B (2:32)

They've cashed in at least $400 million. And this is part of Nvidia's billion dollar buying spree. A real estate spree in and around Silicon Valley. Pretty astonishing stuff, but if you think about it, it's kind of a rounding error for a company that was valued what, yesterday at $4.5 trillion.

A (2:48)

Yeah, it really does put everything in perspective. We work so hard for like every 50 cents a foot in leases in Nvidia. It's the real estate version of your amazing line from a few episodes ago about the Saudis going into hotels where your hotel room is occupied by a falcon.

B (3:05)

It's just amazing when these kind of companies come around, price, normal comps, et cetera don't really matter. They're the fastest growing company in the world and they just need the space where they want to be. And so anyone who had the foresight and vision to build that kind of space can profit handsomely. And man, the Sobratto organization, they really made it rain here.

A (3:25)

They always say that you want to buy from a for seller and you want to sell to a forced buyer. And this is really the case there. But I think part of the reason why we want to talk about this is we want to shine a light on the Sobrato organization. Carl Berg, the history of Silicon Valley real estate. Because it's really fascinating. We've talked about the cowboys in New York and LA up us one in the Bay Area. We had quite a few cowboys of.

B (3:49)

Our own up there in Silicon Valley. There's essentially a few great men who've dominated that scene. There's Dick Perry, there's John Arriaga. Massive, massive developers out there. And very, very famous son in law too in Marc Andreessen.

A (4:00)

Yes, very famous anti developer.

B (4:02)

You were in Arriaga's frat?

A (4:04)

Yeah, he was a fellow member of Delta Ta Delta at Stanford.

B (4:08)

Incredible. And then the third big player in the space was the Sobrado organization. And these two guys are amazing. Let's talk a little bit about the dynamic between Sobrato and Berg because I went deep down the rabbit hole here on some old school business journal articles and man, they said a lot back then.

A (4:24)

It was almost like Twitter before people realized it was public. Let's take a quick step back first, because John Sobrato and Carl Berg weren't actually the seed capital for the Sobrato organization.

B (4:35)

That is correct.

A (4:36)

There was a matriarch Involved Anne Sobrato. So she was in the restaurant business. And I guess they had the foresight to buy their building and it was what, you know, most of a city block in San Francisco. I think John later said that his dad slaved away 18 hours a day, six days a week in the restaurant and then they sold the building and made more money off of that than they did.

B (4:55)

One deal basically eclipsed anything they had done in the restaurant business that has.

A (4:59)

Remained the same 80 years later. But took that seed capital and bought a ranch in what is now Atherton.

B (5:08)

John Sobrato is basically running the show and he partners with a guy called Carl Berg. And their dynamic is really interesting. There was a property manager called Joe Lewis and he described them in this line. He said John was the salesman, Mr. Outside, and Carl was the lone guy, Mr. Inside. This is the dream dynamic. I wonder if people feel like this about us.

A (5:27)

Man, I don't know. I think you might be inside and outside. I don't even know what I am. But yeah, this is a dynamic that you see all the time. Because real estate, you need a variety of different things to be successful. Because we've talked about a lot that you are almost the center of a giant circle of people and you just be a connector. You have to know a little bit about a lot of things and you got to know enough about a lot of things to be dangerous in each of those things.

B (5:49)

You're a very, very, very high stakes project manager. Is it still kind of the best way? I've thought about development totally.

A (5:55)

And you need Mr. Outside because you got to have someone who can get people to sell to him. You got to get people to give you money and you got to get tenants to come in and lease your buildings. And you also need the finance guy who makes sure that you're actually paying the utility bills.

B (6:08)

Yeah. So here what happened was they started in residential real estate. At some point they transitioned into building for tech companies. And they built for a company called Amdahl, which I'm not even sure is around anymore, but they built 200,000 square feet for them and then they were off to the races. Eventually they kind of gained the reputation for being the go to for tech.

A (6:27)

And what's great too is that you might think, oh, how'd they raise the money outside of selling their restaurant? John had a very interesting quote about how they capitalized their developments.

B (6:35)

Please tell me about it.

A (6:36)

He basically said, we borrowed 100% of the purchase price.

B (6:40)

As you like to say. We used to be a Country.

