Starchitects, Swedish Whales & an SF Hotel Heist

Summary

The Promote Podcast: "Starchitects, Swedish Whales & an SF Hotel Heist" — Episode Summary Date: December 10, 2025 | Host: Hiten Samtani (A), Co-host: Will Krasne (B)

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Overview

This episode of The Promote Podcast delivers a deep dive into three blockbuster stories shaping the U.S. commercial real estate (CRE) market:

1. The Legacy of Two Legendary "Starchitects" — Reflections on the impact and business realities of iconic architects Robert A.M. Stern and Frank Gehry.
2. Inside the Largest Industrial Deal of 2025 — Analysis of EQT’s near-9M sf industrial portfolio sale to Artemis and wider AUM-gobbling industry trends.
3. A San Francisco Hotel “Heist” — A masterclass in distressed deals as nearly 10% of SF’s hotel keys trade hands in a complex, high-stakes acquisition.

The podcast is equal parts sharp deal analysis, war stories, and CRE insider banter, all delivered in The Promote’s trademark candid, irreverent style.

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Key Topics & Insights

1. Cutting Deals With "Starchitects" (00:03-09:45, 24:19-32:12)

The Passing of Giants

• Robert A.M. Stern (RIP at 86) and Frank Gehry (RIP at 96) were hailed as titans whose projects irreversibly shaped city skylines and CRE business models.
• “It's sad, but it's also a pretty glorious life and career. 86 for Bob Stern, 96 for Frank Gehry. And these guys, they were working till the very end.” — A (24:29)

“Starchitects” in CRE: Blessing, Curse, or Both?

• Stern: Celebrated for 15 Central Park West, bringing historic, “familiar” luxury to new heights. Delivered smash profits, often outperformed pro formas, and was widely liked by developers — a rare combo in the field. (25:15)
  • “People think they want daring... What they really want is familiar. And that's what he did.” — A (25:50)
• Gehry: The “artist” archetype, design-led, iconic for the Guggenheim Bilbao and Beekman Tower (“New York by Gehry”). Projects were sometimes hard to deliver or live in, and rarely made money for developers.
• Broader lesson: Starchitects serve as “permission structures” for luxury buyers, letting them justify paying premiums in secondary locations via architectural pedigree.
  • “This is Ramsa, this is Gary. That was the permission structure. Like that made it an institutional asset.” — B (31:49)
• Downside: Drama, cost overruns, sometimes unlivable results (Falling Water, 432 Park Ave). (27:02-28:11)

Notable Moment

• “One of my favorite examples is Falling Water, Frank Lloyd Wright, maybe the most famous house in America—it's literally uninhabitable...” — B (28:43)

2. EQT, Artemis, and the "AUM-Gobbling" Trend (02:04-09:34)

EQT’s Rise & Major Shift

• EQT (Swedish asset manager, backed by the Wallenberg family) bought U.S. industrial powerhouse Exeter, going on a $7B+ buying spree in 2024 led by Henry Steinberg.
  • “They’ve become probably the most prominent industrial buyer in the country.” — B (02:26)
• Recently pivoted by dropping multifamily to double down on safer, bond-like industrial returns (e.g. FedEx leases), reflecting the “office to industrial” capital migration.

The Artemis Deal — Largest Industrial Sale of 2025

• EQT sold a 9M sf, 25-asset industrial portfolio to Artemis (led by Debbie Harmon, backed by Barings).
• Artemis’ core fund ($1.2B) was “turbocharged” with new firepower, enabling them to outbid major rivals in a fiercely contested process, indicative of the consolidator-to-mega-fund “hot potato” trend.

AUM-Gobbling: The Musical Chairs of Private Equity CRE

• It’s less about asset operations, more about assembling portfolios big enough to “pass on to the next guy,” yielding recurring sales among private equity giants.
  • “It’s the same thing that’s been happening with continuation funds. So it's the end result of all the AUM gobbling.” — B (06:59)
• Strategic rationale: survive/thrive by growing assets, as Fortress co-CEO Drew McKnight puts it (quote at 06:13).

Financing & IRR Engineering

• Sustained by plentiful capital: CMBS, life companies (New York Life lent to EQT), super-clean investment-grade deals.
• “You jerry-rig a low teens IRR without a ton of squinting... buy at a 5.5 cap, finance at 50% LTV at 5.5, make a little bit of cash flow, sell it at a 5 cap. You jerry-rigged yourself an 11 IRR with low risk.” — B (04:42)

Character Shift: Rise of the Industrial Broker (09:12)

• With industrial’s rise, industrial brokers are now the market’s new “alphas,” displacing office jocks.

