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- [00:03]
A
Will and I are both rocking black muscle tees tonight, so you can kind of guess who we're about to talk about.
- [00:10]
B
There's just no business like Chvo business.
- [00:17]
A
Welcome back to the Promote podcast, your insider guide to the money and mania of the CRE markets. I'm Haten Sumtani.
- [00:23]
B
And I'm Will Krasny.
- [00:24]
A
Here's what's on tap this week. Greystar struck a settlement deal with the DOJ in the RealPage antitrust saga. Now, this has massive implications for the multifamily market and its use of algorithms and technology. And then we dive into the singular life and multiple dramas of Michael Schvo, the impresario that somehow managed to convince ze Germans. Germans to give him more than $700 million for skyline altering bets, a decision they've probably come to regret since then. Well, should we start in the hallowed halls of the RFK building?
- [01:00]
B
Yeah. Vold.
- [01:01]
A
All right, so this is a massive legal case that's been going on for now. It started with the Biden administration, it's bled into the Trump administration, and it's basically this giant antitrust case brought by the DOJ against some of the biggest landlords in the country. Greystar, Camden, Cortland, et cetera. And what they basically alleged is that by using a software called RealPage, which is pretty standard across the industry, they're essentially colluding and they're price fixing, in a sense. They're using this algorithm to set rents. And this was probably the biggest story in institutional multifamily for about a year now. And we've seen some interesting capitulations from the landlords recently, just at a high.
- [01:41]
B
Level for those who sort of aren't familiar. When you own a multifamily property, like an institutional quality multifamily property, or quality of a certain size, you need a rental software. Like, you can't go around with pen and pencil and, like, collect checks and have your little ledger. Like, that's not really how it works anymore. You need to have a real erp. Your tenants want to pay online. So if you use Yardi, Entrada, RealPage, any one of these software providers, your tenants can pay online. They can make maintenance requests online, all that. The part of the software that's in discussion for RealPage, it's called Yield Star. Yeah. And essentially it's an algorithm with.
- [02:17]
A
It's a recommendation engine, in a sense.
- [02:19]
B
Exactly. And it looks at other rents in your market and then gives you a recommended price for your unit based on what other units are Achieving. Now, some of you might be thinking like, well, rents aren't private data because they have to market apartments.
- [02:35]
A
Yes, Publicly.
- [02:36]
B
Yeah, sir, you are correct. Like, this is absolute nonsense. And essentially what the YieldStar algorithm does is goes and says, you have a two bedroom in this zip code in Dallas. What's the highest two bedroom rent in this zip code in Dallas? And tells you you should lease your apartment for that rent.
- [02:55]
A
Isn't it just kind of aggregating all the comps?
- [02:57]
B
The main issue is that it's like non public data. You're looking at other competitors, rents.
- [03:03]
A
But in a sense, the argument is. And neither of us is a legal expert, so massive grain of salt here.
- [03:08]
B
But speak for yourself.
- [03:09]
A
So what they're trying to say here is that because of how much inventory these guys control. Right. Greystar, for example, manages 950,000 apartments nationally. So just collectively, the big boys control or property, manage millions of apartments. And by swapping notes, if you will, they're doing unfair collusion. That's the crux of this thing.
- [03:30]
B
How many units did you say, grace our managers? 950,000.
- [03:33]
A
950,000. Yep.
- [03:34]
B
Okay, so that is like a whopping, like less than 2% of all of the units in the United States. Mm, Interesting.
- [03:40]
A
And you know that Will and I are not industry shills in any way for. So for us to say this is.
- [03:44]
B
A big deal, this whole thing is just absolute nonsense. Ever since people have been renting apartments in the multifamily industry has been an industry. You call around to other properties and say, hey, like, what are your rents for today?
- [03:56]
A
What does occupancy look like? How have you kind of set up your pricing?
- [03:59]
B
You do that every week. I'm telling you, like, my first work trips, I only went because I was the only guy who was in the target demo for the apartments that we were scouting. And I would go in and say, hi, my name's Will. I'm looking to rent an apartment. Are your one bedrooms? What are your two bedrooms? Do you have an application?
