Ross takes his talents to [West Palm] Beach & Barnett Prefs Up

Summary

The Promote Podcast — Episode Summary
Episode: Ross Takes His Talents to [West Palm] Beach & Barnett Prefs Up
Release Date: September 17, 2025
Hosts: Hiten Samtani (“Bard of CRE”) & Will Krasne

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Overview: Main Theme and Purpose

This episode dives into three top stories shaking up commercial real estate (CRE):

1. Steve Ross’ Big Bet on West Palm Beach: The legendary developer shifts his energy and vast resources from New York to South Florida, aiming to single-handedly transform West Palm into a global hub.
2. Gary Barnett’s Billion-Dollar Preferred Equity Play: Exploring how Barnett (of Extell) secured a massive pref (preferred equity) commitment for a risky portfolio of projects across multiple asset classes and locations.
3. Backlash Against the Backlash: Texas Property Tax Incentive Repeal Faces Legal Heat: The fallout and legal challenges after Texas killed a lucrative property tax abatement scheme, with implications for affordable housing and capital markets.

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Key Discussion Points and Insights

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1. Steve Ross Moves to West Palm Beach — Not Just Retirement (00:59–15:59)

Ross’ New Chapter and Ambitions

• Not a Retirement Move: Despite his age (84), Ross is not slowing down but starting “the most fun” phase of his career in West Palm, after stepping down from Related (the New York real estate giant).
• Magnitude of Play: Ross’ plan is almost “off the charts” for West Palm:
  • 6 million sq ft of office
  • 1.5 million sq ft of condos
  • ~700,000 sq ft retail
  • Nearly 900 hotel keys across 70 acres
  • "[It’s] a project half the size of Hudson Yards in a city 1/8th the size of New York" (B, 04:16)

Funding and Structure

• Unusually Direct Investment: Ross is plowing in his own cash from major asset sales (incl. a 10% Miami Dolphins stake).
  • “Ross, glaring exception. This is all his equity. Straight cash, homie.” (A & B, 05:52)
• Leverage and Relationships: Significant debt comes from Ares (over $1 billion in loans and refinancing), leveraging Ross’ longstanding business ties.

Building a City from Scratch

• Not Plug-and-Play: Unlike NY, Ross is building the “infrastructure of a global city” out of near whole cloth—schools, sports, and social infrastructure included. - “You have to build all of that infrastructure before the tenants will come…Steve Ross just took it upon himself to do that. Absolutely crazy.” (A, 08:52)

• Education Moves:

  • Building a private K-12 school in Wellington, adjacent to West Palm.
  • Key role in bringing Vanderbilt University’s $500M campus to West Palm—an enormous coup for a city of its size. (A, 10:37–10:44)

• Culture and Talent Pool:

  • “The alpha kings of capital need more than just nice offices.” (A, 08:52)
  • If you want to bring in finance/tech elite with families, you need top schools and universities.

Attracting Major Tenants

• Bypassing Miami: Instead of following the Miami hype, Ross courts major blue-chip finance tenants directly to West Palm—Point72, Goldman Sachs, etc.
  • “He's creating a second Wall Street, but it ain't in Miami. It's maybe in West Palm Beach.” (A, 11:40)

Legacy Play and “Cowboy” Mentality

• Ross’ approach is less spreadsheet-driven and more about “shooting from the hip,” legacy, and “city shaping.”
  • “Who in their right mind, if you have to make an IRR, is going to build a school...to bring Vanderbilt here? Like, this is a legacy thing.” (B, 12:50)
• Relies on his reputation, connections, and fresh start after decades of major institutional deal-making.

Memorable Quotes

• “This is the most fun I've ever had in my life.” — Steve Ross to Bloomberg (A paraphrased, 04:21)
• “He's a cowboy who has kind of walked in the institutional hallways and is like, you know what? I kind of want to be a cowboy again.” (A, 13:37)
• [On Ross’ autonomy] “He says it's the most fun you've ever had when you have no boss...The quarterly investor updates are pretty short: Hey, am I kicking ass? Yes. Awesome.” (B, 06:23)

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2. Gary Barnett and Extell’s Pref Stack Power Move (15:59–23:58)

The $1.2B Pref Commitment

• The News: Extell (Barnett) landed a $1.2B preferred equity commitment from (likely) hedge fund JVP, for nine ambitious (and some distressed) projects.

  • “XTEL has landed a $1.2 billion pref commitment from an unnamed hedge fund…” (A, 15:59)

• Why Pref, Not Common Equity?

