SF Apartment Therapy & the Short King of Data Centers

Summary

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The Promote Podcast: “SF Apartment Therapy & the Short King of Data Centers”

October 8, 2025 | Hosted by Hiten Samtani & Will Krasne

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Episode Overview

In this wide-ranging episode of The Promote Podcast, hosts Hiten Samtani and Will Krasne dive deep into three major commercial real estate (CRE) stories:

• The transformation of crypto-mining operations into data centers for tech giants like Google.
• The saga of Paul Prager, a notably colorful Brooklynite “short king,” building an empire in both energy and Maryland real estate.
• The ongoing carnage (and quiet resilience) in San Francisco’s multifamily market, marked by distressed portfolios and institutional power shifts.
• The rise of extended stay hotels as a new haven for institutional capital seeking reliable returns.

As always, the conversation is peppered with insider banter, sharp industry insights, and a few memorable quotes.

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1. From Power Plants to Google Data Centers (00:27–10:31)

Key Discussion Points

• Paul Prager & TerraWulf:

  • Prager, a former NYC-based energy mogul, now runs TerraWulf, which began as a bitcoin mining company and has pivoted to data centers, leveraging its access to cheap hydropower in upstate New York.
  • The firm is in the news for raising debt to build Google data centers, a trend where "hyperscalers are teaming up with former bitcoin providers" (01:19).

• Financing Mechanics:

  • Google's $3.2B lease obligation and “backstopping” of the debt offers both assurance and reduced risk for institutional investors (03:24).
  • This is likened to recent deals (e.g., Hudson Pacific Properties) where major partners commit to backstopping IPOs or large financings to “show that there’s demand and...let the spread get a little bit tighter” (04:12).

• Pivot from Bitcoin Mining to AI-Driven Data Centers:

  • The AI/data center gold rush creates a “circular reference” in capital flows: “Nvidia is like, committing to buy stuff from OpenAI, and OpenAI is committing to, like, buy stuff from Nvidia and like, the money is just sort of going around like in a washing machine” (02:39).

• Location Strategy:

  • TerraWulf’s Lake Mariner, NY campus stands out for access to clean hydropower, ample cooling, and minimal NIMBY opposition, versus congested alternatives like Northern Virginia ("Ashburn") (05:14).

Notable Quotes

• “You got to find a place to do this where you’re not going to have all the NIMBYs coming out against you..." (06:01, Hiten)
• “Space is not a number or metric that really gets thrown around. It’s just not the limiting factor here... it’s all about power.” (05:32, Hiten)

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2. CRE’s Short King Remakes Maryland (07:10–10:31)

Key Discussion Points

• The Paul Prager Effect:

  • Prager, “a short fat guy from Brooklyn,” has set his sights on transforming Easton, MD, into a high-end enclave, importing world-class culinary talent and acquiring significant swathes of real estate downtown (07:15–08:44).
  • He’s drawn comparisons to major CRE personalities who have remade entire regions (e.g., Ken Griffin in Miami, Steve Ross in West Palm Beach).
  • The dynamic is likened to building an entire “campus” and supporting an influx of talent and investment.

• Insider Anecdotes:

  • Will shares first-hand experiences: “I was at the $20 salad place...eight guys my age in vests walk in and I’m like, oh, right, he’s got his prop trading arm here and he needs all these guys to have stuff to do” (09:25).

Notable Quotes

• “They kind of have to do a thing... they can’t just exist in a town. They have to run riot on it.” (08:24, Hiten)
• “He’s like Ben Gazzara from Roadhouse where he’s taken over the entire town...” (09:56, Will)

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3. San Francisco Apartment Therapy and Multifamily Carnage (11:21–22:34)

Key Discussion Points

• SF’s Multifamily Chaos:

  • The city’s largest operator, Veritas's Pang Pang, is facing the loss of up to 4,000 units within a year due to broken capital stacks, not (as many believe) solely rent control (12:27–13:44).
  • The hosts emphasize the unique volatility of operational-heavy, portfolio-driven CRE assets—giant portfolios of smaller buildings are “hugely operationally intensive” and can come with clawbacks from special servicers (15:08–16:57).

• How Big Deals Get Done (and Lost):

  • Pang “hung around the hoop for a year or two and said, hey, let’s see if we can work something out” when acquiring 2,000 units from the Lemby family during the GFC (16:02).
  • Once distressed, these portfolios can change hands rapidly, with Ballast (backed by Brookfield) snatching up debt and becoming a leading SF landlord overnight (18:03).

• Special Servicer Dynamics:

  • A revealing segment on special servicers: fees incentivize them to “keep deals in various states of undress” longer because that’s how they get paid (19:25–19:40).

