Fred Siegel of Beacon Capital Partners: the predecessor was just the Beacon companies... massive Boston-based developer.” (A & B, 09:01)
  • “They’ve had some black eyes in the office market too recently... lawsuits and CMBS workouts.” (A, 09:32)
• The Lawsuit
  • “The office partner sues Beacon basically saying, you guys haven’t funded... and Beacon’s response is, ‘you’re so bad at this, you lost $50 million.’” (B, 10:20)
  • “Beacon is saying that the operating partner charged excessive management fees. My guys, you wrote the JV.” (B, 10:52)
• Industry Pattern
  • Emerging asset classes bring conflicts between traditional landlords and new “middleman” operators – similar disputes forecast for data centers.
  • “So much of the investment management industry is just based on price go up. The actual operations of stuff is so hard.” (B, 11:13)
• Lender Distress
  • Bank OZK offloaded a $265M construction loan at a loss; potential huge default with their $900M loan to IQHQ in San Diego.
  • “If they default on this loan, that’s a pretty massive hole for OZK and that’s going to be a pretty big shock for the life science sector.” (A, 15:35)
• Sector-wide Trouble
  • New projects lack tenants; product doesn’t fit demand for smaller, fitted-out space.
  • “We had office, which was a shitty business, and then we got life science, which is just expensive office.” (B, 15:14)

Notable Quotes

• “Would you say really that this whole sector is clinging to life sciences?” (B, 08:45 – with a groan-worthy pun)

• “If only there was a vaccine for vacancy.” (B, 16:36)

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Segment 3: Pinnacle Portfolio Bankruptcy Auction (17:59–30:22)

Context & Key Players

• Pinnacle (Joel Weiner): Once a rent-stabilized billionaire, now in default.
• Portfolio: 5,100 rent-stabilized apartments in NYC; massive distress post-2019 rent reform and rising rates.
• Flagstar (formerly NYCB): Lead lender.
• Summit Properties USA: Out-of-town stalking horse bidder.
• NYC Mayoral Intervention: New mayor (Mumdani) and tenant activist C.A. Weaver take activist stance.

Timeline & Key Points

1. Portfolio Overview (18:55–19:13)
   • “5,100 units of rent stabilized apartments... enormous portfolio. This was easily a couple billion dollars at the peak.” (B)
   • Default on $550M Flagstar loan; total debt over $1B including Israeli bondholders ("Taste").
2. Bankruptcy Process (19:20–21:14)
   • Foreclosure led to Chapter 11 bankruptcy; Eastdil handling auction.
   • “Eastdil... carved out a nice niche in this bankruptcy auction game.” (A, 20:14)
   • Summit Properties USA enters as stalking horse with a $450M bid ($88,000/unit).
3. So Cheap It’s Shocking (22:29–22:47)
   • “That is about $88,000 a unit in NYC. So cheap, it’s so rough, boggers cheap.” (A & B, 22:29)
4. Mayoral Intervention & Rent Law Bind (23:14–25:48)
   • Mayor visits property on inauguration, vows to intervene; city requests stay, court denies.
   • “The city’s argument’s really interesting. They’re saying, basically, if a deal happened at this number... not feasible unless the new buyer did some shenanigans with the rent stabilized units.” (A, 25:28)
5. Feasibility and Future Outlook (25:55–26:23)
   • “You’re not covering debt service.” (B, 26:17)
   • Broader legal debate: “...this admission by the city is basically them validating [the ‘taking’] argument.” (A, 26:44)
6. Insider Connections? (27:08–27:47)
   • Rumors link Summit’s new bid to Joel Weiner’s brother Jonathan, which both deny.
7. Debt Haircut and Precedent (27:49–29:56)
   • "We were told it's $275M less than existing debt stack. I'm assuming that's Flagstar taking a massive, massive write-down." (A, 27:49)
   • “Since 2019, the industry has really been waiting... This feels like a shift.” (B, 28:05)
   • The structural dilemma: no way to service debt or improve units without legal or fiscal overhaul.
8. Possible City Takeover? (29:56–30:08)
   • When asked, tenant advocate laughs off immediate city takeover, “It’s too soon to say.”