A (6:43)

It did used to be a country. Guys like this, you put it all on the line time and time again, and that's what real estate's all about, he said to himself as he was insanely leveraged.

B (6:54)

I love this other anecdote from the Business Journal article where Berg admitted that his wife Marianne frequently calls him at 6pm to remind him it's time to go home because he loves his work so much.

A (7:05)

What I also love too is that John was quoted as saying that without Karl, I never would have done a deal. And without me, Carl would have gone broke.

B (7:13)

When you get these kind of guys together and you have the capital and you have the balls and you have the comfort, with that kind of insane leverage, you can really build an empire. And Sobrato did just that. I think they had all told about 12 million square feet. You're building this real estate with a very, very specific industry in mind. And when that happens, you can end up in some systemic shock situations. And that's what happened to these guys after the Y2K bubble. They had all this real estate and they didn't really have an industry to lease it from. So that was a really challenging period.

A (7:43)

They're talking about buildings being vacant for five years, which is a pretty scary thing. Carl Berg is talking about all his venture capital bets during that period too. In a crisis, everything correlates to zero. The thing is, with a master plan community, the thing you have to get is that the underlying value of the land has to compound at a crazy rate. It actually would be really interesting for someone to go do what's been the value of the land in the US that has compounded the highest cause I would put Silicon Valley up there. These guys, the stuff they were buying, that 200,000 square feet they sold to Amdahl, they probably built it for like nine bucks a foot. I mean, what's it worth today?

B (8:18)

One of Nvidia's recent purchases, they paid 83 million for 125,000 square foot building. So that's 660 bucks a foot.

A (8:26)

That's a lot more than nine when.

B (8:29)

You have numbers like that. I guess it's an offer too good to refuse.

A (8:31)

If someone offers you a crazy price, like every day you're not selling your building, you're technically buying it.

B (8:35)

That's what Joey Tabak likes to say.

A (8:37)

I completely agree with him. Aura is the lowest cost of capital, and there's not much more aura than Jensen Huang right now. So you're not going to compete with him on the cost of capital. And if he wants to come buy your thing, he's probably going to pay a lot more than you think it's worth.

B (8:50)

We've seen these trends pop up every couple of years. There'll be a big dominant strain of tech companies that just wants to own their real estate. We saw this in Manhattan, right?

A (8:59)

Oh yeah.

B (8:59)

We saw this with Google and Hudson Square. And suddenly companies that had owned the real estate on the west side were cashing in big time. I think Jamestown with Chelsea Market is the one I really remember vividly.

A (9:10)

This is also a trend we've talked about elsewhere. A lot of big users now want to own and control their space. JP Morgan, we've talked about building their.

B (9:18)

Campus retail with all the fashion brands, right?

A (9:21)

Exactly.

B (9:21)

Yeah.

A (9:22)

So it happens every cycle. People say we want to have asset light and all of a sudden they're like, you know, it's great real estate. All the real estate guys want to do tech and all the tech guys want to do real estate. And so sometimes the beams cross. I want to shout out this Nob Hill Gazette article that you found because I just thought it was John Sobrato, for someone this wealthy, comes off as about as well adjusted as you can be. So I give him a lot of credit. The Sobrato philanthropic arm is absolutely massive.

B (9:57)

And he made very impressive.

A (9:58)

He's made, you know, personal donations outside of the foundation in the nine figures. But now he just talks about, you know, we got a yacht. I spend 16 weeks a year on the yacht. It's great.

B (10:07)

We just have a boat which we can move around, he said, depending on the weather, where we'd like to be. We've had the same boat now for 17 years. Yeah, we just unheard of them, guys who flip their boats.

A (10:18)

Maybe Jensen Huang would offer on his boat and he'd sell it.

B (10:22)

I don't think he would give that up for any price. So we talk a lot on the show about how CRE is such a specific, weird world unto itself. So when you're talent hunting in the space, it makes sense to partner with a recruiter who lives and breeds it. That's where bullpen comes in. There are talent shops solely dedicated to the commercial real estate industry. They can fill both fractional and full time positions and they can hook you up at all levels from analyst to C suite. Check them out@bpenre.com to get started. That's bullpenre.com and please tell our friends there that the promote sent you.

