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- [00:06]
A
When the main course is this tasty, I think we just skipped the amuse bouche.
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B
Yes, Chef.
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A
Welcome back to the Promote podcast, your insider guide to the money and mania of the CRE markets. I'm Hitan Sumtani coming in from the studios of 1031 Media.
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B
And I'm Will Krasny coming in from the studios of my house, Rehoboth Beach, Delaware.
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A
But not for long.
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B
Yes.
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A
How many months we got? 2 more.
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B
0 if you round down.
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A
It's gonna be nice to have you in the city.
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B
It'll be nice to be in the city.
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A
A shout out to our sponsors, Bravo Capital, a leading Huddenbridge lender that lives
- [00:45]
B
and breeds capstacks and loan Boss, the best in class CRE debt management software.
- [00:49]
A
I love how you weave them in in the mailbag.
- [00:51]
B
I'm violently on message and real Property
- [00:54]
A
Captive, the first group captive insurance for mid market owners. This week it is time for some California dreaming. We ascend Orange County. Ziggurat, a stairway to heaven. Or SoCal's biggest development clusterfuck, depending on your flavor. And back to the Golden State, where a whirlwind of fascinating deal making has gone down on SF's largest rental complex, Park Merced.
- [01:15]
B
Now, Ziggurat is also the thing that you made in seventh grade when you told your mom at 9:15 that you have a diorama due tomorrow. So hopefully everyone remembers that. Also wanted to say thank you for the additional reviews.
- [01:26]
A
Yeah.
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B
Marshall Berman described the POD as quote, combining masterclass journalism with institutional insider insight, cutting through the fluff to look at how real operators think. Tremendous. Keep them coming.
- [01:37]
A
We're the anti venom to all the industry pods out there. And we're so grateful that many of you recognize that. Let's get started with the punch list.
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B
The punch list? Our signature rundown of the News, East News and cre.
- [01:51]
A
We talk about these gold rushes and every time there's a new gold rush, there is a new middleman who finds his way. And they tend to be hefty, both in character and physically.
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C
Big man. That's for sure.
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B
I'm a.
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A
Look at the size of this fella.
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B
Yes. So you've got our good friend Jack Sordani.
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A
Don't you want to meet this guy and have a cigar with him?
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B
I love the hustle. It's a human interest story. Almost where this entire township pulled all their land together and sold it to qts.
- [02:19]
A
QTS being the data center arm of Blackstone.
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B
One of the data center arms.
- [02:23]
A
You're right. Good correction.
- [02:24]
B
Yes, they made off like bandits. And it's kind of incredible. This is in Salem Township, Pennsylvania.
- [02:30]
A
You do deals around the area, right?
- [02:32]
B
No idea where Salem Township is. I mean, probably shouldn't admit that legitimately. Looking it up right now, adding it
- [02:37]
A
to my pitch deck, it's a pretty crazy story. So 96 families pooled their land together, 1700 acres or so, and sold it for just south of 600 million to QTS, salt of the earth types. There's a convicted felon in the mix, too. Just people who happen to own land in the area. And it typically takes a catalyst to make all this happen. In this case, it was a guy called Jack Sordoni. So this guy has some priors at being a wheeler dealer. He used to put together assemblages that would then sell to oil and gas people. A couple of years ago, I guess by dint of being in that profession, he caught wind of Amazon potentially looking to do a thing in this area. And so he didn't know anything about data centers. He says in this excellent journal story that I very quickly had to understand the game. We talk about how there is a limited window in which you can make a lot of money if you move very quickly. And this is a perfect example of that.
- [03:27]
B
The initial mailbag pod. I talked about how selling land is, and this is such a great example of it. Jack Sardani, the hustle, the foresight to see that something was going on here. And then really the ability we talked about when the data center project for QTS Northern Virginia fell apart, how you have to win the hearts and minds of the local municipality to get a zoning change or get approvals. This is the same thing. This guy ran a ground game to get all these people to put everything together. Because it's just typical game theory where one or two on their own aren't really worth it. Together, the value is much greater than the sum of his parts.
- [04:06]
A
The gestalt is worth something here.
- [04:08]
B
Yeah. May I just say, his consulting firm is impeccably named. It's 4:3 Consulting, which is the most Pennsylvania high school football thing of all time.
- [04:17]
A
Yeah. What's that about?
- [04:18]
B
The 4:3 defense is where you have four down linemen and then three linebackers. It's a very famous defense, though. The Pittsburgh Steelers, I think, played a 3:4. But he made these guys, like generational wealth across the board. And it's kind of amazing.