Notable Quotes

• “It’s the USA that makes you know that they’re legit.” (B, 21:40)

• “If you have to ask...” (B, 27:47 re: the Summit–Weiner possible family tie)

• “To bet on the sector now is to essentially say, I’m going to ride out this administration or they’re going to come to Jesus on this topic.” (A, 28:50)

• “They have a little more wiggle room than Pinnacle did, but... they’re not going to spend $200 million fixing everything. They just can’t.” (B, 29:32)

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Timestamps for Major Segments

• Soho House/MCR Fumble: 00:43–07:07
• Life Sciences Crisis: 08:23–16:47
• Pinnacle Bankruptcy: 17:59–30:22

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Memorable Moments & Quotes

• On MCR's shift from “shitting cash machines” in select service hotels to headline exotics:

  “You build your business on something, but you want to build your legacy on something maybe a little sexier...” (A, 05:16)

• On life science sector's collapse:

  “A friend of the pod who's listening said, ‘we had office, which was a shitty business, and then we got life science, which is just expensive office.’” (B, 15:14)

• On the rent law bind:

  “The numbers given the current rent stabilized rents in place, simply cannot pencil.” (A, 24:57)

• On regulatory optimism:

  “...all you do is lose political capital. And if you show weakness here, people are just gonna come after you, come after you, come after you.” (B, 29:11)

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Closing Thoughts

The hosts end with a succinct note: the deals, disputes, and shakeups in CRE are coming faster and heavier, with the fate of not just a few players, but entire sectors at stake. Distress is now center stage, and the consequences—legal, financial, and political—are just beginning.

“This is going to be a big year in CRE. I’m excited to see what we get to cover. I wake up every day looking eyes bright, what’s new in the news. And it just keeps coming.” (B, 30:52)

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For more CRE deep dives and future episodes, subscribe to The Promote Podcast and check out their newsletter at thepromote.com.

Transcript

[A]

Coffee's for closers.

[B]

Then it's a good thing they mostly serve matcha at Soho House. And you see this watch. It's worth more than your car.

[A]

Welcome back to the promote podcast. Your insider guides the money and mania of the CRE markets. Hi, I'm Hatan Samtani.

[B]

And I'm Will Krasny.

[A]

A shout out to our sponsors for this episode. Bravo Capital, which is one of the market's leading Huddenbridge lenders and loanboss, A.

[B]

Best in class CRE debt management software. So borrow from Bravo and manage it with Loan Boss.

[A]

Today we're talking a glitch in the Morse code.

[B]

Oh, boy, are we ever.

[A]

Tyler Morse's MCR has failed to come up with the cash to consummate the take private of Soho House, setting off probably a mad scramble with Ron Burkle. There's more bad chemistry in the life sciences space with the venerable Beacon Capital Partners battling with its operating partner and lenders all over starting to lose patience. And finally, we dive into the most closely watched bankruptcy auction in CRE at the moment, the Pinnacle portfolio in New York City. Let's get right to it.

[B]

As Shina Shay would say in Vanderpump rules, it's all happening.

[A]

It is all happening. So your boy Tyler, this is pretty seismic. Not coming up with a cash to close is quite a bit of an issue.

[B]

Yeah. Especially if you sign a legally binding equity commitment letter.

[A]

Right.

[B]

What's crazy about this? At first blush, this is a potentially extinction level event for MCR because they might get sued for specific performance. Damages in some of these cases are generally 5 to 7% of the equity value. You can be forced to close. It's the same thing that happened with Twitter.

[A]

Elon. Yeah. Correct.

[B]

Yeah. Legally had to close once you sign the document. However, there's a little bit of fancy feat here because again, like Ron Burkle is selling to Ron Burkle. It's a controlled company.

[A]

Ron Burkle and Goldman Sachs Asset Management, which are two of the big shareholders of Soho House, currently are rolling their stakes into this take private vehicle.

[B]

So anyway, the damages in the merger agreement are capped at 10 million, so. So it's crazy.

[A]

Wasn't MCR supposed to put up about 200 million?

[B]

200 million, yeah. So like 7 to 8% of the purchase price.

[A]

We should back up a little bit. This is a take private of Soho House at a roughly $2.7 billion valuation, including debt. And the major players were MCR, Tyler Morris, Ron Burkle of UK Companies and Goldman Sachs Asset Management and Ashton Kutcher.

[B]

Everybody ready?