A (11:02)

You really need to be specific in your recruiting. If you're getting a hedge fund group coming over telling you like, hey, this guy really knows risk adjusted returns. Like, no, you need a real estate group. Someone who's going over a huge deep dive on Karl Berg and business journals from the 1990s. That's what you need. And you're only going to find that with a bullpen.

B (11:19)

That's exactly right. Well said. All right. Multifamily has been the bell of the ball for years. Everyone wanted to do multi. Everyone ran away from pretty much everything else. Now though, folks are trying to get out what's going on.

A (11:34)

It's funny because now is maybe the time when you want to be doing multi. Folks are really getting out and it's right. As you know, we saw it's been in every IC deck for the last 18 months. Is supply is going to be going off a cliff. Once we get through 2024, 20, 25, 26, 27, 28, we're going to see big rent growth because there's no supply. And part of the reason is because these people are leaving the industry. Fuck you, fuck you, fuck you, you're cool and fuck you, I'm out. Part of it is so many people have gotten torched and anytime that the stove's been that hot, people really like reach away. And specifically if you were not doing this as your core business, if you have another line that was something that was, you know, more core to your platform, whether it be multifamily, even acquisitions, property management, home building, any of those things, if that's what you're really great at. And you got into multi during this last cycle because it was the hot place to be. Either your shareholders, your stockholders, your investors are telling you, you know what, why don't you go back to the thing that you actually made some money on.

B (12:39)

You say that the bell has told for multifamily.

A (12:42)

Oh yeah.

B (12:43)

So what are we talking about? Toll Brothers has agreed to sell its multifamily development arm to Kennedy Wilson. So we've talked a lot about AUM gobbling in CRE at large. This is Kennedy Wilson paying what, 350 million odd to add another $5 billion of assets to their portfolio. 2.2 billion in owned and then a 3 billion property management portfolio which eventually.

A (13:04)

Is going to get sold off and maybe they end up picking off some of those deals too. So Toll Brothers, let's take a step back. Founded by two brothers, they are a Pennsylvania based home builder. They got into multifamily and started building their own stuff and they had Toll City Living, which built a bunch of stuff in New York, Brooklyn, I think.

B (13:22)

They have that project, Brooklyn Bridge Park Pier House or something. I believe is them.

A (13:25)

Yeah, I did that with I think Startle Capital Group. So they are getting out of the multifamily game because the market's saying, we want you to go back to selling homes.

B (13:33)

I wonder how much of this is, again, narrative. And just focus for Wall street.

A (13:37)

If you're a public company, what else is there but narrative?

B (13:40)

That's right.

A (13:41)

Narrative drives price, which drives fundamentals. Interestingly, though, Toll has a lot of connectivity to multifamily. Outside of Toll Brothers, Bruce ETOL has BET Investments, which has been a big multifamily and shopping center developer.

B (13:56)

That's kind of his family office. Right. And he's going to keep the interest in all that stuff.

A (14:00)

Also, the Toll brothers were early Mitch Morgan LPs, back in the day when they had this.

B (14:04)

I didn't know.

A (14:05)

Yeah, when they had the deal where, you know, once they got their money back, they split the profits with Mitch 50, 50. And everyone on Twitter went nuts saying, that's an unfair split. Like, if it's good enough for Bruce Toll, be good enough for you.

B (14:18)

And so part of this deal with Kennedy Wilson, KW is also acquiring a 29 site development pipeline, which I think they're saying, all told, will be valued in the multiple billions of dollars when it's completed.

A (14:29)

It's just capital that you can put out. Toll buys, great land projects are going to be all right.

B (14:35)

What I'm curious about is how is Kennedy Wilson structured or how's their fund, whatever, structured in a way that allows for this?

A (14:42)

So it's very complicated because they're a publicly traded company and so they have a lot of different sleeves. I think they have a fund series. They've got balance sheet, they've got jv.

B (14:54)

They've been buying a shit ton of debt, though. They bought PacWest debt all over.

A (14:58)

They've got a credit arm. It's not rhythm because rhythm came out of the mortgage bond morass. But they're not dissimilar in having a bunch of disparate product lines and being publicly traded and using that currency to their advantage.

B (15:13)

So that's one big example with Toll. The other one that really caught our eye was JBG Smith. They pulled a plug on a 1400 unit project in Northern Virginia and they said rates aren't cooperating and tariffs have made it infeasible. So that was super interesting.