• Market Rebounds & New Players:

  • Despite distress, SF’s market is seeing new institutional capital flows, evidence of rebound in both office and multifamily asset classes (20:22–21:01).

Notable Quotes

• “A great asset doesn’t mean it’s a great deal.” (12:44, Will)
• Pang: “I got them in the same way that I lost them.” (22:29, quoting Pang Pang)
• On special servicers: “There’s a pretty big conflict of interest baked in...they want the deal to be kind of in various states of undress for fairly long because that’s how they get compensated.” (19:25, Hiten)

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4. Extended Stay: The Institutional Alpha Between Dusty Sheets (23:28–29:57)

Key Discussion Points

• Blackstone & Starwood’s $2B Play:

  • The institutional push into “alternative” property types continues with Blackstone and Starwood preparing a $2 billion financing for their portfolio of Extended Stay America, going private during COVID and now the poster child of CRE’s “resi-lite” product (23:28–24:13).

• Why Extended Stay Works:

  • Operate much more like housing—longer stays, reduced cleaning, fewer staff, steadiest margins in hospitality (25:12–25:57; 27:03).
  • “Weekly revpar” trumps the traditional daily metric and supports high NOI margins (25:02, Will).
  • Considered semi-recession-resistant: “If you can’t afford first, last and security deposit...these are apartment substitutes” (27:03, Will).

• Contrasting Market Segments:

  • Post-pandemic, ultra-lux resorts are thriving, mid-tier business travel hotels are lagging, but extended stays are showing durable returns (27:45–28:46).
  • Blackstone’s John Gray may not showcase extended stays at investor meetings, but, “they do the numbers” (29:57).

Notable Quotes

• “This is really the case here. So these things, it’s really all about how you operate it.” (25:16, Will)
• “You can run these things at like close to 40% NOI margins.” (29:12, Will)
• “Not necessarily what you want to talk about in fundraising meetings...but they’re cash flow engines.” (29:56, Will)

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5. Memorable Moments & Tone

• The hosts’ banter and New York wit is on full display, from self-effacing Brooklyn jokes (“I don’t play golf. The only thing I do is eat and drink wine,” 00:04, Hiten) to dry digs at CRE’s cast of characters.
• Will’s pop culture references (e.g., Tony Montana, Ben Gazzara/Roadhouse, and “The Florida Project”) keep things lively and relatable for industry insiders.
• Their closing anecdote—quoting a listener’s review—captures the show’s unique appeal: “CRE without the pablum, the promote is where intelligence meets irreverence. Hiten Samtani and Will Krasne don't just cover CRE. They dissect it with rigor and narrative wit.” (30:53)

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Timestamps for Key Segments

• Paul Prager & TerraWulf, Google Data Centers: 00:27–06:49
• Prager’s Maryland Makeover: 07:10–10:31
• San Francisco Multifamily Mayhem: 11:21–22:34
• Extended Stay Hotels as Institutional Alpha: 23:28–29:57

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Conclusion

This episode of The Promote Podcast offers an entertaining, in-depth look at CRE’s quirkiest characters, sharpest pivots, and most heated dealmaking environments. From the “short king” re-imagining rural Maryland to the institutional chess game underway in San Francisco and extended stay hotels, Hiten and Will bring memorable stories and incisive analysis—true to their mantra of “intelligence meets irreverence.”

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Transcript

[A]

I don't play golf. I grew up in Brooklyn. The only thing I do with great consistency is eat and drink wine.

[B]

I develop power plants in Pakistan. I'm not a terribly sensitive guy.

[A]

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

[B]

And I'm Will Krasny.

[A]

Today's lineup is gonna take you to a bunch of places, my friends. We'll zag from crypto minefields in upstate New York to the quiet wealth enclaves of the Eastern shore of Maryland, which I didn't really know much about.

[B]

Yeah, it's my stomping grounds. I live right there. It really is. And you'll get to meet one of CRE's megawatt characters, Pun intended, in the process.

[A]

Then we're gonna head to the city by the bay to take stock of the carnage. And in their multifamily market, it's really run Topoli in full force.

[B]

And finally, we'll pull off the freeway to visit the extended stay rooms. In the heartlands of America. Institutional investors are finding alpha between the low thread count sheets.

[A]

This is going to be a lot of fun. We want to give two shout outs before we begin. First to our sponsor for this episode, Bullpen. They're a recruitment shop dedicated to CRE and you'll hear more about them in a bit.

[B]

And a reminder to check out the Promote Insider, our premium tier for CRE content that just launched and highly recommend you check it out. You get more of us, more premium content and things you won't find anywhere else.