3. SF Hotel “Heist” — Anatomy of a Cycle-Defining Distressed Deal (09:46-23:59)

What Happened: The Players, The Opportunity

• A near-3,000 key portfolio—10% of downtown SF hotel capacity, including properties once valued at $1.6B—was bought for just $408M (about $135k/key) by NewBond (ex-Highgate/Starwood, led by the Kimji Brothers and Louis Stervino), backed by Conversant Capital (Mike Simonovsky).
• “These are hotels that need a lot of love. Right. This is downtown SF. It's like a woebegone situation for the last few years. It's gonna be quite a job.” — A (13:59)

How the Deal Got Done: War Stories & Insider Tactics

• The deal “floated” for a year with few true bidders—the risk and capital needs were so massive only a handful of contrarians stepped up.
  • “Everyone wants to be a contrarian, until it's time to do contrarian shit. This is what it takes.” — B (24:09)
• Court-appointed receiver Michelle Russo’s God complex, bondholder fatigue, and fee structure quirks stretched the process (11:21-12:23).
• “Receivers get paid a monthly fee. 32k a month. It's like Dickens getting paid by the word, which is why everything was so fucking long.” — B (12:14)
• Operational know-how was key: “You gotta speak hotels, you gotta really speak hotels… you gotta know how to run them, deal with the brand, handle the renovations, which is a huge problem. 3000 keys.” — B (13:47)

Deal Economics & Structure

• $408M price was actually a deeply restructured debt assumption at a low (sub-4%) fixed rate, with an additional $225M equity for renovations.
• “You could spend [$135k/key] on renovation alone. But the structure gives them a three-year runway to execute.” — A/B (17:04, 18:02)

Who Got Paid & “Hope Note” Mechanics

• Receiver, brokers, and special servicer all took smaller fees (since bondholders were deeply underwater), but everyone “ate.”
  • “When a deal closes, everybody eats. And everybody ate. So Russo got... over 400k, Eastdil got $1.25M... not huge, but it’s not a party.” — B (21:02).
• Bondholders accepted a “hope note”—25% of future profits above an (estimated) 15-20% hurdle, in exchange for not forcing a fire sale.
  • “You're not going to get recouped all the way... but you'll get more than nothing. If this thing works, it could work real big.” — B (22:34)
• Civic leadership (Mayor Lurie) closely involved, with huge stakes for the city’s recovery, union jobs, and the future viability of SF conventions and tourism.

Notable Quotes & Moments

• “One way to make sure you bottom tick is tie it up and then have it be out there for like 10 months.” — B on their patience (10:40)
• “If you had all the money in the world, you could not rebuild these two hotels today. It would be too expensive.” — A (16:12)

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Notable Quotes & Memorable Banter

• “What impresses me about people like this [Stern & Gehry] is they just fucking keep going.” — A (24:29)
• “We're in the moving business, not the storage business.” — B (27:44)
• “Everyone thought it was the W... It was not. It was like the Sheraton Cincinnati that did like 40 million of EBITDA a year. That's what made the whole company.” — B (16:23)
• “All these firms end up playing hot potato... it’s the end result of all the AUM gobbling.” — B (06:59)
• “How many Villanova baseball players does it take to sell an industrial portfolio?” — B, poking fun at the new pecking order (09:34)
• “Receivers get paid a monthly fee. 32k a month... It’s like Dickens getting paid by the word.” — B (12:14)
• “Everyone wants to be a contrarian till it’s time to do contrarian shit. This is what it takes.” — B (24:09)
• “This is Ramsa, this is Gary. That was the permission structure.” — B (31:58)

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Timestamps for Key Segments

• 00:03 — Opening starchitect jokes & legacy of Stern/Gehry
• 02:04 — Deep dive: EQT’s industrial playbook, Artemis mega-deal
• 09:46 — SF hotel distress deal introduction
• 11:12 — Origins of receivership drama, fee structures
• 12:54 — NewBond’s hotel acquisition play & partners
• 13:59 — Why this deal was a “suicide mission” for most
• 17:04 — Price per key & “unthinkable” economics
• 19:23 — Cast of characters: buyers, lenders, bondholders
• 21:02 — Who got paid in the deal (fee details)
• 22:22 — Structure of hope note and profit split with bondholders
• 24:19 — Return to starchitects: impact, profit mechanics, permission structures
• 32:12 — Episode wrap-up and sign-off

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Final Takeaways

The episode closes on the defiant optimism and grit required to survive and thrive in turbulent CRE markets—whether that means backing an unfashionable city, structuring the “impossible” deal, or betting billions on “boring” industrial warehouses. And, in the backdrop, the enduring power—and pitfalls—of branding, whether through architectural legends or asset management scale.

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For exclusive intel and more insider stories, visit thepromote.com

Transcript

[A]

When you wish upon a starchitect, sometimes you get the pro forma busting limestone Jesus of Robert Amstern.

[B]

Sometimes you get the Is this actually the ugliest building in the world or is it a masterpiece? Working your butt off to make a 1.2x over a decade of Frank Gehry.

[A]

And sometimes you get a trash can.

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

[B]

And I'm Will Krasny.

[A]

Great, great job with the mailbag episode, dude. I really enjoyed it. It got terrific feedback.

[B]

Thank you. I appreciate you letting me do it.

[A]

It was risky, but it was a risk.

[B]

Word taking the danger makes you feel alive.

[A]

One listener wrote in with a dagger to my heart. He said the following dream scenario to just have Will.

[B]

Yeah, the guy's name was Kill Razni.

[A]

This week we look back at the skyline shaping impact of two starchitects, Bob Stern and Frank Gehry, who've just left us for the great beyond. We dive into the industrial deal of the year. EQT's 9 million square foot sale to AUM Gobbler Artemis. And we have a TikTok of an Ocean's 11 of a hotel megadeal in SF. I've been wanting to talk about the latter for a long time, so I'm so glad it came together.