  • Market is too tough for traditional common equity.
  • “Because you can't get common. I mean, I can't think of another way. It's almost as expensive as common and you're going to get eaten alive.” (B, 16:22)

• Risk and Tough Terrain:

  • Pref structure means high payments due regardless of cash flow—risky in this climate.
    • “Imagine this, it's 7% current...Even if it's 12, that's $140 million a year. That's just picking.” (B, 16:34)

Signature Projects

• Major deals covered by the pref stack include:
  • 1.8M sq ft Upper West Side ABC/Disney campus
  • “The Torch” — super-tall Theater District hotel (called “maybe the ugliest building in the world” by A, 17:32)
  • Harlem project (jumping into ABS’s deal)
  • Deer Valley ski resort in Utah — described as “the most audacious real estate play...in the modern era” (A, 17:53)

The JVP Connection

• Likely pref partner is JVP—well-known for “messy” development deals and deep experience with high-profile, challenging projects (Four Seasons/Deer Valley, 50 W 66th, Miami Beach Rally Hotel).
• “They really like messy development.” (A, 19:23)

Barnett’s Risk Appetite

• Barnett is famous for using every possible capital structure—office, hotels, condos—all stitched together with a wild mix of equity, pref, and debt.
  • “Gary just pulls rabbits out of hats with capital. There’s never been anyone like him.” (B, 22:51)
  • “Used every source…what's in the zeitgeist more than pref? Everyone wants to be pref. And here he comes getting the most prep of anybody, and that's Gary Barnett.” (B, 22:51)

De-risking and Leasing

• Barnett brings in anchor tenants (Simpson Thatcher at 570 Fifth Ave, Chanel pursuing a $450M retail condo at Madison Ave).
• Strategic partnerships like IKEA (committed $300M equity/pref at 570 Fifth).

Memorable Quotes

• “[On the pref stack] Gary, on the 21st of each month, when they email you the statement saying how much is accrued, how do you not have a cardiac event?” (A, 17:14)
• “Like Bruce Willis said…welcome to the party, pal.” (B, 22:51)

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3. Texas’ Killer Property Tax Scheme Faces Lawsuit (23:58–30:28)

Background: The “Traveling HFC” Abatement Scheme

• Program allowed developers to erase property taxes for minimal affordable housing concessions, thanks to “portable” housing finance corp structures.

• Loophole: “Affordable” rents often exceeded market rent, meaning true sacrifice was zero—and billions were wiped from tax rolls.

  • “The trick shot here was that the affordable rent threshold was oftentimes higher than the market rent threshold, which means you had to agree to nothing. And in exchange, you got everything.” (A, 23:58)

• Program ended abruptly (the “nuclear option” law), retroactively clawing back abated taxes—causing major chaos.

Now: The Legal Pushback

• Lawsuit filed by Jason Post’s Post Investment Group (and the Workforce Housing Coalition)—argues that the retroactive clawback:
  • Violates contracts
  • Is unconstitutional
  • Undermines trust in capital markets
  • “Doing it this way retroactively will undermine the faith in our capital markets…disincentivizes people to bet on Texas.” (A, 26:19)
• Current goal: Let existing deals lie, fight retroactivity.

Wider Implications

• “This is an issue that's playing out nationwide…can be indicative of what broadly is going to happen in a lot of jurisdictions elsewhere…” (B, 28:09)
• Concern: Abuses of incentive programs risk causing overshooting reforms that kill useful projects.

Memorable Quotes & Moments

• [Industry candor] “Do I feel bad about taking money off the tax rolls? Not really. I'm just getting some of my money back that you misappropriate. Anyway.” — David Lilly (A, 27:40)
• “When incentives like this...are abused, it creates a severe backlash that can really hurt the cause.” (A, 29:08)
• “If you game the system, the system may change the game on you.” (A, 30:28)

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Notable Quotes & Memorable Moments

• Ross on Autonomy: “He says it's the most fun you've ever had when you have no boss. Because even if you're Steve Ross...you've got a boss, it's your investors. And, and no boss here.” (B, 06:23)
• Legacy Play: “This is like what they would kind of do. Like, you do like a great thing because you are a great man.” (B, 13:32)
• Pref Nervousness: “Gary, on the 21st of each month, when they email you the statement saying how much is accrued, how do you not have a cardiac event?” (A, 17:14)
• Tax Scheme Candor: “Do I feel bad about taking money off the tax rolls? Not really. I'm just getting some of my money back that you misappropriate. Anyway.” — David Lilly LinkedIn, now deleted (A, 27:40)
• Cynicism on Grifting: “Unless you let us grift freely for nothing, no one will invest money here.” (B, 26:41)

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Timestamps for Key Segments

• 00:59–15:59: Steve Ross’ West Palm Beach saga—vision, financing, strategy
• 15:59–23:58: Gary Barnett’s billion-dollar pref (preferred equity) stack; inside the deal
• 23:58–30:28: Texas property tax ‘scheme’ explodes; new legal battle, implications

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Tone

• Sharp, informed, a bit irreverent (“land of gauche,” “shooting from the hip,” “grift freely”); deep inside-baseball for CRE insiders—warts and all honesty.
• Frequent use of dry humor and pointed, sometimes sardonic, asides.