- [04:32]
A
Five and a half million on average per family.
- [04:35]
B
And that's despite some land sellers who hired lawyers and wanted to do Away with the middleman, I guess. One lawyer challenged him to a fight, which I don't want to fight. Jack Sordani.
- [04:44]
A
He looks like an ex linebacker himself. Yeah. But he said for the most part, the community sees him as a hero. He was invited at one point to officiate one of the weddings for one of these sellers. We would shoot guns with them, drink beer with them, pray with them. He said of the seller crew. One of the things we care so much about is who are the middlemen in this business. We talked about the condo buyout guy, so always good to find the next one in the mix.
- [05:06]
B
Real estate's the best. Insider trading is legal. You can do whatever you want as long as the other guy agrees to it. If you are willing to go win the hearts and minds of everyone in Salem Township, Pennsylvania, one family at a time, you too can make a giant commission on a multi billion dollar sale.
- [05:20]
A
Okay, next one. Zaz, your boy Zaz from your other world. The other obsessive interest you have comes into our world here. David Zaslav is trying to buy a summer camp. And not just a summer camp, a very specific one.
- [05:34]
B
Yeah, this is Mohawk Day Camp in Westchester, which I believe his children had attended. So he was familiar with this. This isn't just him trying to get the IP for the movie Heavyweights with Ben Stiller.
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A
Lunch has been canceled today due to lack of hustle. Deal with it.
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B
But yes, this day camp is part of a larger summer camp empire.
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A
A beleaguered summer camp empire, some might say. We knew that a lot of weird asset classes find their eventual home on the Tel Aviv Stock Exchange. The tastes bonds that we've talked about, and in this case, this group of summer camps owned by the brothers, Ship sells, went and raised $195 million on the taste. And then in late May, they reported that they had missed their payment to bondholders. And here's the kicker. They disclosed a $34 million transfer to another entity controlled by the brothers. When you see something like that happening in the midst of distress, starts to get a little messy. I can tell you. A lot of my sources send their kids to these camps. So they were like, what is my daughter gonna do for the summer? There was some fear that these camps would not open for the summer. And I think they figured out some emergency financing and made that happen. And now they have to just carve out this empire piecemeal, tent by tent.
- [06:43]
B
These are Jewish summer camps. It's a very big thing. It's a very big deal. Something like 200,000 young people attended Jewish camps affiliated with the foundation for Jewish Camp last year. So these are a big part of Jewish education, identity, community building.
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A
This is a real coming of age situation. Right.
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B
It's funny, a lot of these camps had been run by families for generations. These guys got into this in 2006. They built up 30 odd camps. A lot of Jewish camps are nonprofits. These were all for profit. I didn't think that this was like a huge money making venture.
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A
I mean these things aren't cheap. I'm assuming there's a decent spread there.
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B
But yeah, I mean the numbers here are staggering. Liabilities ranging from 500 million to a billion dollars.
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A
You could also see in the kind of players who've been involved since this colle, the chief restructuring officer here, Asaf Ravid, the same guy who was involved in the all year Yoel Goldman bankruptcy.
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B
One of the most complicated convoluted bankruptcies that you can ever imagine. So this is probably going to be a piece of cake for this guy.
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A
Okay, next one. Industrial is having a moment.
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B
We've talked about capital flows, drive hiring, firing, fundraising and it's really important to sort of see which ones are up, which ones are down. And despite Industrial being a very sexy asset class last five, six years, especially with E commerce penetration, onshoring of manufacturing, big box, so 500,000 odd and more had been really soft.
- [08:07]
A
We saw the biggest players like Prologis take quite a hit right in this time.
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B
Yeah, it wasn't just across the board because again there's no such thing as a real estate market. There's no such thing as a real estate as a class. It's just what product type, what geography, what submarket, all these things. Industrial at large was doing fine but the supertankers, which are the things that Amazon was just taking down Left and right, FedEx was taking down left and right, all of these guys. That was really slow. And that's come back. That's completely come back. What we are seeing is deals for 500,000 square feet and more. These are massive, massive transactions. They're not something you sign on the back of the tenant reps. Chevy. These are years long FP&A exercises. They broke ground on more developments in the first half of this year than it did in all of 2025. And a big portion of those are coming from three PLs. Three PLs have taken 30 million square feet in Q1 alone.