A (15:28)

I would also say it's because the D.C. multifamily market is not always the strongest. It can be a little soft because all the jobs are transient because people just come in and leave. Jbg, one of the sort of foremost DC area developers, had a fun series and then ended up. It's an interesting backstory.

B (15:45)

Is there a Vornado spinoff here?

A (15:47)

Is this something that's exactly where I was going. So Vornado bought Charles E. Smith's portfolio. He had office buildings in multifamily and he had a bunch of like 70s office buildings in Arlington, Crystal City that Vornado inherited and then ended up just jettisoning them to see in a reverse. In a merger with JBG to create JBG Smith.

B (16:07)

Yeah. And JBG Smith was also sort of in the news during the Amazon HQ2 stuff. I believe they were awarded that project.

A (16:14)

Yeah. So HQ2 went into basically a bunch of buildings that they had inherited as part of this Fornado merger. And jbg, again, it was a very common stock play to say JBG is going to benefit from HQ2. It hasn't really panned out that way. And now that they're saying, oh yeah, multifamily, which has sort of been where we wanted to go because no one wanted to do office, and now they're saying we can't do multifamily anymore and we really want to focus our capital and our balance sheet on creative office development.

B (16:42)

Yeah, they're like, there's been enough dislocation that we have a generational opportunity here. They also specifically called out the Trump tariffs, which I feel like have become a catch all for anything you don't want to do. Just throw the Trump tariffs at it and you're good to go.

A (16:55)

Oh, 100%. You don't want to go take the trash out because of the tariffs.

B (17:02)

We're talking about all this, obviously, during a period of extreme consolidation in the multifamily space. We talked about Cortland buying ELM Partners.

A (17:10)

It's funny you mentioned this because Cortland bought the assets of elm. Not all of them, but a lot of elm's assets were in this same market. So they had a bunch of older multifamily in the Alexandria Arlington area over overlapping with JBG Smith and then Bell.

B (17:24)

Partners has been shopping itself. So we've talked a lot about how some of the multifamily players are big, but not big enough necessarily to see through this era of uncertainty and high rates.

A (17:35)

If you do a lot of things and multifamily is one of them. Maybe you want to go do the other things. If all you did was multifamily and it's been a tough several years and the fund vintages aren't necessarily great, you're not in the promote on your programmatic JVs and fundraising is getting harder. Maybe now's the time to sell too. Bell has a big development arm and so those projects have probably been tricky and they're getting harder and harder to capitalize.

B (18:01)

And you know, both of us absolutely loathe talking about rates, but is there anything we need to say about the quarter point cut that happened and how this might play? I just hate it because we pretend to know and no one really knows.

A (18:12)

All I would say is that any view that's like very certain or one way is probably wrong. Like I still remember Robert Refkin posting popping the champagne on Instagram at the first rate club like last year. Yeah, and the treasury curve went up and again rates aren't one to one with real estate returns. If we're cutting rates, it's generally because the economy is bad and so it doesn't really matter if maybe you can borrow a little bit more cheaply if no one can pay the rent on your apartment building.

B (18:40)

That's the landscape for institutional multi. What does it look like kind of at a more accessible level?

A (18:45)

Let's say it's tough. It's really hard to get construction debt because banks were really like the big place you would go for construction debt. And if they're holding any office, they don't really to be putting on more risk. It's been tricky. Like yes, they're debt funds, but if you're doing a small project and you're not an institution, you don't necessarily have a huge balance sheet. You're not going to get one of the Athene origination arms to just give you a loan. You actually might. Maybe I'm wrong there.

B (19:12)

Listen, with Athene's new spv, anything can happen. There can be a whole flood of capital coming into the space.

A (19:17)

Mark Rowan like come on, just non recourse me to death. It's really tricky because again, all of these smaller multifamily is tough to build. Smaller anything's tough to build because the soft costs don't like they aren't proportionately smaller.

B (19:31)

You're right because when I see even these boutique office projects, let's say in a prime Miami area or something, they generally are these single LP deals. Sumedha and Khurana have something and I was like, this project, it Seems weird to me. And then I see Eric Schmidt is the primary equity on it. It's like an adventure for rich guy as opposed to business.