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Summary Takeaway

This episode peels back the curtain on modern “city-making” by power players like Steve Ross, the high-wire financial engineering of Gary Barnett, and the unintended consequences of real estate incentives gone awry. It’s required listening for anyone who cares about how big personalities, big money, and policy quirks actually shape the skylines and fortunes of American cities.

Transcript

[A]

I want you to know, Mr. Mayor, that I am spending money in your city like a drunken sailor. Now, you could say stuff like that. In New York, it would be considered too gauche. But South Florida, well, it's the land of gauche. When a billionaire says that, you know, that's quite a bit of money. West Palm Beach Mayor Keith James later gushed of the encounter. Now, he was referring, of course, to Steve Ross, the goat of goats.

[B]

When it's a real estate billionaire, it may not actually be that much cash. Steve Ross is one of the only ones who might have it for sure. We broke out several episodes ago how he grew from a little baby goat to the goat of goats. And now we're back to discuss how, to paraphrase Judd Bartlett's favorite movie, he's now the goat in winter. Fight me and you'll lose.

[A]

Welcome back to the Promote podcast, your insider guide to the money and mania of the CRE markets. I'm Hitan Sumtani.

[B]

And I'm Will Krasny.

[A]

This week we're taking stock of all that Steve Ross has been up to since he said goodbye New York and went all in on West Palm Beach. It's been a whirlwind of big ticket deal making that combines real estate, education, sport and glamour. There's so much to take away for the aspiring city shaper.

[B]

I love that you call it sport with no s. The pod is so continental.

[A]

Listen, I contain multitudes. We then look at Gary Barnett's billion dollar pref commitment for nine projects in various states of undress. And finally, the backlash to the backlash is here. The repeal of property tax freebie traveling HFCS is beginning to face some legal heat brands. By the way, we're CRE's water cooler. If you want to get in front of our audience of shot callers in this business, hit us [e-mail] that's partnershipsthepromote.com. all right, well, let's travel south to the once sleepy enclave of West Palm Beach. Ross is. He's running amok there, man.

[B]

Yeah. One time at the Saratoga racetrack, Mary Lou Whitney's husband who recently died, Rip said that West Palm is like the gay 90s. Everyone's either gay or they're 90. So, Steve Ross, city shaper in New York. Like many Oxygenarians, he's moved down to the Sunshine State.

[A]

Generally at this age, when people move south to Florida, it's basically to call time on a glittering career like Ross has had. But this is not that at all.

[B]

No, it is not. And he has stepped down officially from Related. The behemoth that we've talked about ad nauseam on this podcast, the New York.

[A]

Company that Jeff Blau is now running the show. Developer of Hudson Yards. Biggest, most institutional developer in the country, let's say.

[B]

And it's one of the rare instances of these alternative investment firms that have had a very seamless past the torch moment.

[A]

Correct.

[B]

Blau was the guy for a long time. He now runs it. Bruce Beale is very high up there too. And you know, when he's not now being a big LP in the Celtics. And so Steve Ross, you know what is a guy with $15 billion in pretty liquid to do? He starts reshaping a new city and it's West Palm Beach.

[A]

And I love this because he didn't go to a city which already had a thriving real estate infrastructure and just build on that. He said, nah, it's a little more fun to almost create this out of whole cloth. West Palm beach, there's a lot of wealth concentrated in that area, but it's more of a village in a sense.

[B]

It was. And it was a little bit sleepy. It wasn't hugely densely populated. It's not sort of where you would think very wealthy people would immediately go. You're thinking Miami Beach, Palm Beach, Naples even.

[A]

There have been a couple players here. There's the guy that TRD loves to call billionaire investor Jeff Green. He's been doing a lot in West Palm Beach.

[B]

Well, well, it's funny you mention him because I was going to say later on, like, he kind of tried to do this and hasn't really found much purchase. And it sort of shows like, Jeff Green is incredibly wealthy. He made a ton of money, uber successful.

[A]

But he ain't Steve Ross.

[B]

He ain't Steve Ross.

[A]

So what is Steve Ross trying to do here? We're talking about a really, really ambitious even for this guy plan. Six million square feet of office, one and a half million square feet of condos, 700,000 odd square feet of retail and, and nearly 900 keys across 70 acres. Pretty astonishing scale that he's looking at.

[B]

It's a project half the size of Hudson Yards in a city 1 8th the size of New York.

[A]

The impact is a lot more magnified. And look, he's going, what is he, 80 something? And he told Bloomberg recently, he said, this is the most fun I've ever had in my life. I love that Russ does these periodic interviews with the, with the big publications in which he's generally standing with his hands on his hips and looking over some skyline that he's going to warp.

[B]

With a purple shirt that just perfect for an 84 year old. But what also I think is very interesting here is that he famously at the top liquidated a big chunk of related via convertible debt note to then buy the Dolphins.

[A]

Yeah.

[B]

And then how is he funding all of this misadventure down in down in Florida?