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A
That's like a jump of what, 65%
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B
from the previous year and that's 20% of all leasing activity writ large and industrial. These are all, for the most part, commodities. The location is really the amenity. They don't have the exact same access or truck turning, but they're practically the same thing. It's really supply and demand. And construction is at an all time low. And demand is going up between onshoring and then data center too. Data centers require a lot of stuff. They don't necessarily require that many people when they're done.
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A
People, people, no, but stuff.
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B
And that stuff needs to go places. And so wherever you have a lot of data center activity, you have a commensurate amount of demand for big box.
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A
The narrative of real estate has moved so far away from this kind of asset class that it's interesting to see that the data might be saying otherwise,
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B
just been sort of surpassed in sexiness, as you said. And sexiness drives vibes, and vibes drive capital. But it doesn't mean that there's not demand for space. And eventually, if tenant demand is still there and supply is at all time lows, what that's going to mean is rents are going up. That means valuations are going up, and that means more capital is coming back into the sector. And of course that means we're going to overbuild and then we're going to be soft again.
- [10:01]
A
That's it for the punch list. When we come back, it's time to climb some stairs. Many, many, many stairs. Okay, I'm here with Aaron Krewitz from Bravo Capital skilled nursing facilities. SNFs, as they're known in. You've been diving quite deep in. Talk about a regulatory minefield. SNPs is as complex and intricate as it gets.
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C
Every state is its own galaxy and operates completely different than every other state. The lenders and operators that got burned very badly historically in SNFs were groups that had cookie cutter approaches who felt like I could roll this stuff up and have the same approach.
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A
It's so local.
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C
And we say often that if somebody financed a sponsor who did well in Minnesota, who had eight SNFs and they're about to do their first SNF in Florida, that doesn't mean you should finance them. In Florida, what we look for often is commensurate experience with a real emphasis on comparable local successful experience a sponsor has had. And we monitor, of course, reimbursements and the regulatory developments that are occurring.
- [11:07]
A
Thank you, Aaron. And where can people find you?
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C
People could find us@bravocapital.com.
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A
I don't know how much time you've spent in the oc.
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B
I spent four crucial years in high school in the oc.
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A
Part of your baseball touring bit or what?
- [11:25]
B
No, this is with Ryan and Marissa and Seth.
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A
Who are you?
- [11:30]
B
Whoever you want me to be.
- [11:31]
A
Okay, yeah, fair. We talk a lot on this pod about incompetence. And one of the big themes of this podcast is private markets, incompetence. But everything is relative. And when you look at something like the ziggurat, you see government incompetence at this super scale. Oh, my God. How do you want to begin this?
- [11:50]
B
Well, I think first it's important to define what is a ziggurat. Ziggurat is a type of massive structure built in ancient Mesopotamia in Iran. It is a form of terrorist compound of successfully receding stories or levels. Notable ziggurats include the great Ziggurat of urban near Nesarat, in the ziggurat of
- [12:07]
A
Aker Kuf, and one built for North American aviation in the OC Master plan community of Laguna Niguel. So that's where we're going to start our story. At the right hand of the Indies,
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C
there is an island called California.
- [12:26]
A
So in the late 60s, we're in the thick of the military industrial complex. Per report prepared for the the JSA on the building's historical pedigree, which I read in full, by the late 1950s, one out of every 15 working Californians was being supported by the Cold War in some shape or form. So a lot of these big aviation companies go and build these giant headquarters and NAA in the late 60s commissions this one and they choose this master plan community called Laguna Niguel. They merge with a company called Rockwell, which buys 1300 plus acres to get this going.
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B
Yes. First, just one thing to note is it's the post war building boom. So this land is still cheap. This is all orange groves and farmland. This is how Donald Bren became the king of the oc over in Irvine, a lot of the developers were trying to option and buy as much land as they could, overstretching themselves. And the guys who sold this to the NAA Rockwell joint. By the way, I can't think of Rockwell without like. I always feel like somebody's watching me. It's Cabot. Cabot Forbes.
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A
Why does that name ring a bell?
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B
Because that is where a young guy. Oh, he's old now, but a very famous developer and owner named Mort Zuckerman. Wow. Cut his teeth. I was gonna say made his bones. Cut his teeth. Did both.
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A
Founder of Boston Properties.
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B
Yes. Indeed. And so North American Airlines and Rockwell, this is maybe pre lead being taken out of paint, tapped an architect named William Pereira and his firm to build a real one of one campus.
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A
They plan a 1 million square foot headquarters that would house about 7,500 workers to build what would become the OC's largest single structure. And the amazing thing is like, you think million square foot. I don't think you envision a design quite like this.