[A]

Ashton Kutcher. Forgot him. And our boys from Apollo, obviously, who were coming in with roughly 800 million in debt and equity commitments. This kind of came up very 11th hour. I think January 5th is when he told the investor group that, yeah, it's not going to happen.

[B]

It's so bizarre. Why sign the equity commitment letter? Or why. Why did anyone even care if they signed it? If damages are capped at 10 million, it doesn't matter. It's legally binding up to 10 million. Like, who cares? Like, Tyler can cover that personally. He can sell as part of Swansea and, you know, fund it that way. So it's so bizarre. And then the funny thing is that the whole equity group, I think, is liable for the damages. So is ron Burkle paying $7 million to Ron Burkle talking to me?

[A]

Well, I'm the only one here. Crazy.

[B]

This is not like tying up a 70s vintage multi deal in Houston and going to like write the ppm, send it out wide. This is a public company.

[A]

Stock plummeted right after this was disclosed in Soho House's filings.

[B]

The whole is just so embarrassing. The board of directors for Soho House should just get punted into the sun. So taking a step back, mcr, I think third largest select service hotel operator in the country.

[A]

Tyler Morris built his brand and built MCR on select service. And we've talked about that. Unglamorous, but in your very polished words, shitting cash machines.

[B]

Yeah.

[A]

And then more recently, he's been lured by the exotics. Right, The TWA Hotel Sohouse, et cetera. These are glamorous. They're more fun to talk about on panels and such. But they're harder to pencil, they're trickier as investments.

[B]

It's a worse business. Sometimes you get diluted by saying, oh, it's better real estate, so it should trade tighter. But the cash flow scheme is just worse. It's so funny if you read MCR's Fund for Deck, which has made the rounds because they've been in the market for like three years and that's the ultimate guarantor that couldn't come up with the money. They say that we focus on select service. That's our bread and butterfly. The rooms business is the only good business in the hotel business. It's funny because Tyler had the Barry's guy job, as we talked about.

[A]

We'll link to that in the show notes. It's an interesting position to be in.

[B]

Barry would say, like there used to be two good Businesses being in the hotel business, it was the rooms and then the long distance phone calls. Obviously that one went away. Their materials are all about how we stay away from F and B. It's low margin. Yet they own three enormous New York union hotels. They have the TWA hotel, which I think also union.

[A]

Well, obviously it's by the airport.

[B]

There's no way to get around. Those guys are baggage handlers. Potentially. That's the exact opposite of what they were doing. They bought the BT tower in London to turn that into a hotel.

[A]

Like what? You build your business on something, but you want to build your legacy on something maybe a little sexier and you can kind of get into this space.

[B]

It's like when Tudor Perini bought into Miramax. You're a construction company. Like, yeah, let's go to Hollywood, baby. And then like torch a bunch of money. But it'll be fun.

[A]

The reporting suggests the shareholders are going to go ahead and figure out how to get this done anyway. So what's the path forward?

[B]

This is a small enough check relatively.

[A]

I think they had talked about gsam, Goldman Sachs Asset Management potentially rolling in more shares as well.

[B]

They'll cover this to get it done because again, it's a controlled company and they're basically taking it private because they don't like the stock price. There's a little bit of, oh yeah, they're going to add these rooms, which Tyler's going to do. It's going to be super creative but there's just not a ton of room count you can add. They're just going to figure it out. GCM will roll more or whatever and they'll get this done.

[A]

What does that look like for mcr? I mean, on the street, the problem.

[B]

Is is that their performance hasn't been as good. And again, part of that is Covid that's not their fault. You can talk around that. The bigger issue is who's really going to take them seriously. Do you remember what happened to Andrew Chung when he didn't buy oh with the HSBC Tower?

[A]

I think he lost 35 million bucks.

[B]

That's been really hard for him to come back from it. This is way worse. Don't syndicate or like not have the money for a take private. I've been there. Everyone's been there where you're like, right about to go hard, equity partner backs out. Like that happens. But again, not for a public company. Like you don't sign the legally binding. It's almost like, is Tyler stupid? Like a fox where he's like I got a $10 million option to be in this take private because someone's lawyer.

[A]

Really screwed up and someone's lawyer did very well, right?

[B]

Well, yeah, I mean, it's zero sum.

[A]

All right, I'm here with Aaron Crowitz from Bravo Capital. Aaron, let's get right to it. What's the story behind this mythical 100% HUD approval record?