[A]

Well, so the NFL recently in a landmark decision, allowed for private equity ownership of sports teams, which basically opened the floodgates, made all these teams a lot, lot more valuable.

[B]

You find out life's his game of inches. So is football.

[A]

So Ross recently sold a 10% stake in his team to Ares at a huge valuation. Eight billion ish.

[B]

Yeah. And he sold the Formula One racetrack. There was a lot in there. He'd been talking to Ken Griffin at Citadel for a while about it. They couldn't agree on price.

[A]

Correct.

[B]

But he essentially probably took another billion dollars out.

[A]

Yeah.

[B]

And. And he's plowed it into West Palm office.

[A]

And why does it matter? Normally when we talk about big people doing big things, we'll say, oh yeah, he spent $500 million to buy XYZ. And generally they didn't actually spend the 500 million. They probably put in like 50 million of their own money.

[B]

And that 50 million is back levered off of something else.

[A]

Correct. And Ross, glaring exception. This is all his equity.

[B]

Straight cash, homie.

[A]

Absolutely crazy.

[B]

I remember someone told me that he started doing this while he was still related. He bought the first buildings, was doing that, and I remember thinking, gosh, that's a little bit off the beaten track for belated. And the guy goes, yeah, dude, that's.

[A]

Steve's pa. And you were not the only one who felt that way. There was some chatter at related HQ at the mothership that like, hey, what is Steve doing here? And so he kind of decided to do it anyway on his own.

[B]

He says it's the most fun you've ever had when you have no boss. Because even if you're Steve Ross, you're running related. You've got a boss, it's your investors. And, and no boss here. The quarterly investor updates are pretty short. Hey, am I kicking ass? Yes. Awesome.

[A]

They have been raising a ton of debt though, right. And so much of it has come from the aforementioned Aries. So Aries has given them. I was just trying to do the math here. $250 million refi for a luxury rental 700 million construction loan in partnership with Monarch on two office buildings within that City Place complex and then an Aries Reit also gave him another 200 million at some point for City Place. So it's about a billion dollars from one party. Right.

[B]

And when you think of the folks who can provide these types of loans, we've talked a lot about Apollo and the various origination machines they have. Last week we talked about Garrison being spin out of fortress and Garrison's like kind of a little fortress and you know, Ares, their DNA is from Apollo and they are another Greek God of credit.

[A]

Greek God with great hair, by the way. Tony Ressler, who is brothers to CIM's Richard Ressler, is betting on real estate in a big way by betting on Steve Ross.

[B]

Well, Tony Ressler, Mike Harghetti, one of the principal owners of the Baltimore Orioles, credit's in their DNA. This is what the company was founded to do. Now doing it in real estate is on the newer side, but you've got A plus sponsor. Is Steve Ross going to default? No, he's absolutely not. It's chunky, you can put it out. And for Steve, I think what matters for him, I'm imagining he's like, I want to clean execution super fast, kind of don't care if it's like SOFR 200 versus SOFR 190. I want it to be like very friendly docs. And I'm sure that's sort of what this is.

[A]

And they have a relationship through the sports team and through other things they've done together.

[B]

Right, exactly. They gave him $800 million for his Formula One race. The sport, the dolphins, the hard rock, all that stuff too. So very intertwined.

[A]

Steve has been putting the seeds of this empire together for a long time. Right. Get to this point of your career and you're not dead and you still have energy and you can tap all these relationships that you've been cultivating for decades. You can now tap them in really fun ways to shape the city. West Palm Beach. That's what I like about this.

[B]

This is not just, oh, wow, what another great real estate project. Let's talk a little bit about all the other things that he's bringing here. Because West Palm didn't have plug and play infrastructure for the type of global he city that you're trying to make here. Like, what has he done?

[A]

Yeah. The alpha kings of capital need more than just nice offices. Right. And that's a really great point is that unlike in New York City where you're basically plugging into the API of a world class city right here, you have to Build all of that infrastructure before the tenants will come. And so Steve Ross just took it upon himself to do that. Absolutely crazy. So let's talk about the education component, because I think that's the most fascinating bit here.

[B]

It's a big issue because if you, you know, we're sending your kids to Dalton or, you know, pick a number, any one of the schools in New York, and you go down to Miami and you're like, I don't know if Gulliver Prep's like, kind of going to cut it. And it's a huge thing. I mean, people are worried about, like, where their kids are going to go.

[A]

School.

[B]

Like, ken Griffin donated $50 million to some high school to make sure, like, all of his Citadel kindness kids could get in there.

[A]

It's much more than just having the name on the wall, which he will obviously have to, but it is really about, like, if you don't do this, going to be much harder to recruit talent for all these companies that Steve Ross wants to bring into West Palm Beach. Yeah.

[B]

So what has he done?

[A]

So he is bringing a private K12 school to Wellington, which is a town right by our village, right by West Palm Beach.