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B
In New York, we're very used to setbacks to get your density. This is taking that to an extreme level. And also one thing I would point out too, is that we talk about how we've really had to become more efficient with our space. A million square feet for 7,500 workers is pretty efficient, I would say.
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A
It's almost like wework style. Yeah.
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B
So they were ahead of their time there.
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A
However, they didn't quite map out what would happen next few years pass, the building's complete, but Rockwell doesn't have a use for it anymore. Look, you need a little bit of chutzpah to remain in this business, right? So Rockwell goes to the government and says, listen, why don't we try this? You take the Ziggurat from us and we'll take two plants elsewhere in Southern California and you can throw in some machinery as well. Amazingly, the government buys this trade. They're like, fine, deal, we got this. They take ownership of the Ziggurat, but they don't again, they have no idea what to do with it too. So it's just languishing for a few years.
- [15:08]
B
The government, their plan was to go dig up Sargon the Great from Mesopotamia. And unfortunately, it didn't work.
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A
30, 40% of it was vacant forever. Right. And sometimes more than that. So they try to sell this thing. No dice. They go and then say, you know what? We should spend more money on it and renovate this thing. It's a million square feet again. So that's another God knows how much they spend on that.
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B
How do you repurpose the Ziggur? Maybe you just fill it in and make it a rectangle.
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A
So this goes on for nearly 40 years. In 2022, they decide, all right, let's get serious. Let's go and sell this thing for real. So they put it up for sale. This is about a 90 acre property.
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B
So 90 acres in prime Southern California.
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A
Prime, prime, prime OC. And by this time, the OC is one of the most desirable markets in the country.
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B
Over these 40 years, the Orange groves got filled in and Stuff happened and this became incredibly valuable.
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A
But for the Ziggurat, they're going to do it via an auction in March 2023. Now, all a buyer needs is a 300,000 deposit and a little bit of clock. However, there's a fatal caveat here. Anyone who buys this must create a preservation easement for about 26 acres of this complex in which the Ziggurat has to be maintained. So you've got to keep this monstrosity if you're the buyer.
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B
What I loved is not just the Ziggurat had to be maintained at the guard stations because this vacant building has to be protected at all costs. So the suggested starting price for the auction was $70 million.
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A
70 million for a 90 acre site.
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B
Yeah, you can see that working out. How many bids did they get?
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A
Zero.
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B
Yeah, that's bad.
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A
So they're like, okay, let's go back to the well, let's rethink our strategy here. They run the auction back. Crucially this time they take that preservation mandate out. But the GSA doesn't reappraise the property without that preservation easement. They keep the floor bid of 70 million, even though taking a deed restriction out can exponentially increase the value of a property, whether it be a caravan king or a nursing home on the Lower east side. Anyway, they don't do this and it's back on the auction market.
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B
The auctions run an interesting way where every bid restarts the clock for a day.
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A
They call this a soft close.
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B
The auction takes five months.
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A
It really does. There's three bidders who make a total of 157 bids. The auction floor price was 70 million. It ends up trading for 177 million.
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B
We could have saved several months by starting much higher.
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A
Now it's time for the winning bidder,
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B
who IS is a 33 year old construction engineer named Cameron Hildreth.
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A
He was a GC who wanted to get into development. And then he said, all right, let me start with probably the most complex project known to man. On 90 acres and make 177 million bid.
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B
Well, this is how a lot of great fortunes have started. With people who didn't know what they were doing buying ostensibly great real estate that had some sort of challenge to it.
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A
You know who this reminded me of, though? When I saw this story and when people were describing this guy to me, I'm like Jacob Garlic, the Flatiron Building. The guy, the guy who came in and make that bid.
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B
There's more there there than with Jacob Garlic. This guy had a real partner who had money, but you know, wasn't necessarily Heinz.
- [18:28]
A
The partner here is a guy called Jeff Pintar. Jeff Pintar does have money, but he made all his money in distressed single family home trading. That's what he did. So two partners, one with money, one complete non entity. Neither of them have any experience in this arena whatsoever.
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B
Here's where they're kind of real and sort of bonkers is that they went hard. The 10% non refundable deposit, that's close
- [18:51]
A
to 18 million bucks.
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B
$18 million non refundable. And went about raising the rest because I think they had a very long closing period. So you had the ability to go out and fundraise.
- [19:00]
A
Another thing here is typically you don't really go to the press until you have your things tied up. But what distinguished this whole caper is that they were very public almost as a mechanism to generate more interest for their fundraise. And so this is what Hildreth said, I believe to the ocbj. He said the project quote has real interesting topography. And he adds, imagine Will, you're an LP and you hear this. He says, we felt it was a great project for us on a larger scale. It's a level up.