[C]

It's pretty straightforward, honestly. We have an amazing team. We're also backed by hundreds of millions of dollars from sovereign wealth funds and leading United States institutions. We're both fully HUD licensed and also offer a balance sheet bridge financing where we could finance deals over 1 million easily like we just did in Miami, Brooklyn and Jersey City.

[A]

And what's the secret sauce? How do you put it all together?

[C]

It's our top tier underwriting team. We don't rush deals to market and hope that they stick. We know what HUD wants before we submit and we have a real balance sheet, so when we go, we really go.

[A]

You were telling me when we were chatting offline, you closed a Healthcare Express lane deal in four days. That's absurdly fast for hud.

[C]

It is. And that's why I get up every day. We want to compete and outperform our. And that's the beauty of knowing the playbook cold. When we have tight documentation, the right underwriting, that means speedy approvals and speed.

[A]

Means a sponsor can close quick. Thanks Aaron, good to have you on.

[C]

Thanks. Hiten and you could find [e-mail].

[A]

We talked a couple weeks ago about how there's maybe some cracks in the Bunsen burner. Life sciences was all the rage right in the early days of the pandemic. Repurposing office space, it's going to be a biotech boom, et cetera. So everyone rushed to repurpose or acquire or develop life science campuses. Many of these places have not worked out so well. It's been a bit of a ghost town in some of these big life science campuses.

[B]

Would you say really that this whole sector is clinging to life sciences?

[A]

There's one particular case that's just incredibly interesting. One of the venerable names, real estate investment. Fred Siegel of Beacon Capital Partners, the.

[B]

Predecessor firm was just the Beacon companies, I believe. Massive Boston based developer. Siegel's dad started the company, he was doing toll booth construction. Okay yeah, in like the 50s and 60s and then did some of the, the biggest multi use massive campus developments in Boston and owned office everywhere. Eventually sold the whole company like in the 90s, I think to equity office yes, that's right. And so then Beacon Capital is the subsequent firm known for office.

[A]

They've had some black guys in the office market too recently. I've seen a string of lawsuits and CMBS workouts and a lot of distress.

[B]

Right.

[A]

And they're pretty major landlord, I think.

[B]

In the loop, a very bad place to be a major landlord recently. So they've been dealing with some dicey stuff on their own. And then now they're being sued by one of their operating partners for a life science venture that they had seeded.

[A]

A company called Portal Innovations.

[B]

They were wework for life science a little bit.

[A]

Well, you can kind of imagine these companies coming out of these emerging industries. Right. Like we're the middlemen. We can talk the language of both the developer and the life science people. Think of core weave on the AI side as well, right?

[B]

Yeah.

[A]

There is an emergence of these kind of companies that say they can like office space. Right. Can talk to both sides. I deal with the goddamn customers so the engineers don't have to.

[B]

Right, exactly. And so the office partner sues Beacon, basically saying you guys haven't funded like you've missed the capital calls. And Beacon's response is essentially, you're so bad at this, you lost $50 million and says that they don't have any obligation to fund.

[A]

I love the ultimate LP here. When we're talking about a holding the back situation, it's always this ultimate lp.

[B]

Poor California teachers, man. Like this pension fund. Just God, put it in Spy.

[A]

It's so rough. What's your favorite part of this lawsuit?

[B]

Beacon is saying that the operating partner charged excessive management fees. And it's like my guys, you wrote the jv.

[A]

When people are structuring these kind of thesis driven bets, is there no mind paid to the downside scenario? And it seems like all these things are great when they're going, but when it turns this is pretty amateur. Some of the stuff that's being traded.

[B]

Here, so much of the investment management industry is just based on price go up. The actual operations of stuff is so hard. Negotiating one of these joint venture agreements is what's the ultimate org structure? Do you have a JV entity? Is it just you own a bunch of spes pro rata or however that's done. Where does the cash flow? Is everything crossed? All of those questions are complicated and require a lot of legal disclosures and legal wrangling and legal fees. Especially in a business like this, which was super management intensive. It wasn't like you're going to lease half a Million square feet at a time to Biogen and you're done. Collect the checks for 10 years. It was small bay, industrial for life science.

[A]

This kind of dispute we're going to see more and more of in these emerging asset classes, which is you have a traditional real estate operator that is coming ahead with one of these newfangled. I can talk to both sides kind of companies. More broadly we're going to see a lot of that.