[A]

Yep, launching October 15th. Full on. It's going to be a lot of fun. Yeah, we got to start with Paul Prager. I feel like every great story has some kind of Paul Prager type of character in it.

[B]

So Paul Prager is a previously New York based energy mogul, now currently Easton, Maryland on the Eastern Shore based energy mogul. And he took over a publicly traded shell and it's now called Terrawolf. And Terra Wolf was a bitcoin miner, not unlike a lot of the other bitcoin miner knee data center companies that have been going to the moon recently.

[A]

This is a pretty classic pivot so far, right?

[B]

Yeah, well, they had the power and like our good friend Tony Montana would say, like this country, you got to.

[A]

Make the money first.

[B]

Then when you get the money, you get the power.

[A]

Terra Wolf's in the news in a really fun way at the moment. A former bitcoin miner, now raising debt to build data centers For Google, and I think this is happening quite a bit, this trend of hyperscalers teaming up with former bitcoin providers. Super interesting trend. But I think we want to talk about the mechanics of how these things actually work. So what's going on?

[B]

There's been a lot of talk about how the AI boom is a little bit of a circular reference, so to speak, for my Excel junkies out there. Nvidia is like, committing to buy stuff from OpenAI, and OpenAI is committing to, like, buy stuff from Nvidia and like, the money is just sort of going around like in a washing machine. And this is sort of turtles all the way down here.

[A]

We talked a few episodes ago with our boy Mark Gansey about a metaphorical lockbox. A lockbox with core weave. And the chip financing. That was fascinating. I'll put that in the show notes. You should definitely check that out if you're new to this.

[B]

Right. So all of these hyperscalers need energy, which we've talked about ad nauseam. But what's interesting is that it's really expensive to build these things. And, you know, your options are like Blue Owl Private credit.

[A]

Yeah.

[B]

Or sometimes you get. It's not quite seller financing, but it's like user financing. So Terra Wolf is building data centers for Google to take advantage of power that they already have access to. Yeah. And there's $3.2 billion of lease obligations which Google is committing to, which will flow to Tara Wolf. But then Google's also going to backstop the debt financing.

[A]

How does that make it easier for them to finance?

[B]

Well, they're doing a securitized debt offering, which is essentially an IPO of debt. And you know, Morgan Stanley is like, arranging it. So they're running a roadshow. When you're running an ipo, you want someone to backstop the IPO because it helps show that there's demand and then it lets you rip the price a little bit. This is no different. So Google stepping up and saying, look like we'll take a big chunk of this shows other institutional investors that it's real.

[A]

Yeah.

[B]

That they're committed to it and hopefully, you know, bids up the price and lets the spread get a little bit tighter.

[A]

Oh, it's kind of like what Cohen and Steers did with the Hudson Specific Properties recently.

[B]

Cohen series did it with Go Partners in their IPO as well. You just commit to backstop something again. It's like maybe you get a little bit of better pricing and then the folks who are arranging the financing can show that There's a lot of demand and then hopefully get a tighter spread. Everybody theoretically kind of wins.

[A]

Google's done this before with Terwolf and they took an equity stake in Terawolf as part of this deal.

[B]

Yes.

[A]

Yeah. So I think that is interesting where you're betting on you're the customer of that company, you're also the backstopper of that company and then you will soon be an owner of that company as well.

[B]

Well, I mean it's no different. Google is famous for doing this. I mean they own what, a big chunk of OpenAI. They've own a bunch of anthropic. They own a bunch of these different companies. We're helping you create all this value. Like let's get paid in there too. But I think what's interesting here too is talking about the energy, Right. So we've talked about Data Center Alley in Northern Virginia, we've talked about all these places in Texas. But what's interesting about Terra Wolf is that they have a data center campus In Lake Mariner, N.Y. so hydropower, is.

[A]

That what we're talking about?

[B]

Exactly, yeah. So they have like super clean energy, tons of cooling. It's also a little bit less densely populated than like Ashburn, Virginia. Prager had been preaching about this for a long time, saying we can deliver power more cheaply than anybody else because we have access to this hydropower, we have the cooling, all that, we don't have to pipe it all in.

[A]

And we've talked about everything. One of the biggest bottlenecks and an emerge, I mean it's going to get even more exponentially challenging over time is how to get your power. So when people are talking about data centers, they don't really talk about space at all. Like space is not a, a number or metric that really gets thrown around.

[B]

It's just not the limiting factor here.

[A]

Yes. Like how many megawatts or whatever. How many gigawatts, gigawatts, 1.2 watts gigawatts. Great.

[B]

God.

[A]

And then everything kind of flows from that.