- [04:13]
A
You were the upwardly mobile executive yuppie.
- [04:16]
B
I would go around my VP and they're like, you're the only guy in your 20s you got to go now. I'm like the creaky old guy. I'm like, doing continuing care communities.
- [04:23]
A
Will runs half marathons as a hobby. So just don't just discount that nonsense.
- [04:27]
B
But Anyway, go on sub 1 30. So the whole industry is based on data. And frankly, knowing what your market rents are is literally the most important thing you can do. As a multifamily investor, I get that everything's computer now, you know, it takes away the ownership of the people at the property and those are the people who are running it. Your business plan is only as good as your worst on site person.
- [04:47]
A
Yeah.
- [04:47]
B
And so for the DOJ to come after this and basically say, hey, there's this algorithm that just tells you to push rents. It's not even just call arounds, it's secret shopping. I mean it's literally something that if you are a responsible owner of a multifamily property, you need to have your on site team every two weeks going around to all of your competitors and being like, where are your rents? Because the market rent isn't just like something that gets blasted in like the Fort Worth Telegram and you can see what it is. Like you have to figure out what it is.
- [05:18]
A
And this is where these softwares came in. And then obviously because of the stakes involved here, they became very lucrative businesses. So RealPage is now owned by Thoma.
- [05:26]
B
Bravo.
- [05:27]
A
Yeah.
- [05:27]
B
I mean Entrada is a huge business. Yardy is an enormous business.
- [05:30]
A
They're basically an operating system for your multifamily property.
- [05:33]
B
You're in a. Exactly. It's a, it's vertical software.
- [05:35]
A
Yeah.
- [05:35]
B
But this whole thing is just again about something that's like not relevant because no two apartments are alike.
- [05:42]
A
Why is this happening? The reason this is happening is that because Big Landlord is like kind of like big tobacco. It's an easy punching boy. This has been a cross Republican and Democratic administration. So this started in the Biden administration, as I said, using big real estate as a pinata on the campaign trail. But even if you look at VP Vance, he has come out, he said the following, quote, institutional landlords completely crowd out the availability of homes for people who want to just buy a piece of their community. His argument is that because Blackstone, etc. Are in the mix.
- [06:14]
B
Blackrock. Blackrock is I think considered the boogeyman in this space.
- [06:17]
A
Poor BlackRock. They just take so much friendly fire here. But because they're in the mix, it crowds out the everyday American from potentially owning a home. It's like some kind of corrosion of the American dream is the argument. And I'm going to read you another line, and this is specifically about algorithms. The Biden administration's doj, its head of antitrust, said the following. You ready for this?
- [06:40]
B
I'm ready.
- [06:41]
A
The modern machinery of algorithms and AI can be even more effective than the smoke filled rooms of the past.
- [06:51]
B
It's a ludicrous statement. And it's not based on these algorithms because again, it's all scraped from data that's like public because every unit that's leased goes on their website, it goes on Zillow, it goes on apartments.com. these rents aren't secrets and it's just a matter of, you know, again, the algorithm just pushes you to the top. A lot of property managers are biased towards wanting to fill rooms and maybe the rents are artificially low and this tells them to push it higher and higher. But like, that's not collusion.
- [07:22]
A
I guess the question is, does it matter? Right? This is one of those you can't bring facts to a feelings fight.
- [07:27]
B
That's why Cortland's settling, That's why greystar's settling. Because they're like, all right, well like we're not going to use RealPage, we'll go use Entrada.
- [07:32]
A
Cortland's actually developing kind of their own in house capabilities here. I'm sure a lot of the big landlords are moving to that. They're saying, listen, if we give any illusion or any appearance of cooperating, colluding, whatever you want to call it with the other guy, we're going to be in trouble. So let's just put this to bed, let's figure this out in house. So it's going to create a lot of opportunities for smaller players to partner with them and create something.
- [07:55]
B
The other thing to note is that all of these softwares are terrible.
- [07:57]
A
None of them are good.