- [19:29]
B
There's levels to this. If you've done 17 small bay industrial deals and now you're saying we've nailed this, we want to go to the next step, this is a level up for us to do a big class A spec development or something like that. That's one thing. To be fair though, how experienced can one be in redeveloping a Ziggurat?
- [19:47]
A
Even Steve Ross, we literally don't know how would be starting from scratch. Yeah,
- [19:53]
B
this site though again is very valuable and attracts the interest of some owner users who would like to make the Ziggurat their own home.
- [20:02]
A
If you're not a developer by trade, you might have the ability to make the site work at the right price. So one of those bidders in question is a hospital system out of Newport beach called Hogue. Really deep pockets, big donors, what have you. They have long eyed an expansion into Southern ocs, which is where this site is. They sued the GSA because apparently they were one of those three bidders that we talked about. And they said that during the auction process Jeff Pintar was like calling them and saying hey, instead of competing, let's work together. And Hogue said that this was collusion and he should have been DQ'd from the whole process as a result. And because he Wasn't Hogue sued the gsa.
- [20:39]
B
The issue here is timing, because depending on what the rules are, don't do this now. Win the bid.
- [20:44]
A
Yep.
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B
Put up the deposit and then say,
- [20:46]
A
hey, I would have ventured to guess that if Pintar and Hildreth tied this up and then flipped it to Hogue, they could have made a little bit of money right there. So the GSA gets spooked by this lawsuit and terminates the deal with Hilko and awards it to Hog. No explanation is given as to why this happened, but they did this.
- [21:04]
B
Yeah. And the biggest thing is they gave the deposit back. I was stunned reading this.
- [21:08]
A
So you're interpreting this as a get out of jail free card. You actually dodged a bullet. Hildreth, though, did not see it this way and he said he was going to go and sue because this deal was taken away from him. By this time, though, there's a schism in the jv. Pintar and Hildreth are saying different things.
- [21:25]
B
The whole thing is just completely bizarre. The auction is canceled.
- [21:29]
A
Heretofore, Hoag doesn't get it. Hilco doesn't get it. It's back to square one. Can you imagine a private entity getting away with shit like this?
- [21:37]
B
You wouldn't be able to live this down for decades.
- [21:41]
A
So at this point, the GSA maybe thinks, all right, we need some adult supervision here. Earlier this year, they bring CBRE in. Given the trauma from what just happened with these couple of botched auctions, cbre, I'm told, runs the tightest, most buttoned up process. Oftentimes we'll talk about how brokerages and brokers will play gatekeeper. They do none of that. They're essentially acting almost like a glorified tour guide.
- [22:04]
B
Sometimes you hear the seller, you know, what do they value? Do they value highest price? Do they value terms? Do they value flexibility? Or do they value certainty? And in this case, you're dealing with an entity who's like, we need this fucking thing sold to a real person.
- [22:19]
A
The GSA at this time is led by Ed Forrest, who's a longtime Cushman and Wakefield veteran executive. As a former broker, he's like, guys, we got to have a broker in here.
- [22:29]
B
They did two things that were different. They said, this is as is where is. Yep, do it like that. And there's no dd. You can't tie it up before the money goes non refundable. You were going hard day one. Hospital systems, I will say, are huge buyers and owners of real estate. And they're Tremendous buyers. Once you get them to yes, and the snowballs rolling downhill, it's the best. Because they're not economic buyers in the way that a private equity firm would be.
- [22:50]
A
They're price insensitive to some degree.
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B
To some degree? Yeah. They're valuing it on a different metric than a financial buyer would buy. And Hogue ends up winning the prize. They pay 30 million more CB earn that fee and they have a great photo op outside of it and a great podium. When they announce this deal, what does it say?
- [23:10]
A
From vacant to vibrant.
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B
I love it.
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A
There is one final quirky condition of the sale though. So the preservation stuff was done away with that you have to kick in a couple million bucks into a fund or you find a qualified nonprofit to run the preservation process. Pretty straightforward compared to the initial killer constraint of keeping the building in place. However, there is one condition in here.
- [23:33]
B
Will, he did have to keep the building in place. Just a very, very tiny building. The buyer Hogue had to donate a scale model of the building to the local historical society, and they took on all costs associated with that endeavor as part of their purchase.