[B]

We're seeing this all over the place. I mean, just in the last two weeks, people are just rebelling against utility rates going through the roof. Like water usage going through the roof. You got to find a place to do this where you're not going to have all the NIMBYs coming out against you. Look at Lancaster, Pennsylvania. Big Data center project going on there and it's caused a huge backlash.

[A]

Some of the suitors that might step up to finance this thing, we're speculating Here, obviously the most vivid and massive example that comes up in recent weeks is what Meta is doing in Louisiana. They did this face off between Pimco and Blue Owl and I think it was Apollo and KKR on the other side. Morgan Stanley has kind of a nice niche here. They ran that process as well. And basically in the end Pimco and Blue Owl won out and it was a $29 billion financing we're talking about. So private credit's getting all up in this business.

[B]

What's interesting too though, is that a lot of the people who own these things are having trouble selling them because it's like, who's going to buy this thing with tons of capex, like uncertain how long the cash flows are going to be durable because the tech changes so quickly.

[A]

We're talking about Terra Wolf because of this Google thing going on, but really we're talking about Terra Wolf because we want to talk about the man behind it.

[B]

Pay no attention to that man behind the curtain. The greatest has spoken.

[A]

Mr. Paul Prager. He describes himself as a short, fat guy from Brooklyn and he's built quite an empire. Will, why don't you take us to your haunts of the Eastern shore of Maryland, where Paul Prager is basically remaking a town in the mold of the Hamptons, but going for this like maximal vision of it that I think is so interesting.

[B]

I'm really proud of myself that I was able to hang on this long in this story without talking about what's been going on in eastern Maryland.

[A]

I put a note in the show notes, so I will continue yourself. Go ahead.

[B]

Full disclosure. Like, my in laws lived in Easton. Like, I've been to a lot of these restaurants and I've seen them in the wild.

[A]

Are they as crazy as described in this excellent Washingtonian article?

[B]

I mean, he got like the dessert chef from Perce to go to a bakery in Easton, Maryland. It's nuts. But anyway, so Paul Prager, he went to the nail academy, which is just over the Bay Bridge from the Eastern Shore, fell in love with this area, made a bunch of money and energy in New York, and then was helicoptering down here to his massive estate and just said, you know what, like, why don't I set up shop here permanently? And that's what he did. So he took over essentially all of downtown Easton. He bought six, seven, eight buildings, a couple of square blocks.

[A]

There's a phrase in Hindi which basically translates to someone has like a germ is what they say. Like, a person like Paul Prager cannot just move to a town and just exist. They kind of have to like, they kind of have to do a thing. And that he just decided to run riot on this one. Very wealthy, very classy, but quite sleepy.

[B]

Enclave, to put it in perspective. So Easton is just a little bit inland from the peninsula from St. Michael's which is where they filmed Wedding Crashers. So it's like where Sack Lodge's family is like Donald Rumsfeld, like the bushes all had houses out there. Very wealthy, very prominent area for like the DC Glitterati. And so Paul's like taking this place over. He's got the $20 salad restaurant, the crazy steakhouse, the insane bakery, all these things. And you wonder, like, why is he doing this? It doesn't even really make sense. Like, I'm sure he hammered his money on all of it. And he even has a company, like a separate hospitality company that runs all of these things. So I remember I was at the $20 salad place, which, by the way, delicious.

[A]

Okay.

[B]

But I'm like, why is this here?

[A]

What is Mark Rowan charging over at Duria's?

[B]

We're not there yet. Again, this is, you know, we're headed in that direction. But as I'm sitting there in line, like eight guys my age invests walk in and I'm like, oh, right, he's got his prop trading arm here and he needs all these guys to have stuff to do.

[A]

Kind of like we've talked about with Ken Griffin, Citadel in Miami and Steve Ross in West Palm Beach. You need to create that rich man's life so that your rich man can go do something.

[B]

We've talked a lot about campuses and they come in different shapes and sizes. But honestly, he's like kind of turned into like Ben Gazzara from Roadhouse, where he's like taken over the entire town. I brought them all here. I got the 7 11, I got the Fotomat here. Christ, J.C. penney is coming here because of me. It's worth checking out because there are these little niches everywhere. And not everything's got to be in midtown Manhattan or in San Francisco or la. You can run it all from eastern Maryland.

[A]

So we talk a lot on the show about how CRE is such a specific, weird world onto itself. So when you're talent hunting in the space, it makes sense to partner with a recruiter who lives and breathes it. That's where bullpen comes in. There are talent shops solely dedicated to cre and they can fill both fractional and full time positions, hooking you up at all Levels from analyst to C suite. Check them [e-mail] to get started. That's bullpenre.com and please tell our friends there that the promote sent you.