[B]

If you haven't already, check out the Promote Insider, our premium tier with exclusive intel at thepromote.com/upgrade. Annual memberships are $275 or you can do month to month for 30 bucks. That is more for those who aren't good at math.

[A]

Prominent lender reached out big promote guy after the Starwood mid market piece came out. The one we're talking about them floundering in the mid market. And I thought he wanted more intel. Turns out he just wanted a discount.

[B]

He actually bought someone else's sub in the market at 90 cents on the dollar.

[A]

He's a good steward of capital. Give him that. I gave him a discount. I also created one for podcast listeners as well for good measure, so you can find it in the show notes. All right, let's get started. Eqt, EQT Real estate. What's going on there?

[B]

It was Exeter Property Group, founded by the luminary Ward Fitzgerald. Ward founded Exeter. They had a series of funds very well known for industrial. And then before succession stole the plot line, the Swedes came and bought them. So eqt, the Swedish private equity Firm.

[A]

It's like a giant, giant asset manager in Sweden. Right.

[B]

I think backed by the Wallenberg family. When you see Tenant at that first opera where all the people are like, the Wallenbergs were there that level, huh? Yeah, pretty much. They gobbled up Exeter in one of the earlier aom gobbling themes and they've become probably the most prominent industrial buyer in the country.

[A]

In 2024 they did about $7 billion worth of buys. So that's got tens of millions of square feet of industrial. That arm is led by a guy called Henry Steinberg.

[B]

Full disclosure, I have sold a building to eqt. They overpaid. I did great. But they did all major food groups but really were known for industrial. And recently they actually got rid of their entire multi family group.

[A]

Yeah, they basically pruned down. We've been talking a lot about how multi family is kind of dead in the middle. If you're small and nimble, you might be able to do something. If you're one of the giant, giant, the cortlands of the world, the EQRs of the world, you can make something happen. But all the funds that are kind of stuck in the middle have had a lot of trouble and they've either kind of been out of the promote, as you said, or tried to sell themselves to other people. So EQT with multifamily, that's what happened here, right? They just said no mas.

[B]

Yeah, we're not going to do it. We've had a lot of success with industrial and industrial really has become the replacement office. And by that I mean it's where you could buy a bond like yield with good credit with long duration and you could write a huge equity check into it. So that used to be the Alabama Teachers buys an office building. Now it's Alabama teachers buys a 8.

[A]

Million square foot FedEx leased portfolio somewhere or the other.

[B]

Exactly.

[A]

I think it's important to talk about the financing environment for industrial writing. There's been richer and richer sources of financing available for these megadeals. The CMBS market obviously. But EQT's also tapped the lifeco market. Lifeco lending New York Life did one of their big financing deals recently. So there's a flood of capital that is willing to fund these kind of.

[B]

Bets for the type of deals that EQT is buying. Predominantly class A new construction, like this portfolio they sold to Artemis is super clean, really high quality stuff. Those are stuff you can pay up for and then get really low leverage paper that actually like makes your deal work even at a tighter spread. So the life co or the lender can say, we're super protected here.

[A]

Yeah.

[B]

And then you can sort of jerry rig a low teens IRR without a ton of squinting. You buy at a five and a half cap, finance at 50% LTV at five and a half. So you're making a little bit of cash flow. So call it like a six, cash on cash. You get annual escalations in that lease. You sell the mark to market story to somebody else. You sell it at a 5 cap and they go take the upside and you jerry rigged yourself an 11 IRR with low risk.

[A]

When we talk about EQT, we talk about this mega acquisition here, this mega acquisition there. But in this case, which is turning out to be the largest industrial deal of 2025, they're selling. They're selling something massive. Close to 9 million square foot portfolio, 25 assets to our boys at Artemis. Or I should say our girls at Artemis. Debbie Harmon. Yeah.

[B]

The artist formerly known as Artemis.

[A]

Who are shout out to Doug Harmon, who's getting honored tonight at the New York film something so good. Shout Doug.

[B]

Good job by you. This is really interesting too, because Artemis has sort of been in no man's land. They've got an opportunity fund, they've got a core fund founded by Penny Pritzker. And this is a big swing for them. I think their core fund's like a billion, billion two, something like that. This is a massive transaction for them. So good on them. But now that they've got the backing.

[A]

Of bearings, there's some new firepower here. Right?

[B]

Right. For sure. And you know, I think what's also interesting too is we talk about Aum gobbling. But you know what happens the next day after you have a couple coffees? Like, where does that Aum go? It's gotta go somewhere.

[A]

What happened with Artemis is kind of the broader trend that we've been obsessed with. Maybe call it the last six, eight months. Which is something I think Fortress's co CEO Drew McKnight, he put it probably best. He said the following. For us to compete with larger firms like ares, Apollo and 6th street, we need to continue to grow assets, because if we don't, we'll be less relevant 100%. I just find it funny, a world in which Fortress feels insignificant or irrelevant.