- [23:48]
A
I'm glad that didn't kill the deal. What is this? A center for ants? Well, you've worn many hats in your glorious life so far. Pro baseball player, thespian, tornado remediation specialist. I want to ask which was your least favorite?
- [24:08]
B
The first two. Ugh, they were dreams. The third was a nightmare. Turning into a dream though. However, if you asked me a few months ago, I would have said Excel Monkey was my least favorite. Modeling out the dead tab was really, really annoying. Maturity dates, extension options, rate caps. Ugh, my spreadsheets were beautiful. But at what cost?
- [24:29]
A
Sounds like you had good roi. But your roi BD return on invested brain damage, not so good. So what changed?
- [24:35]
B
I discovered loan boss. All my loans live on one screen. No more. Let me just pull that up while I jazz hands a capital partner. And the extension option Tracking with automatic notice reminders. I used to have a post it note on my monitor for that. A post it note?
- [24:48]
A
A 10 in this day and age?
- [24:50]
B
Don't. I'm not proud of it, but the one click DSCR testing every lender adjustment, every unique requirement. Automated. Oh my God.
- [24:59]
A
No more getting surprised by your own cap stack listeners. Check them out@loanboss.com that's loanboss.com and tell them the promote sent you. Well, what if I told you insurance could become an asset instead of just an expense?
- [25:18]
B
I'd say you're trying to Sell me something. But also I'm interested.
- [25:22]
A
Fair. Here's the Math. You spend 2 million on insurance annually. Loss ratio is well under 30% over five years. That's about 10 million out the door. Zero return.
- [25:31]
B
Painful but accurate.
- [25:33]
A
What if 7 million of that built up in reserves that you actually owned?
- [25:36]
B
That's pretty interesting. Tell me more.
- [25:38]
A
Real property captive built specifically for scattered site gps. Top carriers issue policies for lender compliance. Reserves stay in your account and after a few clean years you're converting spend into equity.
- [25:49]
B
I like this. Because that's what the big boys do.
- [25:51]
A
Exactly. And now it's accessible for mid markets drivers like yourselves too. Check out the platform@rpcaptive.com that's rpcaptive.com and tell them the promote sent you.
- [26:08]
B
MetLife used to build humongous rental complexes.
- [26:13]
A
They used to build things in this country.
- [26:15]
B
They did. They all have their own histories. Stuytown and Peter Cooper Village were built by MetLife around the same time as Park Merced here in San Francisco.
- [26:23]
A
This is salt of the earth workforce housing stock. That's the original intention of these things. But they happen to be in some of the prime neighborhoods in some of the top cities in the world.
- [26:33]
B
And Peter Cooper Village and Stuytown, subject of a wonderful book Other People's Money by Charles Bagley.
- [26:39]
A
And Charlie Miss you man.
- [26:40]
B
You might think that that was the most crazy story out of any of these large super tanker. Super tanker isn't even the right word. These are thousands of units of infill housing in prime areas of New York and San Francisco. It's not.
- [26:57]
A
It has stiff competition in Park Merced.
- [26:59]
B
Park Merced, it's what it's. San Francisco's largest housing complex is the second largest single housing complex west of the Mississippi.
- [27:09]
A
Let's be super clear. San Francisco is one of the nimbiest places in America. It's really really hard to build multi family in a place like San Francisco. This is about 3200 units but importantly the site is 150 plus acres. So there's a lot of room for redevelopment potential. It has been home to an incredible cast of characters and we don't have time for all of them. But very quickly, Leona and Harry Helmsley are in the mix. Carmel Partners. I think we should start our story with Larry Gluck.
- [27:40]
B
Yes. So Larry Gluck, founder of Stellar Management,
- [27:43]
A
one of the landlords in the New York City rental game.
- [27:46]
B
Indeed. And Stellar Management of course was formed
- [27:48]
A
with Steven Larry, Steve being Steve Witkoff in 2005 they come in with Rockpoint and they buy this complex in about a $700 million deal. The guy running point for gluck on this whole thing is again, God bless CRE for the characters. Rob Rosania. True, true. One of one guy. Apparently he goes by the nickname Big Boy.
- [28:10]
B
Yeah, and not because he's a big fan of Bob's.
- [28:12]
A
We love good food just like you do here. The playbook is close to identical to Stuytown, which was lever the fuck up and deregulate the rent stabilized units as quickly as you can.
- [28:23]
B
It went slightly better here, actually.
- [28:27]
A
So in 2010 they project there's a default imminent. And at this point Fortress comes in.