- [07:59]
B
And RealPage particularly because they just bolted on every single workflow. You can listen to the, you know, Thoma Bravo behind the deal and they're like, we love RealPage because they kept acquiring workflows and nothing like talks to each other. So I think that's right. Like you'll see smaller groups put stuff together. But this has been a very lucrative industry.
- [08:15]
A
Yardy is also facing pretty, pretty serious legal heat as well. They're gearing up to defend themselves in a price fixing lawsuit. I think the real Page one has captured kind of the national zeitgeist. But Yardi in the background is also fighting its own war. And signs aren't great.
- [08:30]
B
You hit the nail on the head when you said like, big landlord is just an easy punching bag. It's not causing anyone to pay higher rents than they would have otherwise. You know, if you tour an apartment in New York that's in a lease up, you know, the rents are good for like three hours because they change so often.
- [08:46]
A
Do you think the capitulation kind of happened because the heat and the press on this was so bad. Right, like, so there was FBI raids. Right? And now an FBI raid could be as, could be as simple as like a lone agent knocking on the door and asking for some files. Yeah, but obviously when it's out there, it evokes the image, like dropping down a helicopter, charging into the offices, all of that.
- [09:11]
B
You know, you got Bobby Axelrod saying, like, I'm just worried about windbreakers, you know, and like, Chuck Rhodes is like walking in Kolarenbach.
- [09:18]
A
Call Lara.
- [09:20]
B
It's bad for business. That's why I think it's smart for Cortland to settle. It's smart for gracetar to settle. Like, just get this out.
- [09:26]
A
What do you think happens to RealPage?
- [09:27]
B
I was gonna say, like, what happens to Toma if Graystar is not using them? That's a massive client.
- [09:32]
A
Did your boy just buy a giant apartment on the park somewhere?
- [09:37]
B
Orlando Bravo is suing the Zeckendorf's because he said that they're. They didn't tell him that he could have lost his view.
- [09:42]
A
Oh, correct. Because of Barnett's tower coming up, right?
- [09:45]
B
Yeah. At 5:20 Park. Yeah.
- [09:46]
A
Amazing, Amazing. In general, when private equity buys a business, correct me if I'm wrong here, they buy it with an exit kind of on the horizon. 5, 10 year horizon, whatever it is. When Thoma Bravo goes again and tries to sell RealPage, is there a markup here?
- [10:01]
B
They're gonna take it public. And yeah, it's a huge problem. If you just lost your biggest client, then yes, that's an enormous. But I think it's also indicative of, you know, the multifamily industry. It's not an efficient marketplace in terms of knowledge. And so in New York, like, you can't charge broker fees anymore. You can't charge more than like one month of security deposit. But in a related note, like, people are coming after like the so called junk fees.
- [10:24]
A
So what does that mean? I'm imagining an Airbnb when you say, oh, 2:50 a night and you click on it and you get to the final page and you're like, wait, what was that? Five nights for 9,000. What the fuck happened? Is it similar to that?
- [10:35]
B
Pretty much. I mean, it's when you know you got to apply. What's your application fee then? Like on a monthly basis, like, are you paying an amenity fee? If you live in a garden community, you can be charged like valet trash fees, water, sewer reimbursables.
- [10:48]
A
If you're not paying direct killing the cicadas fee. Yeah, yeah.
- [10:51]
B
And in a lot of jurisdictions, it's actually illegal to, like, use water and sewer reimbursables as a profit center. And I've seen this where I've looked at properties and I'm like, they're like, oh, look at, like, all this other income we have. I'm like, you're breaking the law. But it's a really big source of juice because the margins on it are quite large, are enormous. And if that goes away, that's really.
- [11:15]
A
Meaningful for values more broadly. Zooming out, I think there's a push by local and federal governments to essentially force the biggest landlords to create more transparency in their pricing. That's part of it. There was a recent move by Gracetar to kind of front run some of this stuff too.
- [11:32]
B
They'd been sued about this in a couple of jurisdictions multiple times. Yeah. And the FTC had a final ruling on junk fees taking effect this year, where they basically said that rental housing doesn't culminate in a single transaction. You have to lay out all of the fees because, you know, it's not like you just pay once, you're paying every month.
- [11:50]
A
Yeah, gotcha. Gotcha.