[B]

You gotta be the Sandy wild dream of the supermarket of the financial services industry. You either need to be that or you need to be like, we do this one thing, we're the best in the world at it. We make A ton of promote and all of our principals have houses on the water in Naples. The dream is always the same.

What happens is that all these firms end up having to play hot potato. You buy this huge portfolio you collect over a couple of years, you sell it to another private equity firm that then sells it to another private equity firm. This is the same thing that's been happening with continuation funds. So it's the end result of all the aum gobbling and folks at the smaller end who are like we're going to consolidate and put this thing together. We're going to sell it to the mid market firm, the mid market firm's going to consolidate at that scale, sell it to the mega fund. The mega fund is going to consolidate itself to get it financed by Athene. And we're all.

[A]

It's not really about the assets or the operation or anything at this point, right? It's no, it's not at all. I mean it's a thing that's big enough to pass on to the next thing.

[B]

You create it and make it big enough to gobble and then put together to get to the next guy. You may say eqt. Wow, they must have a view in the industrial market. They don't. They just bought a 2 million square foot portfolio from Hillwood. Literally within three weeks of announcing this, they bought a quarter of it back. I mean not the same portfolio but like the same amount.

[A]

Hillwood is my guys from. Is it the Perot family?

[B]

Hillwood is Perot. Correct. And one of the deals like I know in my backyard of where I look for stuff in York, Pennsylvania, Hillwood bought it from Core 5 in January of last year for a buck 31 a foot. And then these guys paid like high 150s a foot. And wow, guess what changed in that intervening period.

[A]

Not too much, not a lot.

[B]

As we said, Artemis making a big swing here. Like some of these firms may get turbocharged. These are the firms that may end up really growing because if you can find that financial sponsor behind you to bring that backstop and help you with distribution, help you to get to retail clients and really grow your am there. Like that's really interesting. Like Artemis I don't think does this deal a year ago for sure. The equity check is basically the size of their fund. This is what Barings bought Artemis to do buy this type of stuff. And good on them for stepping up because I guarantee you this was really hotly contested. Like they were bidding I'm sure against everybody you can think of. And for them to come out on top. Because these processes at the end, as one of our listeners in D.C. will tell you, you have to really sell yourself to buy one of these portfolios. It's a dance, it's a whole show. Not the type of thing I think the Artemis would have done had they not had the Brits behind them.

[A]

I have a very hit end question for you. Given the rise in industrial and the kind of the primacy of industrial now in the real estate asset class wars, have the vibes of the brokers in that class changed? Because office brokers, investment sales, office brokers were kind of the cock of the walk for the longest time. And now I feel like these industrial guys are cleaning up. Are they now the. The alphas of the. The brokers?

[B]

How many Villanova baseball players does it take to sell an industrial portfolio?

[A]

All right, baby, we're talking hotels. This is my baby. I love this one. I really enjoyed putting this together.

[B]

All right, let's go ahead and cook.

[A]

So we've talked earlier a few few months ago about new bond stepping into what is going to be to me, a defining hotel deal of the cycle. They are buying along with Mike Simonowski's Conversant Capital. Full disclosure, Will and Mike have worked together on a deal. Hey, Mike. But they're buying nearly 3,000 keys in the heart of SF in downtown SF. And so in one fell swoop, they're basically going to take control of Masameno's 10% of the city's hotel stock at a time when SF is kind of coming back. And fascinating deal. It just closed for 408 million. And I thought it'd be really fun to kind of do a little bit of a postmortem because it's, it says so much about how to navigate distress, how to work the buyers, how to work the brokers, how to work things like receivers and stuff. I'm excited to get into it.

[B]

I think this is going to be one of the defining transactions of this cycle. Because you say it's hard to bottom tick and it is hard to bottom tick, but one way to make sure you bottom tick is tie it up and then have it be out there for like 10 months.

[A]

Basically float for a year. Yeah, pretty much a year.

[B]

That's a good way to help you bottom tick it.

[A]

There's some incredible reasons why this kind of dragged out for a bit. And we'll get into all of them. June 2023. Our guy, Thomas J. Baltimore Jr. CEO of Park Hotels, which is a Hilton Reed spinoff Basically says he's done paying the CMBS debt.

[B]

If you're looking for action, he'll furnish a spot. That is a Nathan Detroit joke because I contain multitudes. If you're looking for action, you'll furnish the spot.

[A]

Summer 2023, they basically say they're going to stop paying this loan. Wilmington Trust sues to place the hotels in receivership. In comes Michelle Russo, who's a character. I don't think we've talked much about court appointed receivers and the kind of the weird role they play in the CR universe. How much do you know about them?

[B]

It's sort of like when Griffin Dunn shows up in succession and he's like trying to mediate. He's like, all the kids are afraid of you, Logan. He's like, everything I've done, I've done for my children. And then he does a front flip and breaks his face. That's kind of what happens.

[A]

I love that. One insider in this deal basically told me that Russo had a bit of a God complex. You ask me if I have a God complex. Let me tell you something.

[B]

I am God.

[A]

It's interesting. Bondholders who are suffering already and like just want this drama and nightmare to be over, want to get paid back as soon as possible. However, the way that receivers are compensated, the incentives kind of don't mesh because.