A (19:47)

Yeah, for the most part. I think you could say that about development kind of at large. No offense.

B (20:01)

I forgot to tell you. John started crawling on his seven month. Whatever you want to call it. Exactly.

A (20:06)

Birthday.

B (20:07)

You can call it a birthday 7 month birthday. It was so fun and he was so excited. He just started shrieking. We've been calling him Attila for the past week because he's just. He's climbing over pillows and going, ah, it's just really fun.

A (20:21)

It's very cute and great. But then like, exiting potato phase is also like very stressful. We want to let you know that on October 15th, we're launching the Promote Insider, our premium. Our premium subscription tier with exclusive content that you can't find anywhere else. Think expert deep dives, in depth interviews with players in the business and bonus episodes of this podcast.

B (20:46)

That's right. We're going to have some special stuff for insiders. It's going to be a hoot. So stay tuned for pricing and more deets on the Promote Insider.

A (20:52)

Boom.

B (20:56)

All right, baby. Dirty Harry, your boy Sailing season's done. Unfurled has been parked. And here comes Matclough, unfurling of the New York landscape.

A (21:05)

Has his illegal Hamptons house been sold yet? What's going on there?

B (21:09)

I don't know, but the man is back. He is, I believe he's 88 now and he's come and struck another deal in Manhattan for another ultra luxury condo play. God bless this guy.

A (21:19)

So Harry Macklow, it's not been the smoothest of sailing, not quite outside of his time on Unfurled, you know, he had 432Park in which CIM Group did tremendously well. He did less.

B (21:30)

So we're unclear on the status of Harry Macklas promote on that super tall tower.

A (21:34)

No, we're pretty clear it's not there. One Wall street has sort of been a just absolutely epic boondoggle.

B (21:43)

HBJASsem. Yeah, HBJ, the Qathari Royal who was like one of the wealthiest men in the world, was his LP on that project.

A (21:51)

What's he going to do with only like $437 billion from speaking to some.

B (21:55)

Qataris who are fairly juiced in the Al Thani world? They said, however much you think HBJ is worth, add a zero. It was such an amazing thing to say. Anyway, he was MacLeod's LP on 1 Wall street, which is the Office to Resi conversion of the. Was it the bank of New York Mellon building?

A (22:13)

Yeah, I think so.

B (22:14)

That did not turn out so well.

A (22:15)

It did not. No. Well, what's bizarre is they leased the retail really well. He's got Lifetime Fitness. I think there's like a Whole Foods, like, that's done really well. But he has. The condo is much less so.

B (22:25)

And then Harry Macklow had a dream of a super tall tower on Fifth Avenue. It was called Tower Fifth. It was supposed to rise right by St. Patty's the Cathedral Fortress gave him the money for that. Okay. And then the dream never came to pass. At some point, MacLeod sold the parcel that he would have needed to do this tower.

A (22:42)

That was one of the craziest projects that has ever been conceived. I think it had an exterior slide on it. So that was going to be like the main attraction that you could go on the outside of the building, 70 stories up in a slide.

B (22:56)

Yeah.

A (22:56)

I swear to God, this is true.

B (22:59)

This is a very Dubai thing. Maybe I'm not reacting as strongly as you might expect because this happens in Dubai all the time.

A (23:06)

So Tower Fifth, we hardly knew ye. Very sad. But, you know, you thought Harry Macklow would just be. Maybe he's done and he's not. And he just showed up and he bought an amazing address.

B (23:16)

You like this one? 809 Madison Avenue?

A (23:19)

Yeah, it's a beautiful, beautiful building, as is tremendous address right off the park lot to commend it. And it's been a tricky site for its current owners.

B (23:27)

So what's the deal? So the seller of the site is Churchill Real Estate, which is a very interesting vehicle in itself. It is typically, you're best known as a warehouse lender. What is a warehouse lender? Will, for those unfamiliar.

A (23:39)

So a warehouse lender basically provides back leverage to a lot of people. If you're a debt fund and you're lending money to a developer, that's not all your money necessarily. You have money from your LPs, and then you might go to your warehouse lender and say, hey, loan me at X rate and then I'll charge Y to my borrower.