[B]

We're going to be doing a podcast in a year about this happening in data center where every operator.

[A]

Yeah, Blackstone versus Corweave or whatever, every.

[B]

Partner is going to get sued to oblivion for not being able to deliver on these certain timelines. Just the basic bank account stuff. The construction draws. Where does the money come from? How are you handling capital calls? Because you call too much, the IRR gets fucked up. Yeah, you don't call enough. Like you have to end up doing like $25,000 capital calls to like fund overages, which is really annoying.

[A]

It's really hard to find the right chemistry on these things.

[B]

Especially when you're in a sector where you're.

[A]

Sorry, set him up.

[B]

Almost missed it. It's really hard in these sectors too where you don't have the tailwinds when the things in your face. Hey, good news. We signed a lease. Cool. What do we have to do? We got to spend $3 million building out the space.

[A]

Let's zoom out a bit because I think the problems in this specific life science case are writ large in the sector. So Banco ZK made the very uncharacteristic decision to sell a construction loan, a pretty massive construction loan. I think about $265 million. They were holding it for their friends Sterling Bay, who I'm guessing they're like completely sick of at this point because you remember Sterling Bay was the Lincoln Yards take back seas as well. So they've just sold one of their construction loans on a life side project in San Diego. They sold it to Strategic Value Partners, which is Victor Khosla, a distressed death specialist. And they just sold it, I would imagine at a pretty big discount.

[B]

To get those types of guys involved, it's gotta be a pretty big haircut. And it also just means they didn't think there was any recovery. Sterling Bay, at some point we gotta do like a full dive.

[A]

They were like the related of the Midwest.

[B]

They went from local guys running around to like fun deals to massive company in seven years.

[A]

Hey man, everyone's going to start somewhere.

[B]

Hopefully you're saying this about me that when Banko d selling my loans in seven years, which I'm not defaulting on because of loan boss. So they sold that one. And then another deal that we talked about, the first time we talked about Life science is that got sold too.

[A]

We talked a few episodes ago about Taconic and Silverstein's jv I believe it was Taconic's Lab Leak is the name of the episode. We'll put it in the show notes. But Silverstein came in as the majority equity partner and then has been unloading much of its stake. It sold a bunch of its stake in one of the properties to the artist known as Affinius. And then there's one more looming giant. So about a year ago bank OZK received a rare double downgrade and it was primarily because of this loan, I want to say north of $900 million to a company called IQ HQ which is building a life science, not a building but a campus in San Diego. And so OZK had this on their books, I believe their biggest loan. We should talk about this campus because again this is indicative of what's going on in the sector. You wrote in the show notes for Prep Zero tenants. I found one, I think they have one tenant. Yeah, they have one 50,000 square foot tenant. The problem again is we.

[B]

The problem again is the entire square.

[A]

Footage is the floor plates here are pretty massive. 50,000 square foot floor plates. Hard to get. The small companies and the startups that we mentioned to speak for space like that.

[B]

People thought they were going to get basically single tenant buildings or huge users to take massive chunks of these things. And that has not been the case. And the demand has been on the smaller built, fitted out space which was not what people were building. A friend of the POD who's listening said we had office, which was a shitty business and then we got life science which is just expensive office, IQ hq.

[A]

If they default on this loan, that's a pretty massive hole for ozk and that's going to be a pretty big shock for the life science sector in general.

[B]

Mike Comparata said back over the summer on the POD where a lot of these loans you know what value is and if you went to go sell the building now and it's less than loan value and the loans are still marked at par. Realistically if like you were to sell this empty building, it's going to cost so much money to get this thing leased, no way to recoup it unless you have a massive basis reset.

[A]

A lot of properties that were destined For Life Sci have been now repurposed back to good old office, which is a scary thought.

[B]

That office is going to be the savior.

[A]

One company that we've been keeping an eye out on is Alexandria Real Estate, the big public life science player. A bit of a strange departure there recently, I think.

[B]

What their co president, head of the San Diego market. He just bailed. Yeah. Was he defenestrated or bailed?

[A]

It says personal and health reasons. So I don't want to speculate too much, but it was pretty sudden.

[B]

If only there was a vaccine for vacancy.

[A]

So will you violate any debt covenants recently?