[B]

They get paid a monthly fee, oh, 32k a month. It's a pretty good gig. It's like Dickens getting paid by the word, which is why everything was so fucking long.

[A]

It's not like it's daily action. Right? Something happens, then it's like a three months out. You're collecting 96k there. A year after Baltimore's announcement, East Hill comes in and a guy called Louis Stervino is running point on this deal. We've talked in a previous episode about new bond. They're alum of the Highgate Hotels brand, the Kimji Brothers and really kind of deep hotel shops. And they see this thing and they say, all right, this is the one for us. We're going to make a move. They set up shop in 2021. They've bought a bunch of hotels already. They manage a bunch more. But this was like this was the move.

[B]

They'd owned this before, I think Park.

[A]

55 they had owned and then.

[B]

Right, sorry, you're correct.

[A]

Blackstone came in, took majority control of this when it fell into distress. And then they went and sold it to Hilton and that's how it kind of ended up in Park's hats.

[B]

They've also got juice with Hilton. They co own the Hilton Times Square with Apollo.

[A]

Why does this matter? I mean, it's good to kind of know everyone in the room. Because in the hotel industry it's quite small. It's kind of the same rotating cast of characters happening year after year. Right? It's, and I guess Luthra and Van kind of knew everyone in this space. They know the right people at Hilton, they have a good relationship there. They can position themselves as kind of the smoothest process here.

[B]

More importantly, these are massive hotels. These are huge companies.

[A]

3,000 keys, you're buying like a big.

[B]

Company because a hotel is an operating business with real estate tangentially involved. And you can't just hire some guy who's like, I plugged it into a spreadsheet.

[A]

You got to speak hotels, you gotta really speak hotels.

[B]

You gotta know how to run em, you gotta know how to deal with the brand. Cause there's gonna be massive pips here. You have to know how to handle the renovations, which is a huge problem. 3000 keys.

[A]

These are hotels that need a lot of love. Right. This is downtown sf. It's like a woebegone situation for the last few years. It's gonna be quite a job.

[B]

It's gonna be a massive job. And this is also a huge thing for the city of San Francisco. And you know, you don't wanna be seen as selling this to somebody who's gonna come in and make it even worse.

[A]

Create a rat trap or anything like that. Exactly. Financially, these hotels were in bad shape. So just to put some numbers on this, in 2016, when they got the aforementioned 700 million plus CMBS, the hotels were collectively appraised at $1.6 billion. When this kind of went into play sometime last year, they were appraised at just over a half a billion dollars. So that's a 1 billion plus dollar.

[B]

Drop in appraised value that signals opportunity. But again, this is not something that comes for free. Even at this haircut, you're really stepping into like quite a lot of liability. You've got to bring quite a bit of capital. And it's not even a problem you can just solve with capital. So there's only a handful of groups that could have done this. And man, their timing couldn't have been better.

[A]

The timing has worked out great. Or let's see, let's see how it goes. So typically new bond structures, their things is like they're minority partners, they have between 5 and 10% of the deals they need to bring in a pretty deep pocketed partner to make this happen. In this case, they found your boy Mike Simonovsky.

[B]

I think they went back to like the high gay days.

[A]

Senator. Senator days, yeah, yeah.

[B]

And Senator. And you know, Mike, not speaking out of school here, he is very, very good at structure. And any transaction with Hare where you can structure a solution like that's right in his wheelhouse. And that's what they did here very, very, very well.

[A]

And I had spoken to some insiders and they basically said the thesis was twofold. One, it's a contrarian bet on San Francisco. Everyone's still running away from SF at the time. They're like, if we come in now, we can come in at bottom dollar and maybe make something happen. Plus, and I think this is the hotel thesis that was interesting, which was they don't make them like this anymore. They don't have these kind of once lavish hotels, but really, really massive hotels like this. You can kind of get them at the below replacement cost as we've talked about, but you can step in here and actually make something happen. You have to really believe in the asset. But the point is that if you had all the money in the world, you could not rebuild these two hotels. It would be too expensive.

[B]

This is like what a lot of hotel companies are built on. People talk about like, oh, look at this, like fancy boutique, the, you know, the Royalton or Cheval Blanc or whatever.

[A]

They don't make money.

[B]

They don't make money. What makes money are these like massive supertanker Bob the sales guy at a conference hotels. And that's the, that's the old secret from Starwood Hotels. Everyone thought it was the W. Everyone thought it was the Heavenly Bed or whatever Barry's juju was. It was not. It was like the Sheraton Cincinnati that did like 40 million of EBITDA a year. That's what made the whole company. And these are the types of hotels that can just absolutely shit cash if you do them right. And this is like an unfathomable price from when like I got into the hotel business.

[A]

Let's put some numbers on it. We're talking about $408 million, which is roughly $135,000 a paid.

[B]

You could spend that renovation.

[A]

So it was a 408 million is what they agreed to pay. But it wasn't exactly. It wasn't like they had to hand that over. Basically, they were able to assume that debt, the $725 million debt was smushed down to 408, which they took over on a five year term at a sub 4% debt. Pretty good. Pretty good deal.

[B]

Very, very good deal.

[A]

How the hell they convinced them to do that, I don't know. Rob Verone was involved, so that helps.