- [28:32]
B
I'm trying to think of where in the life cycle of Fortress they are. Here. So they are post IPO and being.
- [28:38]
A
I think they've got Matlab by the balls already.
- [28:40]
B
Yep. They buy out Stellar's position.
- [28:43]
A
Rosania is by now independent and he stays in, takes a stake under a new company called Maximus Real Estate.
- [28:49]
B
I love that a guy named Big Boy names his company Maximus.
- [28:52]
A
At my signal. Unleash hell. It's so on brand. A year later, this is the crucial thing that happens. The new partnership team gets a multi phase redevelopment approved, which will add net about 6,000 units to this 3,000 unit complex. For a NIMBY hellscape like SF, I cannot overstate how big a deal this is.
- [29:13]
B
This is a goddamn magic trick. Illusion, Michael.
- [29:15]
A
Trick is something a whore does for money.
- [29:17]
B
No idea how they did this.
- [29:19]
A
It was pretty close, by the way. The board of supervisors, I believe, passed this 6 to 5.
- [29:23]
B
This is not just a magic trick. In terms of getting more housing approved. The value that was created through that. We talked about the deed restriction at the ziggurat. This probably doubled the value, tripled the value of site.
- [29:35]
A
It's hard to put a number on it really.
- [29:37]
B
It's crazy. And so of course Fortress being the traders that they are, they cash out. So in 2014 there's another recap.
- [29:44]
A
Fortress that remember, put in 175 million, sells out their stake for 375 million. It's over 200 million profit in four years. And I know will loves IRR math, so let's do a little bit.
- [29:55]
B
If you do a double in four years, that is pretty, pretty, pretty good.
- [29:59]
A
Pretty good. Our boys at 601 West. Come in. We've been talking a bunch about these guys. Mark Karazig, Harry Skydel. They're the ones who've been partnering with David Werner all over the place, buying These discounted office buildings in la, New York, Chicago. So they're in the mix here. And the new partners put some fresh debt. They get a 450 million senior loan from Ladder Capital which. Okay, but the next bit is the jaw dropping bit.
- [30:24]
B
$800 million of mezz from Chris Hones. TCI has provided some of the highest octane mes throughout 57th Street New York. This is not totally out of character for them, but man, clock is ticking here because this is something like 100/plus million dollars a year of interest on this mezz, I would wager. And remember this is 2014, so we're talking within nine years. Rockpoint bought this for seven, $700 million valuation.
- [30:54]
A
Yeah.
- [30:54]
B
The debt on this is $1.3 billion. Speaks to how valuable that housing addition was.
- [31:02]
A
And that's not. All right, multi phase development, phase one, which is 1700 units or so, something like that at the time, gets approved. That entitlement further boosts the value of the complex because you get the master plan approved and then you get each individual phase approved. So phase one's approved. A couple years later in 2019, they land a $1.8 billion refi on this project.
- [31:23]
B
I can't believe this. It's incredibly impressive to pay hone and ladder off like this. Just speaks to the underlying value of the land continuing to compound as they get these entitlements and everything too.
- [31:34]
A
And this is one and a half billion dollars of CMBS debt and another 300 million or so from AIMCO in the form of MES. So they have this incredible cap stack. They have a big mandate, but they just can't make it work. We all know what's coming the next year, right Covid? So it's a tough time.
- [31:50]
B
Yeah. In San Francisco, one of the hardest hit cities in the country. That was the damning factor here is because the land in the property stopped to compound in value.
- [31:58]
A
And forget about any new construction at this point. It's just not happening.
- [32:01]
B
Just definitely not happening. So with this new enormous amount of debt and San Francisco going into a very dark period, the complex needs to be restructured. So Rosanna and Maximus, their equity is restructured and we bring in a new player. A player from across the United States who's made their bones in New York, Yellowstone Real Estate, which is founded by an Israeli billionaire, Yakir Gabai. Yeah, Yakir Gabai.
- [32:26]
A
Huge, huge player in Israel. And his guy stateside is a guy called Isaac Hera. He used to run a company, I don't know if you remember Brac Capital Real Estate.
- [32:35]
B
Oh yeah, yeah, for sure. Yeah.
- [32:36]
A
Isaac used to run that and he has built a pretty big reputation of cap stack sniping. He is a very opportunistic investor. He gets into distressed capital stacks. So The Mone Building, 1740 Broadway, that's them, they just got a big construction
- [32:51]
B
loan package and they really made a very savvy trade here. So remember how we talked about how phase one got approved and you have to do this in phase and I think there's nine of them or something like that. So the collateral for the loan that Isaac Hara and Yellowstone give to Maximus is just the land on phase one and that's carved out from the rest of the cvs.