[B]

So funny you should ask. I have been in technical default recently. I mean, who among us, right? But not since Q4.

[A]

Ooh.

[B]

And that's not because I paid off a loan. It's because that's when I started using Loan Boss.

[A]

I can't believe how old school some of our listeners are. They're still crunching DSCRs in Excel and all that.

[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.

[A]

They've just got it sorted here for you.

[B]

Much better. So thank you Lone Boss listeners.

[A]

Check them out@ LoneBoss.com that's LoneBoss.com and tell them the promote sent you. Okay. We thought we were going to hold this one for a bit because we wanted to chew on it, but it's moving so quickly. We have to do it.

[B]

This is a biggie.

[A]

Would you say it's the pinnacle of drama?

[B]

We're really like reaching the summit of this issue.

[A]

We should recap. We talked a bunch of episodes ago about the carnage in the rent stabilized market post the 2019 rent reforms. The perfect storm of rising rates and inability to raise rents on most of which was the standard playbook for a lot of this stuff, right? Like you would buy these portfolios vacant cd, control individual apartment improvements, raise the rents that way, and then you could make your own capital improvements, major capital improvements, et cetera. A lot of those paths to market rate were gutted by the 2019 rent reforms. And so we've seen a lot of major landlords, A and E, for example, Pinnacle, which is Joel Weiner, we're going to talk about kind of left out in the cold by this. And then there's the additional wildcard of the new mayoral administration. So tons to talk about. Maybe we should recap where this wiener thing stands.

[B]

It's 5,100 units of rent stabilized apartments, which is just massive, an enormous portfolio. This was easily a couple billion dollars at the peak.

[A]

Joel. As in 2017, Bloomberg crowned him a billionaire based on the strength of this and other rent stabilized holdings.

[B]

So he had $550 million in debt to NYCB. Now Flagstar. Yeah, and is in default.

[A]

So Flagstar moved to foreclose and then Pinnacle did the standard throw it into Chapter 11 bankruptcy, which is how we ended up where we are.

[B]

Not only though is Flagstar the lender. They also have our good friends from the taste.

[A]

Yeah, you need that Israeli bond spice to make this truly a great promote story.

[B]

It's not a New York real estate deal without the tastes.

[A]

With the Israeli bond money and the Flagstar money, we're talking about north of a billion dollars in debt on this portfolio.

[B]

The left hand doesn't seem to know what the right hand was lending because Flagstar is arguing that instead of using proceeds to pay down their loan, Pinnacle was paying the Taste loan.

[A]

No one knows where the rental income went. Is what Flagstar said in their. In their case that seems bad, but it did not go to pay the lenders and appears to have been consolidated to pay bondholders.

[B]

Tomato, tomato. It is paying the lenders. It's just not you.

[A]

So this went into bankruptcy and Eastal, I wanted to say, has kind of carved out a nice niche in this bankruptcy auction game. We talked a few episodes ago about one of our favorite deals, the SF hotel heist with conversant and new bond. One of their guys was a running point on that one too. So it's pretty nice gig if you can get it.

[B]

Definitely. Great. This is a good cycle to be in that business. See more of these coming down the pike and. And yeah, these good for Daniel Parker. You said it. What I mean, Will Silverman Phillips. They get the glam.

[A]

Yeah, they get all the glamorous listings, the office listings, the high street retail and stuff. This guy's been selling these massive, multifamily unglamorous portfolios across the country.

[B]

So we're moving through the bankruptcy and an entity entered a stocking horse bid.

[A]

Maybe we should define for people what a stalking horse bid is because not everyone will be. Oh yeah, one of my favorite terms in real estate, period.

[B]

Just to refresh everyone's memory, the stocking Horse bid is when someone comes in a bankruptcy, you show up and say, I'll bid this. And you sort of set the floor. And the idea being that you can potentially get a deal if no one else shows up. And then if you can often get paid a little bit, if someone else.

[A]

Buys it for hire, you can get a few million bucks for your troubles if someone else swoops in at a higher number. So you're the guy who's going, we're starting at X. You're basically playing that role. So in comes a company called Summit Properties usa.

[B]

It's the USA that makes you know that they're legit.

[A]

So not much is known about Summit. I started doing some digging. It's a guy called Zohar Levy and he's out of Israel. He comes into a company called Summit, an existing holding company, in the early aughts, took it over, recapped it with Israeli institutional money and all kinds of other money. Goes into Germany, becomes a big player in the German market. And then I think early in the pandemic, he comes in in a big way in the US and in New York in particular in Germany.