[B]

Rob Veron, the legend. Good for him. One of these things is like, first of all, how are these financeable? Because if you're in the market for money losing hotels right now, the debt's not amazing. So when we talked about structure as alpha, the operations, the renovation plan, the business plan, that's all new bond, this structure that's all conversant and really it's like what backstops the deal because it gives you enough time and enough Runway to go out there and execute. Because this is not something that's going to turn around tomorrow.

[A]

It's a three year renovation plan that they have in place.

[B]

Probably ends up taking longer. But you basically have the Runway to do that because you've got, you've chopped the debt in half and it's at 4%. This is probably 300 basis points wider.

[A]

You have quite a bit of leverage over the bondholders. Right. It's like there's not too many buyers for this kind of thing. They're going to take on what could be a suicide mission for a lot of buyers. And you're like, you know what, if you want all this to happen and you want to get paid at least something, you got to work with us.

[B]

Totally. There's like six people who would do this, really take on something like this. And it's really hard to do as part of a fund because it's a pretty big check, it's a pretty big bet. And if you have a $2 billion fund, you're going to put 10% into this cross that promote and if it doesn't work, the whole fund's fucked. Probably not.

[A]

The equity check needed here was 225 million, let's call it so 408 million is a debt assumption. And then they're putting in an additional 225to clean this thing up. Well.

[B]

And from a timing perspective though, that comes in over however long. So it's really accretive to the irr.

[A]

And you could go and further lever that too. Right at that.

[B]

For sure. That all doesn't have to be equity either because your last dollar basis here is so good. I mean you bought these for 130, a key that I'm sure you can go find. Even if you go get high octane.

[A]

Mez, as you might see.

[B]

Yeah, a mez at like 15. It blends your average debt to like 5, 7.

[A]

There's a potential of a really good return.

Let's talk a little bit about the charact, the room here, because I think that is what sets a distressed megadeal apart from a standard acquisition. Right? So you had the hotel buyer, new bond. You had the equity partner, Conversant Capital. You had the kind of the Mr. Wolf of the cap stack, Rob Verone. I'm Winston Wolf. I solve problems. You had his lieutenant, who's also super. Interesting job. Warshaw was the head of special servicing at L and R, and so he's got that side of the table covered as well.

[B]

I bought a hotel from L and R when I was at Starwood and totally arm's length.

[A]

So you've got all those people, you've got the receiver, you've got Easto, and then you've got the bondholders. And I think that's a really important relationship that not too many people think about.

So check this out. Initial special servicer was Wells Fargo. Okay. Wells Fargo and AAA bondholder Pimco had some beef on another deal. Unrelated deal. Wells Fargo is basically Trimont interchangeable. Right. Pimco took issue with Wells Fargo being in the mix here and successfully lobbied to have them kicked out for KeyBank. True story.

[B]

Big win for the boys from Ohio.

[A]

The boys from Kansas City.

[B]

Kansas City.

[A]

These guys came in from Kansas City.

[B]

Okay.

[A]

So that's just another dynamic to the whole thing. Wells was in there, new bond, and Conversant had a deal going once the special servicer was replaced. You kind of lose a bunch of months again. And Michel Russo gets paid for another.

[B]

Few months before next big hotel. I will do it for 28k a month. Save you some money.

[A]

I was quite stunned by the fee structure here. You want to talk through it?

[B]

They're saying that when a deal closes, everybody eats. And everybody ate. So Russo got a year and a half of receivership fees. You got like 400 plus K pretty good. East still got a million. 1.25 million for selling this. That seems a little low to me. If anything, I feel like that was.

[A]

A little tiny for a $500 million deal. Basically. Someone explained it to me. It's like, you're not coming here from a position of it's not a party. Right. It's like, no, the bondholders are bleeding money, so the fees aren't going to be celebratory as such.

[B]

Yeah. And this is one where it's definitely like, yeah, we're going to get yelled at a lot.

[A]

And then Varrone's team at Ironhound, I think they got a sign on fee and then a success fee.

[B]

I'm sure they did. They did well also, one of the.

[A]

Things that was really interesting here is that we got some details on the structure of the equity and the payouts and stuff. Let's talk about that because I think that's a rare thing that you're normally only going to find on the promote insider.

[B]

You asked how can you get the bondholders to get crammed down like that? And part of it is like they got a hope note here and basically instead of just like giving the keys back and going away, they give the keys back. And if these guys are able to execute, which they, if they do, it's in no small part to this very advantageous debt that they have assumed the bondholders get a portion of the upside. So I think it was 25% of the profits over some sort of hurdle. I don't know if you had the.

[A]

Exact numbers, but 15 or 20% hurdle rate, let's just assume. So anything above that, the profits are split 75, 25 for the buyers and 25 for the bondholders. You're not going to get recouped all the way.

[B]

No, not getting recouped all the way, but you'll get more than more than nothing. They don't give away 20 rrs. But like if this thing works, it could work real big.

[A]

Just to talk about the kind of the gravity of this deal, these are union ash hotels. Big stakes involved for everyone. Mayor Lurie, who we've talked about a bit here, who kind of understands that real estate wins are overall wins and very visible wins for the city. He was in the mix here for a hot second. I think he met with the buyer group as well.