- [33:12]
A
I was so fascinated by this carve out component. So the bondholders would not have claim to this dirt if things go south. Right. It would be Yellowstone that would have dibs on it.
- [33:23]
B
And not even just that, it's just avoiding the entire headache of dealing with
- [33:26]
A
all of the special servicer and all of that crap.
- [33:29]
B
Yeah, mano e mano here.
- [33:31]
A
And as this is happening, the broader complex, the non development portion is really going through. It falls into default. Harry Sittomer's team from SL Green Green Loan Services, the special servicer here, they look to appoint a receiver. The judge grants that request.
- [33:45]
B
They bring in a new PM company. And that's really tough here because if you're Maximus and you have a project like this, the property management fees are enormous. It just helps you cover overhead and everything like that. So that's a huge blow. And unfortunately it seems as if they are entering a different stage of their career, as Bill Simmons would say, and they end up missing payroll for a bit. Rosanna, this wonderful article on the San Francisco Standard, we'll put it in the show notes.
- [34:10]
A
Rosanna gets on a call with the staff and he says we have a recap partner incoming. He cites a guy who runs a company called Cirrus now which is in Atlantic Yards. And he says they're interested here. When an employee of his asks like, is there anything we can do to make this happen, he.
- [34:24]
B
He just says, pray we have these two Hail Marys coming in so everything's going to be okay. The other group that he talked about in addition to Cirrus was Praxis, another big distressed multifamily investor. And Praxis told the Standard they don't even know who Big Boy is. So essentially where we are is the existing complex is foreclosed on or in receivership rather. And Yellowstone on phase one of the development parcel forecloses on its debt and they're actually going ahead with the redevelopment and they're doing it without Robert Rosenha. So Park Merced for the first time in 20 years is Sands Big Boy Yellowstone. This was a very opportunistic and canny investment and if San Francisco continues on its trajectory they are going to do quite well.
- [35:10]
A
What happens to Rosanna? We should give him his flowers a little bit.
- [35:14]
B
I think a lot of it.
- [35:15]
A
He kept this going for a long time. Pretty amazing how he got to the stage.
- [35:19]
B
It goes back to how hard property management is, especially a complex like this. Think about it. Tishman Sparrow can do it. One of the largest savviest real estate investment firms in the country couldn't make the same thing work across the us so for Robert Rosenia to hang on as long as he did is really impressive. Especially to land these ever increasing huge
- [35:38]
A
financings and recounts and also just.
- [35:40]
B
But the land development work too to get the additional density, to get the approvals. Can't stress enough how impressive that is.
- [35:45]
A
I will say that Tishman Speyer, they lost only less than $60 million on the Stytown bet and their equity there. The one that really took a bath was Calpers and it was here too. I feel like California pensioners are the unwitting victims of all these CRE misadventures.
- [36:01]
B
It's a hard business. What are you going to do? I will just say that this is not the last that we have heard of Robert Rosenia. I will guarantee you that.
- [36:15]
A
That's it for the promote podcast this week. Government ineptitude and operatic bravado in the face of severe distress.
- [36:21]
B
And that's just this week's episode. We started the Top Dog Metamoos bouche next week with the Reichmans. That's really what we're going to be talking about in terms of operatic real estate stories.
- [36:31]
A
I'm so excited. We're going to have to probably take some time out and map this one out because it's going to be too complex to get right in one go. Then we can do what these Senra guys do and release the mind map to the world and charge people extra for it or some crap.
- [36:43]
B
Close friends of the pod will know that I have a little map of how I want things to work in the future with my setup. I have a friend who calls it the flux capacitor. So we may need our own flux capacitor for this episode.
- [36:56]
A
I'm really looking forward to this next one. A big shout out again to our sponsors, Bravo Capital, a leading Hutton Bridge lender that lives and breeds cap stacks. You can find them@bravocapital.com real property captive.
- [37:06]
B
They're the first group captive for mid market owners. You can find them at rpc captive.com and Loan Boss.
- [37:11]
A
The best in class CRE DEB management software. Find them@loanboss.com I think we're building something pretty special here.
- [37:17]
B
So partnerships@the promote.com we're really looking for brands, companies that we vibe with, that speak to our souls. So come out for us.
- [37:28]
A
Hit us up. Thanks, Will.
- [37:29]
B
Thank you.
- [37:30]
A
Ciao.
- [37:36]
B
Sa.