- [11:51]
B
And Graystar laid out the total monthly leasing price calculator, so. So that'll help prospective renters estimate the total cost of living in any graced managed home by factoring in rent and recurring fixed costs like pest control and.
- [12:01]
A
Trash services or administrative fees.
- [12:04]
B
This is, again, like, ways to pay a higher effective rent. And frankly, this also foots to a lot of the algorithm questions, because two units can have the same face, rent, but if one has, like, tenant paying pest fees, trash fees and admin fees and water, sewer, the other property has all of that on the landlord. Like, that's a markedly different overall price that the renter is paying each month, which, again, the algorithm, like, does kind of factor in.
- [12:32]
A
I gotta ask, do institutional investors in these funds understand all of that?
- [12:38]
B
It's hugely important because it's one of these things that sort of gets black boxed when you're underwriting. Because if you look at, like, the total revenue number and like, that's it. But if you look at back and you're like, oh, wow, there's a ton of, like, tenant damage reimbursables, there's a lot of late fees, there's a lot of, you know, other fees that aren't necessarily sustainable, that's hard for you to match, and that can really impact the value of the property if you don't keep Those moving forward, it's huge. Because if you can't charge or don't charge pest fees, trash, reimbursable, all of that, it just comes straight away from your bottom line. It's just $1 for dollar takes away from your NOI, which in turn hurts value.
- [13:16]
A
This basically throws down the gauntlet to other landlords to do the same thing. And you're going to see everyone kind of debut their own transparency fee. So, hey, what you see is what you get kind of thing.
- [13:25]
B
Yeah, I think so. And if you're underwriting a deal and you're like, I'm thinking about BTR specifically, where a lot of these things are in their own hoa. So they're charging HOA fees on rental communities. Like, you might have trouble right here in River City. Trouble, folks.
- [13:40]
A
Right here in River City trouble with the capital T, was this not worth fighting for. They would win this if they were willing to put in the work.
- [13:50]
B
I mean, I think you're right. Again, I think it's totally without merit, but it's also one of these things that it's a huge hobby horse. The public opinion is just going to be. The nuance is going to be lost.
- [14:00]
A
Oh, it's so bad.
- [14:01]
B
Yeah.
- [14:01]
A
And you're getting hammered in the press every single day in the communities that you're in.
- [14:05]
B
Yeah.
- [14:06]
A
This comes back again. The rhetorical war, the war of perception is like, these guys strive to be seen as good stewards of their communities. And my God, if, like evil algorithms clicking away at the back, like, click, click, that's. That's not good for them.
- [14:19]
B
It's like winning a paternity case. Like, did you really win it?
- [14:33]
A
All right, man. Michael Schvo.
- [14:36]
B
Michael Schvo. What else is there to say?
- [14:38]
A
I don't know where we start. I mean, there's an origin story, which is fantastic.
- [14:42]
B
I think we got to start with the. With the New York Mag profile, which is again, one of. Just like my Mount Rushmore of real estate profiles.
- [14:51]
A
Oh, it's so cool.
- [14:52]
B
You know, you've got this, you've got Walentus.
- [14:54]
A
The Walentus one is incredible.
- [14:57]
B
Yeah. Our boy Ryan from Cadre. Thanks for shouting us out on Twitter, Ryan. We love you.
- [15:04]
A
Well, what are we talking about? So New York magazine back in 06, had written a profile of then broker Michael Schvo, and it was called no Business Like Schvo Business. And they described him in this immortal line quote, a permanent Israeli with an action figure physique, which I think is still true 20 years later. Credit to Michael on that.
- [15:24]
B
I mean, you know, maybe there's a little bit of a difference in the hairline, but, you know, he looks great.
- [15:28]
A
What I've always found fascinating about Michael and a lot of people, and I should say, like, I know Michael a little bit, so it's going to be fun, is that most of the real estate people, even the really wealthy ones, are kind of trying really hard and are kind of like, they want to be seen as a cool kid. Where I think Michael Schroe really is in with the cool kids. Like he's hobnobbing with Daniel Ballud and Peter Marino and lalanne and chilling with what's her name, Michelle Yeoh.