[B]

Also, Wellington is the horse capital of the United States.

[A]

Oh, of course.

[B]

A horse is a horse.

[A]

Of course.

[B]

Of course. Yeah. So Bill Gates has houses there. Our good friend Mark Gansey spends a lot of time there.

[A]

So the village sold him 35 acres for $47 million.

[B]

Pretty good bit of business for the village.

[A]

A little bit. So that's the school. And then to create a pool of talent in West Palm beach, you also need a university.

[B]

Right. And you would think West Palm, we've got University of Florida, we've got Florida State, we've got Rollins College. But no, no, no. Who's coming?

[A]

Vanderbilt University.

[B]

God. Vanderbilt.

[A]

Vanderbilt University is bringing a half a billion dollar campus to West Palm Beach. Steve Ross was instrumental in making that happen. He was courting them for a long time. Didn't he have a gathering at his Palm beach mansion?

[B]

You're going to have to tell me a little bit more about it.

[A]

Ron DeSantis, Nelson Peltz. Oh, right, yeah. All these big guys showed up. This has been in the works for a while and Steve Ross has really been at the center of bringing that together.

[B]

Jeff Green has been trying to do it.

[A]

Yes. So before Vanderbilt entered the picture, the University of Florida was in talks to build a campus in West Palm Beach. However, those plans fell apart over. This is just the best part of it. There was a naming disagreement With Jeff Green.

[B]

Fantastic. That's so good.

[A]

It's just philanthropy, baby.

[B]

That's what happens when Mike Tyson is your best man. My style is impetuous. My defense is impregnable. It's a huge name to bring them. They're such a Nashville institution to get them here. I mean, take some serious doing.

[A]

Let's talk now about the office tenants that he's bringing. So there was this massive talk during the pandemic about how Miami, Wall street south, the new capital of capital, et cetera. But Steve Ross is almost trying to engineer a bypass of Miami altogether. He's creating a second Wall street, but it ain't in Miami. It's maybe in West Palm Beach. So he's brought point 72, which is your guy. Steve Cohen's shop, Goldman Sachs is coming to his complex as well. Pretty impressive name so far, right?

[B]

When you think about it, it really makes sense because Miami is very hard to get around. Education is tough, Public transit isn't necessarily there. And you think what's going to be stable? Are people going to be there for the long term? Because you've seen a lot of people go to Miami come back. That's a phenomenon that really happens. And I think he's really trying to create the holistic 360 life for people where you can say, I would have wanted to live in Greenwich, I would have wanted to live in Rye Fairf County. And he's like, just come here. It's that. But the weather's better and there's no taxes.

[A]

There's no taxes and there's. I think unlike Miami, there's no undesirables. Right. You're starting somewhat from scratch. You can build the idyllic town for the well heeled without having to worry about being in an actual city.

[B]

That's exactly right. I mean you have sort of all the connectivity of Miami, but you've got a livable city with education that's not just like, hey, I can go to whatever that Salt Bay's steak restaurant, you know, or Dragon or Komodo, whatever the hot restaurant that Robert Rovani is leasing to. You can say like, I can have a real life here that's sustainable and where I'm not going to want to go back to New York and bring it back to self funding it. Who in their right mind, if you have to make an irr, is going to like build a school like that is going to like spend the money to bring Vanderbilt here? Like this is a legacy thing. Like, yes. You know, he's trying to make money. He's Steve Ross. But, you know, this is not a project that we talk about. Like the cowboys used to do stuff off the spreadsheet.

[A]

Yeah.

[B]

Like, this is like what they would kind of do. Like, you do like a great thing because you are a great man.

[A]

This is a cowboy who has kind of walked in the institutional hallways and is like, you know what? I kind of want to be a cowboy again.

[B]

I talk about one day hoping to be wealthy enough that I can buy hotels again. This is kind of like Steve Ross being like, I hope I can get back to just shooting from the hip.

[A]

Something I think about in my life for sure, where I'm at in my career. But how much can you port over to what you do next? And how much is a function of where you were at? I think Steve Ross is a really good example of porting over a lot of the capital relationships. A lot of the ideas, obviously, a lot of the development. Know how that goes without saying. But he's been able to stitch together this plethora of lenders and whatnot, and he's been able to do it with this one man show in a sense. I haven't heard. Do you know of any other related Ross hires?

[B]

Definitely not. I have not.

[A]

He's very much like the face of this and in the center of this.

[B]

Yeah. I mean, my assumption is that he's got a pretty significant family office that are really helping do a lot of the back end or maybe some. Like there's a part of related which is helping out just in sort of the organizational part of this. Sort of like how. Point 72, a bunch of the analysts were just doing stuff for the Mets for a long time. Like that's. They didn't like make analytics hires. It was just like, you know, hey, you were doing TMT here. You're going to be doing OPS and vips. So using this equation in the upper left right here, I'm projecting that you need to win at least 99 games in order to make it to the postseason.