[B]

So one of my good friends said that real estate is essentially buying a small micro cap business that you can walk in. And it's pretty grim. And that's totally the truth that you don't. You aren't just trying to hire smart people. You need real estate people. Yeah, folks who know real estate. You don't need Goldman, Deutsche bank of.

[A]

Loans, top of your class at Harvard types.

[B]

Yeah. No, no, no, no. You need real estate people.

[A]

And that's where Bullpen comes in. Check them [e-mail] okay. I love talking about San Francisco. You and I both have a fondness for that city. You and I both feel like it is a city that should be greater than it is. And there are some vibes coming back. However, in the multifamily market there, man, it's been carnage. I can't quite understand what is going on in SF multifamily. Like, you just see these portfolios getting ravaged, man. Veritas is at the risk of losing yet another portfolio. This is 1500 units. This comes maybe months after they lost 2,500 units to ballast and Brookfield and all that. So I think we should talk more broadly about what the hell is going on in SF multifamily and talk about some of the distress there.

[B]

Well, you could potentially say, hey, there's no bad deals, only bad cap stacks or bad regulations.

[A]

Unlike in New York City, most of the shit that we're seeing right now in SF in this space is not a casualty of rent regulation laws. This seems to be more broken cap stack situations.

[B]

Finding good real estate, like isn't the thing. Finding the risk adjusted return is the thing. And one of the ways you can blow yourself up is you can overpay for a good asset. A great asset doesn't mean it's a great deal. And we sort of found that out a little bit with Veritas on their mega portfolio of these walk up deals in San Francisco.

[A]

It's not even the purchase price that can be the problem. It's the subsequent financing of this thing later on that can really get you down.

[B]

Some of these groups, not talking about Veritas necessarily, but some of these guys, when you see them give back a building that They've owned for 25 years, like they've taken the purchase price out in multiples in terms of debt financing. So like let's not go cry. Let's not worry for them. That, you know, may be the case here. Who knows? But they've lost so many buildings. I mean, good gracious, if they lose.

[A]

This package, which they now save. Aeritas, which is run by a guy called Yat Pang. Oh, who goes by Pang Pang says he has a capital partner waiting in the wings and might be able to rescue this portfolio. But if he does lose this one, he's lost about 4,000 units in the past year.

[B]

Plus that like my girlfriend is from Canada and you haven't seen her but she's really hot.

[A]

Or Yitzchak, Tesla coming up with this Emergency financing for 172 Madison. Who knows? But I think it's important here to start paying from. Veritas had less than 100 units when he took control of in one fell swoop, 2,000 plus units back in 2011 or so.

[B]

And let's talk about how he took over those units because he's got a great line on this foreclosure.

[A]

He's been reading too much of the Daily Stoic. But okay, so in 2011 there was a family called the Lemby family. This is one of the great families of San Francisco apartment. So compare them, let's say in New York to the Dursts or the lafracs or the Rudens or something like that. They had amassed this empire of about 300 buildings. Things went south at some point in 2011. Veritas, at that point Pang only owned fewer than 100 units. Paid $500 million to take over 2,000 units. Like, this is the thing about real estate that I absolutely love. If you can convince a capital partner to come in with you, you can go from minnow to titan like that.

[B]

I'd say a fair comparison would be the guy who has the epitaph on the promote newsletter. I'm worth a fuck ton of money, bro. Rafael Taladano, who took down a massive rent stabilized portfolio in New York out of essentially nowhere. But I think let's just double click and God, I hate saying double click.

[A]

You sound like a douchebag vc. Don't do it. I hate.

[B]

Yeah, let's dig in on how this portfolio came to be because as you said, like the lemby family owned 300 buildings. Just massive amount of apartments and they lost 91 buildings to UBS in the middle of the recession. Sort of call it like late 07, early 08. Yeah, there's no bid at that scale. Like one of the things about putting together These, like smaller building portfolios is that people don't necessarily want to take that whole thing, especially if you were like one of the big buyers. They're so operationally intensive that if you're a big player, a lot of times you can just. The juice isn't worth the squeeze on the asset management side. Like, I think sometimes it's like the poor asset management analyst who's got to like do the financials for 90 buildings, you know, each month. Like, God, take the whole month. And they had to sell them off in little chunks. People would take onesie twosies, couple here, a couple there. And then Pang came in and took 2,000 of the units in one go.

[A]

And this is what he said. He had a great line. This is when things were going good. So these guys were giving a lot of interviews. He said, I kind of just hung around the hoop for a year or two and said, hey, let's see if we can work something out. And what he worked out was a deal with Baupost, our good friend Seth Klarman, who's also backing RXR on Gemini, which we talked about a week or so ago. And Veritas just kept growing after that. Incredible momentum. I think at its Peak in 2022, Veritas owned about 6,500 units in SF. SF is not that big a place. That is giant.