- [15:52]
B
I saw Michelle Yeoh at Cafe Milano one time.
- [15:54]
A
Nice. So he's really in there. He kind of lives the life. He's a handsome, imposing, charming creature. And I use the word creature very deliberately. Like this guy is a. He's a really unique specimen and is a great salesman and is very, very, very smooth. And I think those qualities made him the top selling broker in Douglas Elliman's history. He actually unseated Dolly Lenz, which was unimaginable at one point. And to the point he got so successful that they basically made new rules for him.
- [16:24]
B
Yeah, there was some stuff in this profile about how he was like stealing people's leads. Like he would get to the office early and just like take faxes off people's desks and stuff.
- [16:32]
A
I mean, for him it was all like, listen, we're all competing, so fuck it. Like, I'm going to do what I need to do.
- [16:36]
B
I totally respect it. And he' a rare jump from broker to the principal side.
- [16:40]
A
Let's backtrack a bit. He was a big broker. 2009 happened. Everything went to shit. A lot of his projects because what he did, he pioneered kind of the showmanship of the new development condo. Do you remember the one, the Philippe Stark building, That's my favorite. I think it's called 20, either 20 pine or 20 broad.
- [16:57]
B
Was that the one where he's with the New York Magazine writer and he has his five phones out and it's like one o' clock in the morning and he's like smashing Diet Cokes, smashing Diet Cokes. And he's like, I don't even know how many apartments I own right now.
- [17:13]
A
What Michael did, and I think that even his haters would credit him for this, is like he turned condos into an aspirational good in the same way that a supercar or a piece of.
- [17:23]
B
Art would be very well said. So basically, what Sirhant's doing, any of the other big brokers, where it's really the lifestyle, you're selling the Instagram version.
- [17:33]
A
Of life, you're selling access.
- [17:35]
B
Like, he was the first to really do that in a big way and was tremendously, tremendously successful at it.
- [17:41]
A
But the market crash happened. All of these kind of projects took a particularly heavy hit. Chvo decamp to my hometown. He went to Dubai for a bit. He became an art collector, and we didn't hear about him for a long time. In fact, he already had a memorable piece called Where Did Michael Chauvet Go? And so he just sort of, like, did his thing, peaced out for a bit, and then comes back, I want to say, in 2013 or so, and pays a record 800 a foot for Dirt on the High Line.
- [18:08]
B
It was a gas station. And then he did an art installation with goats.
- [18:13]
A
It's sheep. We're bringing all this history up because this pattern is something we saw over and over again. Svo came in. He was the front man, the showman. He sold this vision of a boutique condo project. I believe it only had five units or six units.
- [18:29]
B
Yep, I think that's right. One of which I think is bought by Bob Smith from Vista.
- [18:32]
A
Yes, that is correct. And I think he paid, like, close to 50 million bucks for it.
- [18:36]
B
Yeah.
- [18:36]
A
There is another buyer who's kind of up your street as well for the commercial condo.
- [18:40]
B
Tom Hill.
- [18:41]
A
J. Tomlinson.
- [18:42]
B
J. Tomlinson Hill.
- [18:44]
A
That's correct. So he paid 4,500 bucks a foot for this commercial condo that's just going to house his incredibly extensive art collection.
- [18:53]
B
One of the biggest flexes it is.
- [18:54]
A
And so Schwo was able to kind of put these kind of deals together. But in the final equation, it's hard to say how he ended up. I don't know exactly where he ended up on the Getty, but I think Victor Group was the primary developer.
- [19:07]
B
And first of all, that took forever to sell out. In the middle of all this, he gets indicted for trying to avoid sales tax on his art.
- [19:14]
A
A Ferrari, too.
- [19:15]
B
Oh, and a Ferrari, which, again, this is like a plot point out of billions, too, by the way. So there's a lot of overlap between Michael Schoh's real life in the fictional world of billions.
- [19:23]
A
As Voltaire said, you know, if Michael Schroe didn't exist, we'd have to invent him.
- [19:27]
B
So that might stop a lesser man. But he endeavors on.