[B]

You're pretty familiar with rent stabilization laws.

[A]

Exactly. Racks up, I want to say 3,000 units, 500 keys. He bought a leasehold for stupid cheap on 44th street as well. So pretty big player. But he makes a stalking horse bid in late December, about $450 million. That is about $88,000 a unit in New York City.

[B]

So cheap, it's so rough, boggers cheap. And that number actually goes down if Flagstar doesn't finance it.

[A]

If Flagstar nycb, the long suffering lender on this portfolio, doesn't want to step up with the financing, that number drops to $420 million, which is about $82,000 a door.

[B]

Crazy. I saw a LinkedIn post from a New York lender who's like, I got offered a rent stabilized deal to lend on that someone's buying at a 13 cap. And he's like, I'm saying no because that's not like a real deal. I was like, I don't know, I'll lend on a 13 cap.

[A]

We've talked about a few opportunistic players like Hungry like the Wolf, Peter Hungerford.

[B]

Hungerford not stepping too much on his plate, digesting what he bought.

[A]

So Summit comes in late December, makes the stalking horse bid. What happens in New York City?

[B]

January 1st, new mayor, his honor, his.

[A]

Honor, Comrade Mumdani comes in, one of his very first acts.

[B]

Our honor.

[A]

One of his very first acts as mayor. Hours after his inauguration speech, he visits.

[B]

A Pinnacle building and it does not look tremendous.

[A]

No, it does not. And he declares that New York City is going to intervene in this bankruptcy sale.

[B]

Basically, he's doing what Donald Trump would do.

[A]

It's true. So he said. It's very true, actually. So he says the city's going to intervene in this bankruptcy sale. His tenant protection lieutenant is a woman called C.A. weaver, and she was instrumental in passing the 2019 rent reforms that have become basically landlord's worst nightmare. Right.

[B]

I'm really glad that we didn't elect as mayor the guy who signed that.

[C]

Law.

[A]

Cuomo, of course. So they say they're going to guarantee that any buyer who steps up makes repairing these units a priority. I don't know how a mayoral administration's supposed to vet buyer intent.

[B]

It's so complicated. And at the same time, no one's going to be able to spend the money even at this basis, because you can't raise the rents under the rent law. So unless there's some sort of massive property tax abatement or some sort of below market financing, no one's going to be able to do what needs to be done.

[A]

There was a pretty astonishing thing I want to put on the record here. When Mamdani's corporation council filed a brief which asked for a 30 day stay on the deal and also pushed the court not to approve any deal with Summit unless it got more intel, et cetera, et cetera. There was this one bit that cited an HPD analysis which stated that the numbers given the current rent stabilized rents in place, simply cannot pencil.

[B]

That's exactly right. The numbers don't pencil. They only pencil with massive below market debt from somewhere or a property tax payment. That's it. Those are the only ways that these things work. And even a guy like Hungerford, he's just trying to buy this stuff cheap enough to where he has Runway betting.

[A]

That to wait it out. Yeah, regulatory art, basically.

[B]

It's like, I know I'm going to run out of money at some point here, but I'm buying them cheap enough that that point is nine years from now. You make a 20 RR where the all the profit is baked in basically the last year.

[A]

But the city's argument's really interesting. They're saying basically, if a deal happened at this number, the $88,000 a door number, it is basically not feasible unless the new buyer did some shenanigans with the rent stabilized units. The way I read it was like this price sets an actor up to be a bad actor.

[B]

Any price does, really. Because what are they borrowing? They're borrowing what? $300 million.

[A]

We're going to get to that in a second.

[B]

But I'm just like running through the math. Let's say round numbers. They're borrowing $300 million. At 6, it's probably 5. It's $18 million a year, just of interest. Once the amortization kicks in, it's probably like 25. So what's the average rent on these units? 5,000 units. I don't know. Thousand bucks a month.

[A]

Yeah, not much. I mean, less than that in many cases, yeah.

[B]

$5 million a month, $60 million a year. These things are not running at 50% NOI margin. I don't think you're covering debt service.