[B]

Oh, that's huge. And again, they're all small buildings. It's not as if they're like, oh yeah, we own 15, 400 unit buildings.

[A]

These are little nibbles. But you put them together, it's pretty substantial.

[B]

Yeah. So again, hugely operationally intensive. You can see why they were able to get balpost involved in 2011, because there's a couple of buzzwords like we're, it's distressed, we're buying it from a lender.

[A]

Roll up play, all of that roll up play.

[B]

Operational efficiencies, Institutional quality asset management on mom and pop assets. Like, yeah, Hiten's rubbing his hands like, yeah, you can see why this pitch was pretty compelling.

[A]

The debt markets proved it out, right? In 2016, they go and they score like an $800 million loan package from Goldman.

[B]

And that's what they've defaulted on now. But again, as we've talked about too, if you're able to get a non institutional asset class to become institutionally financeable, like that's the holy Grail.

[A]

So in 2023, they default from there. The lenders put, I think, a nearly about a billion dollar pool of debt on the market.

[B]

Yep.

[A]

And this is where it gets a little bit spicy. There was a guy who used to work on Veritas team called Ryan brewer. Okay. And Mr. Brewer left Veritas at some point. He founded a company called Ballast Investments.

[B]

So Ballast, one of the co founders is a guy named Greg McDonald who worked at Carlisle. And when I was a young padawan, starting off at Carlisle, you get a men or who's like a VP or higher, Greg McDonald stopped by my desk, said, hey, great to meet you. I'm your mentor. And then a week later, he left to start Ballast.

[A]

So Ballast comes in when things go to shit here in 2023. Ballast comes in and they buy up the debt, and we're like, how does Ballast have all this money? It turns out behind ballast was your good friends Brookfield.

[B]

Behind every successful man, there's a great woman. And behind every big purchase of defaulted debt, there's Brookfield.

[A]

That's right. And so they come in and Ballast becomes. Just by dint of this deal, they become one of the biggest landlords in the city themselves. A little bit of a tangent that I want to talk about that I think is so interesting. We at the promote, we've covered a lot about the special servicers becoming main characters in the CRE story in the last, let's say, 24 months or so over here, out of all the debt that traded that Ballas brought with Brookfield, etcetera, did you know there was like $164 million held back by the special servicer?

[B]

Well, yeah, because I read the promote.

[A]

Yeah, well, it's amazing. It's like this black hole. Can you talk a little bit about the dynamic between bondholders and the special servicers?

[B]

I mean, the special servicers are getting paid fees. It's a hugely lucrative business to manage these things. And so if they get resolved, it's not always, you know, that's sad. One thing I want to highlight is that Librimax Capital was part of this thing, which. That's the guy that Ryan Gosling played in the big short. It's a lot of money. I get it. I can feel you judging me.

[A]

I love it. There's a pretty big conflict of interest baked in when it comes to special services and bondholders. Right. Special servicer wants the deal to be kind of in various states of undress for fairly long because that's how they get compensated.

[B]

Yeah, exactly. They don't want it to be resolved.

[A]

As we're talking about now, Ballast has become one of the largest multifamily landlords in sf, okay. And they've gone and bought another portfolio in the previous couple years backed by Goldman Sachs.

[B]

Well, they seem to have misplaced that one.

[A]

They did. So even as they've acquired the Veritas portfolio, they've gone and lost the one that they co owned with Goldman Sachs. So Goldman took a bath there they were, the equity there. I want to spare a moment of silence here for the sorry lender. The sorry lender, I should say rbc. RBC is getting bodied left and right in San Francisco multifamily. It's kind of tragic.

[B]

Maybe they got confused by the exchange rate, who knows? That's tough, tough business. San Francisco is in the middle of a little bit of a renaissance. We've got institution capital flooding back in. The office market has rebounded significantly. But most importantly, the vibes are better and the vibes drive almost everything, narrative.

[A]

Drives, flows, as we like to say. And SF is a city on the upswing, definitely on the rebound. But a lot of these cap stacks were constructed when things were a little bit different. And we're just going to see a bit more of a reckoning before there's some kind of new normal, stable situation.

[B]

I guess in San Francisco you've got sort of the perfect storm of NIMBY and then also just not a lot of land. There's not places you can really develop in San Francisco. And so you can see the thesis here, which is that if you can own a huge chunk of the stock, you can be a price taker. As the city's on the upswing, I.

[A]

Think there's going to be a lot of big winners to be had in the SF multifamily market. I think one of the big Veritas portfolios was also bought by a company called pccp. You know anything about them?