B (23:55)

So Churchill is best known as a warehouse lender. At some point, it's unclear exactly when, but Madison Realty Capital, our boys, Josh Zegan, et cetera, they bought Churchill. So they now control Churchill, which is a really interesting dynamic in of itself.

A (24:08)

This is a deep cut from early days of Million Dollar Listing. And I remember, I think at one point I searched the real deal for every article ever about Zach Vella. But wasn't Zach Vela and Justin Ehrlich, weren't they early partners on VE Equities?

B (24:24)

That is correct.

A (24:24)

That is the first. Yeah.

B (24:25)

Yeah. And then Zach Vela got on trt. Yeah, you're right. VE equities does that.

A (24:32)

Yeah, There you go.

B (24:33)

So Justin's a really interesting character. He tied up with this guy Sohrab and a couple of other people. They built Churchill into a very, very active warehouse lender. And then Madison, which was backed by Iconic Capital, the big wealth manager out of Silicon Valley, came in and either bought a piece of them or controlling interest. It's a little bit fuzzy. Anyway, so they're the seller here.

A (24:52)

They're the seller and they have not done great. Harry's buying it for significantly less than they paid for it almost a decade ago. So the building's right on 68th and Madison.

B (25:03)

Yep.

A (25:04)

And it's inside the Upper east side Historic District, which is maybe the nimby. Est of nimby.

B (25:10)

I was going to say this is like Arch nimby. Like this is the final boss of nimby, right?

A (25:14)

Yeah. This isn't like Glass Joe nimby. This is like the, the guy at the end of Mike Tyson punch out nimby. And. And to get any changes done, you got to go through Landmark Preservation Commission, which just takes years, takes years of your life.

B (25:32)

And this, we should say, this is what Harry Macklow is preternaturally talented at, is like the charisma and the salesmanship of development. Like, this is the guy. I would put him right at the top of all the things Harry Macklow maybe doesn't do as well. This he does very, very well. Right.

A (25:47)

And for better or for worse, can do magic.

B (25:50)

He has the kevorka when it comes to development.

A (25:52)

Yeah. And so he was able to get LPC on board with his plans. And so they're going to use air rights that he got to expand the building. And he's going to create these huge single floor apartments, which this is sort of the ultimate in New York as you think of having the elevator open up right into your apartment.

B (26:08)

That's the dream, right? That's the dream, yeah. And we're talking about 4,000 square foot pads, each on their own floor. It's not going to be cheap. 5,000 a foot is kind of the pricing they're kind of talking about.

A (26:18)

Well, I mean, you're what, you're two avenues over from 805th, so you get half the price per foot.

B (26:25)

Is that, is that $11,000 a foot for those who come in late.

A (26:28)

Is he going to be alive when this is over?

B (26:30)

I think at this point Harry Macklow is immortal in my book.

A (26:33)

He has Horcruxes stored all over the Upper east side.

B (26:36)

He's picked the Limestone Jesus to do the work here.

A (26:38)

I mean, I hope they got paid.

B (26:40)

Up front.

A (26:42)

But no, he did. So it's funny, I was thinking about this. I'm like, man, Mickey was too busy with 805th. This was the exact type of project he was doing a couple of a go.

B (26:50)

This is a slam dunk, Mickey. Nuff Deli location for sure. Okay, so let's now talk about. So he's partnering with SK Development on this project, which is, I believe, Abe and Scott Schnee. I don't really know too much about them, do you?

A (27:02)

Neither do I.

B (27:03)

So we'll find out for a future episode or a newsletter or something. I want to talk about the capital stack here because again, we just mentioned those two projects in the beginning. And the question we really wanted to ask is who is willing to give Harry Mackle money now? And the answer is quite interesting.

A (27:18)

Oh man, it's a lot of people. This is a murderer's row of folks. On the debt side, Marty Berger, formerly the CEO of Silverstein Properties, currently runs the.

B (27:31)

There's a little bit of confusion here. It used to be called Infinity Global Real Estate Partners, but at that time I think he was partnering with Andrew Farkas of Island Capital. That partnership fizzled right away and now I believe the company's called Infinite Global Real Estate Partners.

A (27:45)

Oh, fantastic.

B (27:45)

So hopefully the hoodies weren't printed yet or whatever. Say Marty Berger is now asset managing part of the Schwo portfolio for the Germans. Anyway, so Marty Burger's Infinite is on the loan, but they're partnering with related.