- [19:32]
A
We have talked in previous episodes about 125 Greenwich. Another deal that he sourced and then was eventually pushed out of.
- [19:38]
B
Yeah, he partners with, he finds more capital.
- [19:41]
A
So. Partners with the Turk. So much more capital. Oh, you're not even talking. Okay, I'll get there. I thought you were talking about the Germans.
- [19:48]
B
The Germans? No, no, no, not yet. With the Turk.
- [19:51]
A
He partners with the Turk and you're not talking about Sollozzo here?
- [19:53]
B
No. Serdar.
- [19:55]
A
Serdar. Sorry, Sardar, if I messed this up like Biljali.
- [19:59]
B
Sure.
- [20:00]
A
He becomes like his equity on a bunch of different projects that he gets into, they have a nasty falling out that's playing out in the press and lawsuits, etc. But then he goes and finds a lot more money.
- [20:12]
B
Not the most money, because that's, you know, pif, maybe like the seventh most.
- [20:17]
A
It's quite a bit of money. So what is bvk?
- [20:20]
B
It's a German fund. Like who the hell knows?
- [20:24]
A
BVK is an investment manager that manages money for German pension funds. Yeah. And somehow, through a subsidiary or an affiliate called Deutsche Finance, not related to Deutsche bank in any way, it invested 700 million-plus in Michael Schvo led projects. And so with this, armed with this insane war chest, Chvo went on probably one of the most epic buying sprees that I've ever seen.
- [20:51]
B
So he bought, gosh, the Raleigh in Miami, the Mandarin Oriental in Beverly Hills, the Koch building in New York.
- [20:58]
A
That's right. Transamerica Pyramid in sf, Transamerica Pyramid in.
- [21:02]
B
San Francisco, and then my personal favorite, Big Red in Chicago.
- [21:06]
A
So we're talking about like both ultra luxury boutique condo projects and some of the most iconic skyscrapers in the cities that they're in. So Transamerica, like you go to sf, it's there. Same for Big Red in Chicago.
- [21:20]
B
Any aerial of the city in a movie or something, you see these buildings and he paid outrageous prices for them.
- [21:25]
A
Unbelievably high prices.
- [21:26]
B
Yes.
- [21:27]
A
And this is what, Right before the pandemic.
- [21:30]
B
Right before the pandemic.
- [21:31]
A
Beautiful.
- [21:31]
B
And not only did he pay super high prices, he then said, I'm gonna spend another insane amount of money renovating all of them.
- [21:37]
A
For the casual listeners here, like you think of the Empire State Building, the Chrysler Building, etc. Right. One of one type buildings. They're fucking dogshit to lease. There's so much capex required. They're so old, they're so clunky in many ways. They look beautiful from the outside, but they need a lot of love to make them work for the modern tenant.
- [21:58]
B
And Then you're also dealing with the pickiest clients and you've got to offer tons of free rent. It's very tough to make the numbers work, especially when you're at, I think, his basis in Transamerica. I mean, I've done the math in a little while, but it's like 2,000 a foot or something crazy.
- [22:12]
A
Oh, boy. And so some of these did not work out very well and very fast. So Transamerica is still a big tbd, but Big Red, we can safely say, is like hella underwater.
- [22:22]
B
Yeah, that's. That's not great.
- [22:24]
A
That's why.
- [22:24]
B
And then the Raleighs had delays.
- [22:26]
A
I think you're putting it too mildly. The rally. The rally is in quite a bit of trouble. They're looking for a recap right now. Nahla Capital, which is a former investor in making these projects and also basically pools money from the Middle east, is looking to take the project over from Shvo. And Shvo might be able to find another partner who would like, keep him in the deal. I don't think that one's going to work out too well for him. The Mandarin Oriental in Beverly Hills, he defaulted on his $200 million plus loan and the condos went up for sale as a bulk offering. And for those who don't know when condos go up for sale as a bulk deal, it's generally not a great.
- [23:02]
B
Sign because generally speaking, when you buy in bulk, you get a discount, which is not what you are looking for as a real estate developer.
- [23:09]
A
That is correct. So safe to say his promote was wiped out there.