[B]

They interviewed me for a job in 2012 and did not give it to me.

[A]

Sorry, man. Okay, but anything else?

[B]

Yeah, big on the credit side. They've done a lot in btr, so they're one of the largest BTR owners in the country and very creative, high octane. So this sort of makes sense as a play that they would be backing.

[A]

What they did here was they bought into Ivanhoe Cambridge's stake again, another Canadian pension fund. So they bought out Ivanhoe Cambridge on this big Veritas portfolio.

[B]

Yeah, man. Rough one for my friends north of the border.

[A]

When I make a lot of money at the, at the poker table and then I lose even half of it, I'm depressed. However, our man Pang has taken a completely different approach to this whole runtopoly game. When he was talking about this portfolio that he lost, that he went from the biggest, biggest owner in SF multifamily to, you know, still a major player, but definitely hobbled quite a bit, he said the following. I got them in the same way that I lost them.

[B]

What a Zen perspective. And may we all be so grounded.

[A]

Amen. We want to tell you about the Promote Insider that is our new premium tier that's launching October 15th. And listen, if you want to go even deeper down the CRE rabbit hole, this one's for you.

[B]

Think expert columns from practitioners deep in the mix like moi Capital stack breakdowns, first dibs on events. Yes, we're going to be live in person pretty soon in bonus episodes of this podcast.

[A]

That's right. Plus a whole new interview section and so much more. Founding memberships start at $240 annually. That's 20 bucks a month. Go to thepromote.com upgrade to get started. That's thepromote.com upgrade. All right, sir. Dusty sheets and all that. Let's go.

[B]

Yeah, Dusty sheets indeed. Blackstone and Starwood Capital Group are Preparing a massive $2 billion CMBS financing for the former Extended Stay America portfolio.

[A]

This is the one they took private when in like deep Covid. Right?

[B]

They took it private deep in the depths of COVID Blackstone had been involved previously. Starwood bid on it the last time it went private. So this has sort of been playing hot potato among private equity in the public markets for the better part of a decade post gfc. Starwood's been in extended state for a long time though. They bought in town suites in the early 2000 and tens. They bought big bolt on to that portfolio. The former CEO of that company sold TA the publicly traded entity and he's now on another project. But again we're highlighting this because it's another example of alternative product types being the area of focus.

[A]

We talked last week about manufactured home communities and Brookfield paying $10 billion for yes, communities which is going to CGIC maybe make one of their biggest ever exits and Stockbridge maybe make a very, very nice promote. So it's again we've talked a lot on the show about how institutional money when you got to put money to work at scale, you might have to find alpha or just find different avenues to put money to work than your normal offices, hotels, etc.

[B]

Marinas, iOS, aka shitty parking lots and extended stay hotels. But extended stay hotels have a bunch of quirks which I think are really interesting. And that we should sort of focus on for a little bit. They operate a little bit more like housing than hotels.

[A]

What's the normal metric in Hotel revpar? Is that still the alpha metric here or what?

[B]

No, it's revpar per week. I will say I preferred Revpar than W Revpar, which is weekly revpar. Just Rev paw is a little cleaner.

[A]

There's going to be like five listeners who care about what you said, but we'll keep it anyway.

[B]

But I do it for those five. We talked earlier about how real estate is potentially a micro. A small, shitty small business that you can walk into. This is really the case here. So these things, it's really all about how you operate it. And the reason you do a weekly model versus daily is that you can change the sheets or clean the rooms like once a week down from like every other day.

[A]

At some point my cousin was working in a place called Tewksbury, Massachusetts, just outside of Boston.

[B]

Okay.

[A]

He was in one of these for three months and I went to visit him and I stayed in one of these. And they do. There's like a full clean and then there's something called a room refresh, which all they do is like they spent five seconds in your room doing something. And yeah, this is one of those extended stays.

[B]

I'm just glad that your skin made it through without like melting off. No. So we talked about this. A little bit of an alternative asset class within hospitality as opposed to sort of your trophy full service resorts and all that. But this was valued for the purposes of financing at an 8 point low 8 cap rate, which.

[A]

That's pretty tight.

[B]

Yeah. And yeah, it speaks to how these assets are perceived in the market. Speaking of another person that we've mentioned on the podcast previously.

[A]

Yeah, Your boy Tyler Morse was talking these up in 2022. He said, you know, this is funny because now he's completely changed his tune. He said fancy doesn't always mean good. This is the guy who is now buying Soho House.