A (27:58)

Related funds?

B (27:59)

Yeah, related funds. What are they best known for?

A (28:02)

Pref.

B (28:03)

I do a lot of pref. But this isn't prep, is it?

A (28:06)

No, it's Construction lab. Yeah, there is a lot of Pref. Not from related. They've got two prep providers. The first is the Artist Formerly Known as oxif. Skolder Capital Management has come in.

B (28:18)

You know, I was looking at the document. I was. I know there's a predecessor firm, but I couldn't get it. I'm glad you said them. Oxif.

A (28:24)

Yeah. And then Circle Property Partners are providing Pref. And then it sounds like they really just clubbed together the LPs here. Handful of family offices, small funds and ultra high net worth investors coming as LPs.

B (28:37)

There was one guy who was iconic for putting these kind of strange cap stacks together. And he was a guy called Howard Michaels, who the Real Deal famously described as the toughest boss in real estate. Now, Howard Michaels is long gone, but his firm, the Carlton Group, did put this together. So the DNA, the spiritual kind of love for the Harry deal is still there.

A (28:58)

You love to see it. And one thing I think we should comment on too briefly here is that PREF is not something you used to see in construction because again, you're just reserving a ton up front to pay for it. And there's no current. And we talked about it last week a little bit with Gary Barnett. You're seeing more and more of this because banks debt funds are pulling back on construction. And so that money's got to come from somewhere. And it's also really, really hard to raise JV equity for ground up right now because people are saying, I can make this much in credit, I can go buy way below replacement cost. Why would I go building?

B (29:31)

I can do office to resi, etc.

A (29:32)

Yeah. Or shops that are, that are traditionally developing are saying, I can't build this for X. I can buy something existing for 85% of X. Why don't I just go do that? So it's really hard to raise JV LP equity for development. And so you're seeing more and more pref come in or sort of either participating mortgage mortgages, which get some sort of kicker on the equity side, or the hybrid, hybrid capital like a.

B (29:57)

Is it like dequity, which is what.

A (29:58)

Who is your equity? Or like the hybrid PREF equity where it's like a soft pay component, but they get a disproportionate share of the upside. So you're seeing a lot more of these types of structures because cap tech's got to get filled to build stuff and the LPs aren't there. So Harry, he's taken on a lot of prep, he's taken a lot of construction debt to get this thing done. And you might think, man, that's a lot of interest. That's a lot of payments you got to make to get even. But as Harry Macklow once told a friend of mine when he asked him about his underwriting, actually, I think it was for Tower 5th. He said, New York will bail me out. That's a true story.

B (30:44)

That's it for the promote podcast this week. We'll be back next week with more CRE Insider goodness.

A (30:49)

We challenged our listeners to write some spicy reviews of the POD on Apple and they obliged. I love this one titled Catnip for Real Estate Psychos.

B (30:57)

Come on, that felt like a Will Krasnyy plant. I wonder what strings he had to pull to make that one happen.

A (31:02)

It's catching on. You just have to admit it.

B (31:05)

I do like that they distilled it down to all bangers. No, skip, because that really is what we strive for week after week. And I think we want more nice stuff said about us. So how do you feel about extending the competition for another week?

A (31:17)

Look, my thing was all bangers all the time, so yes, of course. Let's go another week.

B (31:24)

Remember the best review on Apple. Get some fun swag from the Promote.

A (31:28)

A shout out again to our sponsor Bullpen. Check out their CRE dedicated recruiting platform@bullpenre.com.

B (31:33)

Yep, that's bullpenre.com and as always, reach us at podcasthepromote.com for feedback on this pod or at partnershipsthepromote.com if you'd like to advertise.

A (31:45)

Now that we're not getting an official casino in Manhattan and the Chesterfield, sadly is long closed, should we set up a rounder style underground den that can double as a podcasting studio?

B (31:54)

I wonder if Mark Holliday would offer up the basement at one vanity.

A (31:58)

We should probably ask him at 300 a foot.

B (32:00)

Everybody else runs and hides. Go run and hide. I'll see you next week, dude.

A (32:07)

All right, this was fun.

B (32:08)

Ciao.