- [23:12]
B
Yes. Now the fees. The fees, the fees might not have been wiped out. Which the reason we're talking about, Michael, is that just. It is Chef's kiss. Perfect that with all these projects underwater, delays, lawsuits, everything, this guy has the balls to go to BBK and say, you owe me $85 million in fees.
- [23:35]
A
Boardman gets paid. Dude, what are you going to say?
- [23:37]
B
Right, yeah, Boardman gets paid. And he filed what? He filed an arbitration basically saying that they failed to pay him $27 million in payments on various properties, 21 million in carried interest for Transamerica, which I don't know how that works because they haven't had a liquidity event. And you know that this is real because the head of Real estate investment management, BVK, is gone. And then the guy who oversaw BVK's investments is gone. So, yeah, there's something a little sketchy here.
- [24:10]
A
BVK was hauled up in front of Bavarian Parliament to ask. Ask Them about what the hell happened with this, with this money? And they said, hey, you know, you guys gave hundreds of millions of dollars, which is a lot of euros, to a convicted tax offender. And a lot of these investments are now in trouble. Explain yourselves.
- [24:30]
B
I think the answer is like, we don't totally know what we were doing. And they kept saying like, we made 3%, which is above our actuarial, you know, needs. And the statement here is just, just fantastic.
- [24:43]
A
Please.
- [24:43]
B
It is important for us to emphasize that any losses in individual investments in a broadly diversified investment portfolio such as ours have no impact on the pension fund benefits for our members, insured persons and beneficiaries.
- [24:55]
A
It's an embarrassing incident for them. But this is, I think this illustrates a broader thing here. The best salesman and Michael Schvo, I would put him at the top of any list of great salesmen, are able to convince people to give them a lot of money. And when they're kind of taken by the charm and the aura which he does have, I really wonder what those deals look like. What, what was the promote structure here? How is he getting paid? How is he owed 85 million according to, how did he structure this thing? It's incredible.
- [25:25]
B
I mean, it's like 12% of the equity that they invested in the deal. And there's definitely like, I mean, is it a European waterfall? Is it an American waterfall? Like, how does this work? And more importantly, I mean, how is he in an org chart for any loan with a conviction of a fraudulent conviction on his record? I mean, that's a huge issue.
- [25:46]
A
By the way, that was a problem with 125 greenwich. He got sidelined. I don't know if they were looking for an excuse, but he got sidelined right around the time of that, that indictment with, with the art problem.
- [25:57]
B
I mean, he got booted out of the Amman and the in New York and the same thing. I mean, it's literally a form you have to. A question you have to answer on every single loan application form is like, have you been convicted or pled guilty to a crime of dishonesty? And he pled guilty to tax evasion. Now, if you think that BVK is the only person that or Sirdar are the only people that Michael is having an issue with. So he was sued by Core Club, who was this private members only club that he was going to put in a couple of his properties for $600 million, you know, which is fantastic. And then he says that they actually defaulted on a $750 million loan. Which these numbers are just fantastical. Like this is like a 3,000 square foot club or something. Like, it's very tiny. But he just won a positive verdict from the New York Supreme Court, I think, where Core Club has to pay him like a million bucks or something. And the original suit, that was ongoing, so this was a separate lawsuit. It's so complicated. I don't know. But I'll tell you what is that if his attention's on this, it's probably not on like actually selling out the rally.
- [27:00]
A
So the rally is particularly interesting. So as I said, Nahla Capital, it's run by a guy called Genghis Hadi, former Carlisle guy, pulls money from Middle Eastern investors and they've won a bidding process to buy the property for 275 million bucks. Chavo, though, has a rofer on the property, apparently. But who's going to give him the cash to buy out his partners and execute it is the big mystery here.
- [27:23]
B
Maybe he wins this lawsuit against Core.
- [27:25]
A
Club and then the debt stack here is really fascinating. So my boys, BH3, the baggage handlers that we've talked about.
- [27:32]
B
Who do you think we are? Baggage handlers?
- [27:35]
A
They hold the mez. The senior loan is held by JVP that we've talked about before as well. And related has a slice of the mez too.