[A]

I think about that a lot. Like, you're. You're starting afresh. You have all the experience, you have all the wealth, you have all the capital, you have all the relationships. You're building your own machine. It's just interesting how he's kind of going about it. It's just really fun to watch. And this is clearly a guy who's having a good time.

[B]

Exactly. The last two huge projects he did, there's so much pressure.

[A]

Like Time Warner Center, Hudson Yards.

[B]

Just think of what? Like the economic realities that they came out of dealing with the city, dealing with, like, retail, failing office, changing all these things. And now you just got a blank canvas. You don't have to worry about capital. You've got a lender who's gonna do right by you.

[A]

You've got a mayor who just gushes at anything you say.

[B]

That's the dream, like we talked last week, that you're gonna have Benny Algem way outside of LA country club. Steve Ross is gonna have. West Palm beach, is gonna be called West Palm Ross.

[A]

All right, so we talked, Steve. Now we got to talk. Gary. Gary Barnett, man, he's done it again. XTEL has landed a $1.2 billion pref commitment from an unnamed hedge fund. We have some speculation as to who it is for nine projects that are kind of in various states of mix.

[B]

I'm getting nauseous thinking about the current portion of that pref stack. It's so much prep.

[A]

Why go the pref route for something like this?

[B]

Because you can't get common. I mean, I can't think of another way. It's almost as expensive as common and you're going to get eaten alive. Imagine this, it's 7% current. It's going to be less because none of these things generate any cash flow. But Even if it's 12, that's $140 million a year. That's just picking. I know that I have some friends who are going to be like, well, Gary's good. His base is so good. I don't give a shit.

[A]

You're very conservative. Well, Gary lives a different way.

[B]

I'm not conservative. If the people knew what's keeping this thing afloat, they would know that I am not conservative. And I have prep accruing right now. It is not 1.2 billion. And it's still kind of eating you alive. So, gary, on the 21st of each month, when they email you the statement saying how much is accrued, how do you not have a cardiac event?

[A]

Well, we've talked about his risk tolerance kind of being preternatural, right? And this is certainly part of that. We're talking about some very, very significant projects for New York here. The 1.8 million square foot development of the former ABC Disney campus on the Upper west side. The super tall Theater District Hotel, which is dubbed the Torch, maybe the ugliest.

[B]

Building in the world.

[A]

It's pretty bad. There's something uptown where he's jumping into ABS's project. I want to say it's in Harlem and then my favorite, the Deer Valley ski resort in Utah, which we still have to do a real episode about because it's absolutely phenomenal stuff.

[B]

We really do. And you know, Stein Erickson, rest in peace, is looking down on this and going, gosh, that's my guy.

[A]

Listen, if you guys haven't already checked it out, I'll drop this in the show notes. Go read the promotes thread on the Deer Valley project. It is the most audacious real estate play that I've seen in the modern era. It's just phenomenal. That brings everything together.

[B]

We almost can't even like start getting into it now because we're just not going to end the episode.

[A]

We'll get distracted. So let's talk about the PREF component here. So it's $1.2 billion.

[B]

So here's the thing, it says committed. So like when is it getting funded? How is it getting funded? How is the interest being accrued? All of these things I'm very interested in because it's not like he needs the 1.2 billion today for everything. These are all questions we're never going to get the answer to. But practically speaking is important to think about because if they're accruing the full 1, 2 upfront, which like I'm viewing it like a future capex deal. So if you buy a multi deal and you have preface in some cases you'll have like a completion guarantee on renovating units and they'll hold back a portion of it which you can draw and then start accruing on that. And a big negotiation point is like, do you pay interest on the undrawn or not? And for Gary it's a big question because where is that 1.2 going to get spent? How is it being accrued? Because if they're calling all that day one, I mean, I don't see how he gets out from underneath it.

[A]

I'm not sure how it's structured. We normally wouldn't even know about things like this, like a pref commitment in the background. The reason we know about it again is this was a filing on the Tel Aviv Stock Exchange. Gary Barnett has gone and raised money in Israel on the, on the bond market there. So that comes with some kind of disclosures that you have to make. And this is where this was buried.

[B]

So you think it might be jvp? Why do you think that?

[A]

Three reasons. I think it might be jvp. All right, they love pref. They had a lot of equity bets. They owned a portfolio with cortland which we've talked about, a big multifamily player. They have been pushing Cortland to exit that portfolio. And now Cortland's been selling. I think it's about four or five thousand doors that they own because JVP wants out. Okay, so they love Pref. They're already funding two giant deals for Gary. They were involved in the Four Seasons component of the Deer Valley project. They're leading the 600 million construction loan for that. And they led the 1.2 billion refi on that. That Upper west side super tall. Was it called 50 West 66. JVP were the guys on that. So there's two reasons. The third reason is they really like messy development. I didn't realize this until a little bit later, but they are the senior on the rally. Miami beach, the SHMO project that we've talked about.