[A]

And landlord lobbyists are basically taking this brief from the city and saying it's a bit of a cute read, but they said it's validating that the rent stabilized system as it exists is a taking, which is basically a violation of the fifth Amendment. Kind of is the broader thing about is ren stabilization. A taking can be argued, but they're saying that this admission by the city is basically them validating that argument.

[B]

Oh, yeah, okay. Yeah.

[A]

Anyway, so this happens. The Mamdani administration asks for a 30 day stay. The judge says, nah, we're not going to do that. And the auction goes through. Summit wins. There was an additional revelation that came out in this past week.

[B]

Right. So they were involved with a company called Denali Management. The worst landlord New York lists are sort of clickbaity and like they basically.

[A]

Gauge how many open violations someone has. But you and I could buy a portfolio and we would automatically be worse landlords as well, you know.

[B]

Yeah, it's kind of nonsense, but Denali's up there. And then we saw that the signer for a bunch of deeds that Summit claims as part of their portfolio is this guy Jonathan. What's his last name? Wiener.

[A]

What's that? Turns out Jonathan Weiner is in fact Joel Weiner's brother mentioned a guy who.

[B]

Put through his stuff into bankruptcy.

[A]

His company, Jonathan Wiener's company, Chestnut holdings, said that they have nothing to do whatsoever with this Summit bid.

[B]

Fine, if you have to ask.

[A]

And here's the really interesting part. The new debt that's going to be on the portfolio, we don't know exactly what it is, but we were told that it's $275 million less than the existing debt stack. I'm assuming that's flagstar Taking a massive, massive write down. Right.

[B]

Since 2019, the industry has really been waiting for the day of reckoning when this stuff has to change. And this does feel like a bit of a shift. It's not going to happen today, it's not going to happen in six months. But there's going to be more court cases coming down to challenge the rent laws. And this is becoming so top of mind. It's going to be one of the biggest issues during the Mamdani administration.

[A]

The cornerstone of his campaign.

[B]

Yeah, right.

[A]

Housing affordability. Freeze the rent for the million or so rent stabilized units in New York City is one of his core campaign promises.

[B]

This is like Bush 88, where it's.

[A]

Like, read my lips.

[B]

No new taxes. Oh, no one can make any of the renovations unless we raise the rent.

[A]

It's a really tricky position for the mayor to be in and it's a really tricky position for landlords to be in because to bet on the sector now is to essentially say, I'm going to write out this administration or they're going to come to Jesus. On this specific topic, what's so funny.

[B]

Too is like they kind of look impotent because the judge is just. Nope, no, stay.

[A]

It was a bit of a legal Hail Mary on their part.

[B]

If you know that it's a Hail Mary, like all you do is lose political capital. And if you show weakness here, people are just gonna come after you. Come after you, Come after you.

[A]

It's now gone to Summit. We'll see what they do with these buildings. But again, there's not that much wiggle room built in. Okay, well, they have $300 million less of debt on the properties. They have a little more wiggle room than Pinnacle did, but they have a.

[B]

Little more wiggle room. But they're not coming here and they're not going to spend $200 million fixing everything. They just can't. They're not going to do that. And that's not happening on this portfolio. It's not happening on any other portfolio until the laws get changed. Because the units are just going to get warehoused. People are just going to run them leaner and leaner and leaner to try to milk the cash flow. Until that day when the pen writes on paper, changes this. That's what they're waiting for.

[A]

Sia Weaver was on Inside City hall. And she was asked not just about this portfolio, but she was asked, is the city considering taking over these buildings at some point? And she, with a chuckle, says, ha, ha, ha. It's too soon to say.

[B]

I think there are a lot of landlords who say, you know what? Have at it.

[A]

That's it for the promote podcast this week. An 11th hour snag in Soho houses Take private has turned into a public embarrassment. Life science bets continue to fizzle out. And a longtime background New York player is now under the harshest of spotlights.

[B]

We'll be back next week with more CRE Insider goodness. A shout out again to our sponsors, Loan Boss and Bravo Capital. Borrow from Bravo. Manage it with Loan Boss.

[A]

More on [e-mail] and bravocapital.com this is.

[B]

Going to be a big year in CRE. I'm excited to see what we get to cover. I wake up every day looking eyes bright, what's new in the news. And it just keeps coming.

[A]

It's nuts. All right, I'll see you next week.

[B]

See you.

[A]

Ciao.

[B]

Sa.