- [27:42]
B
He did buy great real estate. Like the Raleigh is phenomenal real estate. It's just again, great real estate's not always a great deal.
- [27:48]
A
The price is blending out apparently 5,800 bucks a foot for 40 condos.
- [27:52]
B
That's crazy talk.
- [27:54]
A
Miami's wild, man. I mean, you're getting numbers there.
- [27:56]
B
I mean, it's true, but you know, it costs. It takes a lot of time to get them. The thing I don't understand is that whenever these like crazy foreign capital vehicles come in, they're never just like, you know, what we really want, like cash flowing bee apartments in like the Midwest.
- [28:12]
A
Stop talking your book.
- [28:16]
B
It's always like, let's do the splashiest, like development that kind of like doesn't ever pencil. Michael said that his relationship with Dolly Lentz ended when he made more money than her. So what happens when everybody else makes more money on his failed projects than he does?
- [28:37]
A
The thing about Michael Schvo is that he manages to stay around the action. I don't know if this is just having an amazing network. I don't know if this is just being a great salesperson. I don't know if this is just having the aura of success. Even if the Projects themselves aren't very successful. He comes. He comes across as a guy, like, who knows what he's talking about, knows what he's doing, clearly understand sales and new development extremely well. What is the next act for someone like Michael Scho? Once this is all done and dusted.
- [29:06]
B
I think in the next cycle, you're going to see him again doing another project and he's going to find another pot of capital because to your point, like, the guy is unbelievably talented and he's going to find another pot of capital. He's going to find the next hot city, and he's going to go do this again.
- [29:23]
A
Michael Schvo, multifamily investor Michael Schvo, industrial MOGUL there's so many different avatars this could take.
- [29:31]
B
I don't see that. But I do see, you know, Michael Schvo, you know, ultra luxury something.
- [29:37]
A
That's true. Maybe you could go work in house at lvmh.
- [29:41]
B
God, you know, if he. If he like getting the keys to some of their great real estate, that makes a lot of sense.
- [29:48]
A
I could see that it does. But I don't know about the black tea, then.
- [29:52]
B
I mean, LVMH sells some very expensive black teas.
- [30:07]
A
That's it for the promote podcast this week.
- [30:09]
B
Greystar is settling with the doj. They're releasing their rent transparency tool to, you know, help eliminate junk fees. This is tectonic stuff. That's 3%, 5% of net operating income at all of these properties across the country. Like, it's poof on a big chunk of valuation.
- [30:26]
A
And you're talking about, like, something unsexy but very, very impactful to the bottom line. Our next story is the probably the opposite of that. Michael Schmo, sexiest man alive in real estate. But I don't know if he's been able to move the needle on the bottom line as much as his investors would have hoped.
- [30:44]
B
Well said.
- [30:45]
A
We'll be back next week with more CRE Insider. Goodness, Will, where are people going to find us, man?
- [30:51]
B
They should reach out to partnerships.com which is manned by Hiten Santhani.
- [30:57]
A
That's right.
- [30:57]
B
Do not reach out to me.
- [30:59]
A
Reach out to Will when you have really nice things to say, because he doesn't like any kind of critical feedback.
- [31:03]
B
No, I don't.
- [31:05]
A
So please reach out to me with all your stuff. We really appreciate it. By the way, we also really appreciate the incredible feedback you gave us on the Tom Cousins episode. Like that. We had a blast doing it, as you guys could tell. And really glad it resonated.
- [31:18]
B
So thank you for that real estate again. It's why we all fall in love with it. It's because of guys like Tom Cousins and to a lesser extent, guys like Michael Schpo. So thank you very much for that. We love the feedback, both positive and negative. But if it's negative, it goes to 10 first, so he can filter it to me.
- [31:31]
A
Will, this was so fun, man. I appreciate you. Thank you. So normally I end with my standard ciao, as listeners would know. But this time, I'm going to end by saying, happy birthday. Happy first birthday to Nico Krasny.
- [31:43]
B
Oh, my gosh. Thank you so much. Touches my heart. The little, little guy's won. His first word was cap rate. That's two words, but there you go.
- [32:04]
A
Sa.