[B]

Outstanding, great work.

[A]

Some people might think JVP stands for Jerusalem Venture Partners, which is a very well known jvp. Nuh, the JVP here is just an acronym of the founders, John Aluzzi, Van Nguyen and Anthony Pizzonia Schaskas. That's jvp. That's how it came about.

[B]

Love it. But man, that's a lot of capital to one guy. To one sponsor. Ikea. Ikea.

[A]

I think we should talk a little bit about the IKEA situation.

[B]

Gary is most famous for his condo deals. So Central Park Tower 157. But he's also been a prolific office and hotel developer as well. He did the W in New York, which I think was probably the project that really made Gary. Gary.

[A]

Yeah, it set him up.

[B]

And so doing the Four Seasons in Deer Valley, doing like a condo hotel, like all that's right in the old wheelhouse for Mr. Barnett. I will say that the ABC Disney campus is maybe a little bit different because when we talk about someone like Steve Ross, who's really a campus developer within an urban setting, Gary is more like a here's my spot. I'm going vertical.

[A]

Do you remember Gary at one point owned Television City, but they didn't develop it. They did not develop it. He has done office before. He is building 570 Fifth Avenue. And that's a really interesting deal because again, he's figured out a way to de risk this. So IKEA had committed a slice of equity in Pref. We've now found out via the tase that it's $300 million that they're putting into the tower.

[B]

So this is a big part of the Gary playbook. He's done this before. Central Park Tower was for a time known as Nordstrom Tower. That's right, because he sold the bottom few floors to Nordstrom for. Do you remember how much it was? I think it was like three or $400 million.

[A]

That was a lot.

[B]

It was a lot of money that I'm sure the Nordstrom family would like to have back.

[A]

He's got IKEA in here. They're doing $300 million in equity in pref. And then he's got Simpson Thatcher. The widest of white shoe law firms is taking 700,000 square feet at the tower. So there's your anchor tenant.

[B]

Massive deal. Enormous. Even with what I assume is a monster ti and free rent package. Just a humongous coup. And again, these are the types of things like the cash flow stream is like, that's how you get these things financed. And to do it at this level, humongous.

[A]

At another project on Madison Avenue, the one he bought from the Cohen family, Williams Equities. So there had been talk that he was going to bring Chanel in for the retail condo. And the taste filings appear to support that. Those negotiations. Chanel had been looking to buy this retail condo for $450 million. So there you go.

[B]

Like Bruce Willis said, you know, Chanel's looking at all these other groups who are buying their retail space, and they're like, welcome to the party, pal. We talked about how Steve Ross can de risk, can put together urban campuses. Gary just pulls rabbits out of hats with capital. There's never been anyone like him. He's used every source. It's traditionally been common from whatever the zeitgeisty place to find the equity is. And right now, what's in the zeitgeist more than pref? Everyone wants to be pref. And here he comes getting the most prep of anybody, and that's Gary Barnett. I mean, God love him. So back in May, we had Barrett Lindbergh on to talk about a new bill that was going to potentially be the nuclear option for traveling HFCs, which were the tax abatement programs of a lifetime of a generation slash scheme in Texas that allowed people to fully abate property taxes for doing basically nothing.

[A]

In a nutshell, basically, you would get your property taxes wiped off in exchange for committing a certain percentage of units to be affordable. The trick shot here was that the affordable rent threshold was oftentimes higher than the market rent threshold, which means you had to agree to nothing. And in exchange, you got everything. And it turned into this Massive cottage industry of consultants and debt brokers and syndicators, essentially, and lawyers. Everyone under the sun came together. They really united around this massive freebie to create this incredible grift in Texas, which wiped off billions of dollars off the tax rolls in cities that really needed it. Dallas, Houston, etc. And the important thing years was the traveling component. So an authority in, let's say, Cameron county, far away, could create an HFC structure for a deal in Dallas or deal in Austin. So this went on for quite a while. And then in May, it was shut down with extreme prejudice.

[B]

Barrett called it the nuclear option because there was a retroactive component to it, so you could owe the taxes that you had abated.

[A]

In some cases, it would complicate your prior contracts with your agency lender. Right. As well. So it was really, really messy.

[B]

I mean, it would put you in default.

[A]

Yeah.

[B]

I just think that in the nuclear world, true enemy can't be destroyed.

[A]

Everyone knew the party was coming to an end. They were fine with it. They're like, we had a couple good years, let's move on. Right.

[B]

When the ducks are quacking, you gotta feed them.

[A]

However, the retroactive component is seen as so damaging because who knows how it's all gonna shake out. This happened in May, as we just said. There's been a couple of months of the sponsors licking their wounds, trying to figure out their move, and now we're seeing their move. So there has been a legal action filed by one of the most active proponents and consultants in this HFC program called Post Investment Group. And it's run by a guy called Jason Post, and he is joined in the lawsuit by a workforce housing coalition, which is basically a trade group for a lot of HFC users. And they're suing an appraisal district where the county seat. It's called Bexar County Appraisal District.