[B]

Soho House, the BT Tower TWA hotel. Yeah, it's a little bit of do what I say, not. Not what I do. But I mean, he's right. Like the margins on these things are so strong relative to other asset classes and product types within hospitality. You can manage them very, very inexpensively. You staff these things really light, four people, five FTEs, something like that. Because again, you don't have to clean it that often.

[A]

Like a Starwood is hiring the employees that would then go. And it's not like an independently owned there's no franchise model or anything here.

[B]

Yeah, this is a great point. This is not like franchise necessarily. You're not hiring Driftwood or Hersha to manage these things. Like in town was an operating business and so they've managed themselves. And it's the same I have seen presume with extended say America. It's considered somewhat recession resistant because if you can't afford first, last and security deposit for an apartment, like these are apartment substitute. I've toured assets like this where people live there for 20 years.

[A]

Wow.

[B]

What was Sean Baker's movie the Florida Project like? It was literally about this.

[A]

And so how are the markets seeing this? How are the debt? I mean, 2 billion CMBS is massive.

[B]

This is like a pretty tight cap rate. Like that's, you know, not too far off of what like a good retail center. Trades for the lodging recovery post. Covid has sort of been bifurcated.

[A]

So you've got like ultra luxury. Absolutely killing it, ripping it.

[B]

Right.

[A]

White Lotus style hotels.

[B]

Vlad Dironin making it in hand over fist. And then you got.

[A]

Wait, wait, did you see that? Now one Beverly Hills that we've talked about extensively on this podcast went without anything changing, by the way. Went from a $5 billion hospitality project. Boom. There was a Wall Street Journal article a couple weeks ago. It is now a $10 billion hospitality project. And nothing in the makeup of the plan has changed.

[B]

Every $20,000 chair is now $40,000. They just upgraded it.

[A]

So we're talking about ultra luxuries having a moment, a real renaissance. What is happening kind of in the budget mid tier situation.

[B]

Those are tough because a lot of those were based on corporate spending which has sort of gotten rocked. So, you know, if you were Deloitte and Bain and McKinsey, and I know the Bain and McKinsey people are gonna be mad that I lumped Deloitte in there, but they were flying people into random companies and you were staying at the Hilton Garden in Wichita two months.

[A]

At a time, et cetera.

[B]

Yeah, like those that's gone, like not gone. It's hugely downgraded. And again, with hospitality, you have a lot of operating leverage, which is great if you're above sort of break even, but if you're below it, it's really, really, really tough. So those things have gotten really hit hard. But the stuff at the bottom end, the extended stay, things like that has performed significantly better. And again, the cash flow margins here are so much higher. You can run these things at like close to 40% NOI margins.

[A]

Wow. So we're so obsessed on the show about narratives from the very, very biggest boys and how they position these asset classes. For example, Blackstone's talked about data centers as their, quote, lens into the gen economy. So how is Blackstone talking about extended stay hotels?

[B]

I don't really see John Gray running around the extended Stay hotel in Conyers, Georgia talking about it. So that should sort of tell you where they think it is. Part of the reason why they were able to do this is that they've always seen them as not as good a business as Full Serve or Select Serve. And you know, first of all, people didn't think Select Serve was as good a business as Full Serve. Selectserv is better. And then Extended Stay is often better than Selectserve. So not as sexy. Not necessarily what you want to talk about in fundraising meetings, but. But you know, they're cash flow engines.

[A]

They do the numbers.

[B]

They do the numbers.

[A]

That's it for the promote podcast this week. Crypto miners cozying up to Google in the data center game.

[B]

Great characters building entire towns out of whole cloth.

[A]

Short, short fat guys from Brooklyn running amok on the Eastern Shore. Billion dollar apartment portfolios being won and lost on the regular with poor Canadian lenders getting rocked and more signs that institutional money is trying to slip into less comfortable sheets. A shout out to our sponsor, Bullpen. Check out their dedicated CRE platform at bullpenre.com that's bullpenre.com and again, check out.

[B]

The Promote's premium tier at thepromote.com upgrade.

[A]

That's thepromote.com/upgrade. Can I read you one more review that we got?

[B]

Absolutely tickle my ego. Go for it.

[A]

Cre without the pablum, the promote is where intelligence meets irreverence. Hiten Samtami and Will Krasny don't just cover cre. They dissect it with rigor and narrative wit. Narrative wit. It's not limited to cap stacks and covenants. It's power personalities and the chutzpah. Try to say it.

[B]

Chutzpah.

[A]

There he goes. That shape. Skylines. This is a must listen for anyone seeking substance without the typical pablum. I really like that. I think it's a good way to end. And it's a good reminder for us to keep bringing it each week. Well, I'll see you next week, dude. Thank you so much.

[B]

Thank you.

[A]

Ciao.

[B]

It.