[B]

This is a massive thing for San Francisco and if this goes to the wrong guy, look at what happened in Baltimore. Like Ashkenazi, he bought on the Inner harbor. He bought Harbor Place and completely ruined that. And it can just be a huge black eye for the entire city. So yeah, of course this is going to be civic minded because this is also going to impact your ability to get conventions. These hotels are dog shit. Yeah, those aren't going to come and that hurts everyone because that's just tons of economic activity. As we've talked about in San Francisco before, there are hotels that like make their nut in Dreamforce. So if Dreamforce goes to Vegas because Marc Benioff says mahalo, then that's not great.

[A]

Think about One of the other massive tailwinds for sf, which is the AI Boom, right? I can imagine Anthropic throwing their conference here or OpenAI or something like that, right? You have Dreamforce, but you're also going to have a whole new ecosystem of companies and the resulting conferences and all the activity from that.

[B]

Speaking of AI, I remember the first time I ever saw a robot was at the Shashi Hotel. Guys. They had a room service robot. It was very cool.

[A]

Glass, ice, gin, tonic, New Bond and Simonovsky, if you're listening, please put in some robots for us. Final takeaways.

[B]

Everyone wants to be a contrarian until it's time to do contrarian shit. This is what it takes.

The world of commercial real estate development got a little uglier last week. RIP to two of the greats, Robert a.m. stern and Frank Gehry.

[A]

It's sad, but it's also a pretty glorious life and career. 86 for Bob Stern, 96 for Frank Gehry. And these guys, they were working till the very end. What impresses me about people like this is they just fucking keep going.

[B]

It's in your blood.

[A]

Frank Gehry, till the very, very end, was designing LVMH Overlord's Louis Vuitton store. Beverly Hills, Rodeo Drive.

[B]

What a way to go.

[A]

We wanted to talk about these guys for a couple reasons. I mean, their impact on the skyline and the business is immeasurable. But also I think it's a good time and a good excuse to kind of talk about the concept of starchitects. What they do for a building, what they don't do for a building, and what a developer might hope they do for a building. So let's maybe start with Bob Stern, designer of 15 Central Park West. I think it's the quintessential luxury condo of the 21st century.

[B]

It's one of those things where you can say everything is like before or after. It's a real line of demarcation. The thing about Bob Stern, I've been in these meetings in developers like I've never met an architect that a developer likes really. Or I should say that a GC.

[A]

Likes a necessary evil that they have to tolerate and work around and cram down their vision to as much as they can, right?

[B]

But I gotta say, Bob Stern was known for being one of those guys. It's like betting against James Cameron, an avatar, Fire and ash. You can't do it because they're going to sell out. It's going to beat pro forma. You're going to knock sales per foot out of the park.

[A]

What I like is he reveals something about human nature. People think they want daring, People think they want experimental, but what they really want is familiar. Yeah. And that's what he did. I mean, look at 220 Central Park South. Cleared a billion dollars in profits. I think the most profitable condo by just raw dollar volume of all time. Right after that, he did 520. And the buildings are so fucking similar that I remember that PR people would have to tell us, hey, look at this view of the park, as opposed to this view of the park, because they're basically the same building.

[B]

Yeah. And he did a bunch of the same for Mickey Naftali on the Upper east side. And they all sold.

[A]

Yeah, they all sold. And I think Ramsa is doing Naftali's latest bet as well.

[B]

Right.

[A]

805Th that we've talked about.

[B]

They are, but yeah, it's exactly right. I feel like I'm going to get into Don Draper.

[A]

This device isn't a spaceship. It's a time machine.

[B]

How do they work out, though? It's not always Sunshine, Rainbows, and 3Xs.

[A]

And it's often very cost overrunning. It's often pretty controversial. Some of these starchitects, because they have a bigger name then the actual developer, can come with a lot of drama, can come with a lot of demands. Let's say Jean Nouvelle. I mean.

The guy's a bit tough.

[B]

One of the things that some of these architects forget is that people actually have to live in the building.

[A]

Yeah.

[B]

So that can be a problem when you have this very cantilevered, beautiful thing that the toilet's not near the bedroom.

[A]

That's a problem.

[B]

You're not developing for people looking for the outside. You're developing for the guy whose nanny is. Well, really the nanny who's, like, raising the kids, but.

The guy with the kids running around, he's like, oh, my God, they threw applesauce on the wall again.

[A]

Bob Stern understood that he's one of the rarest architects who both was able to write, publishes Yale School of Architecture retrospectives or whatever, but also understood that you got to sell, you got to sell product. At the end of the day, we're.

[B]

In the moving business, not the storage business. And, yeah, he got that. But, you know, Raphael Venulli, the aforementioned trash can from the top. One of my favorite things of all time.

[A]

432 Park Avenue.

I think we're being a little unfair to our Uruguayan maestro here. I think over here, Harry Michael has to take at least a little bit of the blame because that pure building that he wanted turned into like the scene of some pretty dirty infighting.

[B]

But people use. It's not just residential. It was also an office. People use the architect's to really draw rents. I mean, that was Abe Rosen.

[A]

Jesus Christ, I'm gonna kick you off the spot.