[B]

Yeah, in San Antonio.

[A]

Yep, exactly. And they're suing them for a couple reasons. One, they're saying that the retroactive component of HB21 violates existing contracts. Right. So it's unfair. It gives municipalities unlimited power, and it unconstitutionally applies to old deals. They're arguing.

[B]

Why are you talking about old shit?

[A]

The other part that I loved, and this is why I love America so much, they said that doing it this way retroactively will undermine the faith in our capital markets that if a deal is no longer a deal and you can go back and change the terms on it after the jump, it basically disincentivizes people to bet on Texas to bet on America.

[B]

In a sense, unless you let us grift freely for nothing, no one will invest money here.

[A]

Exactly. That's the argument. So Williamson county is trying to unwind a traveling HFC deal that was done there and this Workforce Housing Coalition is also trying to intervene there. So we're very early in this legal process. We're going to see how it shakes out. But the whole idea here is that if you just leave old deals alone, we will accept our loss and move on. But if you're going to get back into our books and try to mess with contracts that we have, we're not going to go down without a fight.

[B]

And I suggest everyone go back and listen to the episode in May because Barrett did an amazing job walking through how people use this program in good faith because it does do a good thing and provide affordable housing that wouldn't otherwise get built and how folks who did not use it in good faith caused this and are now suing.

[A]

Can I read you something that is now deleted off of LinkedIn? But one of the syndicators who use.

[B]

The program when you do the unquotable quotes of the year for the promote like this is on the short list for number one.

[A]

This is the quiet part out loud into 100. So this gentleman, David Lilly is his name, said the following. Do I feel bad about taking money off the tax rolls? Rolles? Not really. I'm just getting some of my money back that you misappropriate. Anyway.

[B]

Bravo.

[A]

This is a really, really big. It was like the defining story in Texas. Multifamily, really multifamily writ large over this past year. So very excited to see how it goes.

[B]

And this is an issue that's playing out nationwide because affordable housing is a problem almost everywhere. People are really putting money into the space. Trumerica and Manulife just did an enormous joint venture for affordable housing and light tech deals. And we say it'll be interesting to see what happens, but it can be indicative of what broadly is going to happen in a lot of jurisdictions elsewhere throughout the country. And that will have downstream effects that we don't even know yet.

[A]

100%. I think we've talked a little bit about incentive design and how the backlash to things like this, which are clearly were clearly abused. How the backlash was.

[B]

They were schemes. They were absolutely schemes.

[A]

Yeah. Schemes. Not in the British or Indian sense, but in the American, the good old American sense. Like a real scheme. Did you know that a development in the UK is called a scheme?

[B]

Is it really yeah, it's fantastic.

[A]

Just like back in the day here a real estate developer used to be called a promoter. You knew that one?

[B]

I did not. We gotta bring that back.

[A]

On a more serious note, when incentives like this that are designed with the intent of creating much needed affordable housing, when these things are abused, it creates a severe backlash that can really hurt the cause.

[B]

We can look no further than New York City. The rent law in 2019.

[A]

Exactly.

[B]

It was completely an overreach, total overreaction. But it was coming from a place that's completely understandable, where people were using individual apartment improvements, major capital improvements, which are in theory a very good thing to help people improve old housing stock and make it safe, clean, affordable for folks to live in and incentivizes people to invest in this type of housing. You had folks who abused it, who would, you know, we've talked about this ad nauseam, but would turn off heat, not respond to work orders, make apartments dangerous and unlivable, bully tenants, all that kind of thing, all of those things. And so the real estate industry had to look in the mirror and be like, you know what, like they completely overreacted and this law is causing tons of damage.

[A]

You're asking for self reflection from real estate. People really will come on.

[B]

I know, but this is what I'm saying here is that if you abuse it, it's going to go too far the other, other direction. And I mean the retroactive component of this is no different than not allowing for individual apartment improvements and rent, say, buys apartments in New York.

[A]

If you game the system, the system may change the game on you. That's it for the promote podcast this week. We'll be back next Wednesday with more cre Insider goodness.

[B]

Speaking of incentives to have people write the best reviews for us in this next week. Whoever has the tastiest review on Apple, on Apple, Not Spotify, just Apple. We'll receive some fun swag.

[A]

I'm designing it on Canva as we speak. Brands. A reminder that we'[e-mail] for advertising. Hit us up there.

[B]

Yeah. Our audience of psychos, Lunatics.

[A]

It's not going to stick. Psychos is not going to stick.

[B]

Okay, fine. Our audience of folks in the real estate industry like this has legs. You should definitely hit up partnershipstopromote.com all.

[A]

Right, well, thank you. I'll see you next week.

[B]

Thank you, man. Have a good one.

[A]

Ciao.