[B]

That was A.B. rosen's real insight on office buildings is that people will pay up for well designed office space and putting in artwork. Skidmore, Owings and Merrill, David Childs, these were knowable guys. Norman Foster at JP Morgan were their headquarters as well.

[A]

Mies van der Rohe at Seagram. There's all like, these names mean something, right?

[B]

All those names mean something. And they can mean more or less, depending on where these are. My favorite example of this is like Falling Water. Frank Lloyd Wright, maybe the most famous house in America is unlivable.

[A]

Yeah.

[B]

Like literally uninhabitable, I think is kind of like emblematic of the entire thing.

[A]

Why I'm so fascinated with starchitects, even though I'm not really a design junkie, it kind of jives with my kind of unified theory of the ultra luxury market, where I've always believed that the ultra luxury market is kind of independent of the local market right below it. So 15 Central Park West, 220 Central Park south, et cetera, are competing with other IT buildings in Miami, in Dubai, in London, et cetera. And you kind of need some sort of binding element for all of these. And that's where a starchitect comes in. A starchitect is a binding element for the ultra luxury market.

[B]

Go listen to his episode of Hiten's episode of Odd Lots about this.

[A]

It's a lot of fun. But Shore Club in Miami beach, which I believe is a Witkoff project, it's a Ramsa building, and they have at least one unit that's in contract for $11,000 a foot.

[B]

Bonkers.

[A]

$11,000 a foot. Those are like absolute peak, peak, peak Manhattan prices. Coincidentally, Naftali is going for that as his blended sellout at 805th, which is insane. But yeah, you might do it.

[B]

These are buildings that people know who the architect is just from where they. Like the Guggenheim Bilbao. It's literally a plot point in Pluribus recently. That's famously Frank Gehry Beekman Tower, Eight Spruce. It wasn't even called eight Spruce for a while.

[A]

It was called New York by Gary.

[B]

New York by Gary. Yeah.

[A]

Now that we're talk, the great man Frank. I think that's a good contrast to draw with Robert a.m. stern. I mean, Frank Gehry also designed the master plan for Pacific park which was then severely whittled down. Right. And it says like one of them was a developer's architect and one of them was an artist. And which one do you really want at the end designing your buildings? It's tough.

[B]

I do like low slung industrial, so just tell you my preference.

[A]

I think men like Bob Stern and Frank Gehry, one of the things they did was kind of bring architecture into the forefront in the real estate game. If you want to be a serious developer now of residential product, high end residential product or even, you know, top shelf office, you gotta have to appreciate architecture very publicly. You've got to have these like salons in your, in your buildings and talk about architecture and pretend to be a connoisseur. There's a movement now and I think men like these are very responsible for it.

[B]

It's like the pool in the rental apartment. You have to have it for the tour, but like no one ever uses it.

[A]

Think about how, how mobile buyers are now, right? Like if Michael Dell's buying in Manhattan, is also buying in Miami, is also buying maybe in Tucson or wherever. You kind of have something that binds all these things together.

[B]

You talked about the need for something familiar, but also like people don't want to be sold. They love to shop, but they don't want to be sold. As Ryan Sirhan would say, this gives you permission, like so much of this, whether it's waiting for Brookfield to buy something so you can buy something similar.

[A]

Yes. Air cover. Blackstone talked about that with the.

[B]

It's a permission structure.

[A]

Yeah, yeah.

[B]

And if you're a residential developer, if you were in maybe not quite the neighborhood you wanted to be, not quite the location.

[A]

Zeky Zek at Clarkson.

[B]

Yeah. If you're doing something a little bit off like the way one of the ways to give people permission to buy there was. This is Ramsa, this is Gary.

[A]

Yes.

[B]

That was the permission structure. Like that made it an institutional asset like Frank Gehry did. A rental building. That's all you really needed to know.

[A]

That's it for the promote podcast this week. Two legends of the skyline. Head on up. An industrial aum gobbling giant sells a hefty chunk to a kindred spirit and a career defining hospitality deal comes together in sf. We'll be back next week with more CRE Insider goodness.

[B]

Go ahead and start your free trial of the premium tier at the promote time.

We'Ll give you a 10 discount code in the show notes for our psycho army. These are a great holiday gift, so get to it.

[A]

Yeah, we didn't get the hoodies in time, so this is going to be, you know, have to do for. Because I love you so much. I did try to make a psycho discount code, but the tech isn't quite there yet.

[B]

The tech now.

[A]

The tech. I swear I'll have it by. By Q1, but for now you can just go to the link in the show notes for a 10 discount to premium and also brands. We'[e-mail] we have some pretty, pretty exciting things coming up in Q1, so reach.

[B]

Out and if I can ever figure out how to actually set up my green screen, we'll have a video.

[A]

Yeah. Next week we'll be on.

[B]

We'll have another treat for you next week in the form of a guest. Our first in a bit, so stay tuned for that. That'll be fun.

[A]

He's such a character. I love these guys. Like massive chips on their shoulder and just keep going. I'm drawn to people like that.

[B]

He is a very compelling character.

[A]

Sure.

[B]

Hopefully they say the same about us.

[A]

I bet they do. All right, man, I'll see you next week.

[B]

Bye.

[A]

Ciao.