← The Promote Podcast
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A
Flippy neck.
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We've got chandeliers. That's posh.
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Exclusively for us over 45s.
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It's a pitch that apparently works on both British geezers and American private credit machers.
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Now more than ever, we know life's not a rehearsal. Welcome back to the Promote podcast, your insider guide to the money and mania of the CRE markets. I'm Hitan Samtani.
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And I'm Will Krasny.
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Let's start out by shouting out our lovely sponsors who make this all possible. Bravo Capital. They are a leading Huddenbridge lender that
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lives and breeds capstacks and loan boss, the best in class CRE debt management software.
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This week we load up on our chips and vinegar and take you with us on an extraordinary journey into British caravan country. It's a yarn that brings together gypsies, we're not kidding. Norwegian beauty queens. We're not kidding. And New York financiers. Dags podcast. Yeah. And yes, it is very much a CRE story. Next, we slip into Dolce and Gabbana and ride to the branded condo epicenter of Miami, where JDS's Michael Stern is prepping a rescue recap of his latest development. Stern is a first draft pick for Real Estate Pirate. And we get into the backstory. And finally, a strong example of returns not mattering in institutional cre. Naveen has disclosed a string of meaty losses on its investing bets.
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B
But before we get into all that, let's get started with the punch list. Our signature rundown of the newsiest news and cre.
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A
This week's punch list is brought to you by Real Property Captive, the first group captive insurance for mid market owners. You can check them out@rpcaptive.com to tap it in the same playbook used by the biggest institutional players. That's rpcaptive.com okay, let's go. We got to start with Monty Bennett because look, we've seen a lot of enrichment schemes in real estate. This is up there.
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B
This is one of the greatest. And frankly, I'm kind of on Moni's side here because you know what?
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A
Contracts matter. As you said before, contracts matter.
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B
If you don't like it, don't buy the stock. And if you thought it was so egregious, why'd you sign the external management agreement, right?
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A
Braemar Hotels and Resorts. It's a REIT that owns a collection of luxury hotels. It was spun off from Bennett's other company, Ashford. And together these companies have had an absolutely torrid time. But they have paid Monty Bennett $1.9 billion in asset management fees, which is astonishing. Now they've decided, hey, this is probably not tenable. So they are going their own way.
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B
It's in, it's in. But surely there are hundreds of billions of assets here. 1.9 billion. I mean my gosh, if you have 200 billion of assets, I think that's a, that's a bargain.
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A
That's a no brainer, right? We're a market cap here slightly, slightly lower than that. We're talking about a market cap of $170 million. And to go their own way, Braemar has to pay a breakup fee of $480 million. So they're going to have to sell a bunch of hotels to actually just pay this guy to go away.
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B
Is he going to get seller financing on the asset management fees? Like this is the craziest thing I've ever seen.
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A
How do we get to a point where the breakup fee can be multiples of the market cap of the company? Now the market cap of the company has dropped 90 odd percent. Maybe that's part of it.
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B
Yes, it is. The kings of this is the port noise of the RMR complex fame. It used to be more prevalent. It's something shareholders really get mad about. You have an external management contract with a company that's generally affiliated with the guy who runs the reit. So for instance, Starwood Property Trust has an external manager. It is Starwood Capital Group.
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A
Sure.
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B
So Monte Bennett has an entity that is the external manager of his REITs, which. Okay, sure. That doesn't seem egregious, right? You make a point or two. It's the same as private equity. They're managing someone else's assets. It's all the incorrect. Those fees don't create alignment at all. A lot of them are calculated just on nav, not on shareholder returns.
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A
Anything could happen to the stock and you got to pay the piper first.
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B
As long as your NAV goes up, does not matter. And what do you think people are going to do if they're only graded on nav? They're going to issue a ton of stock and they're trying to buy a bunch of garbage and just grow. And that leads to then owning a bunch of garbage assets and poor performance and egregious fees.
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Monty Bennett, he's basically saying let the meat cake. He said shareholders who acquired shares did so with full knowledge of their structure and the terms.
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B
That's what I'm saying. It's gross, you shouldn't do it. But at the end of the day, he's not going to jail. One of the guiding principles of this podcast is that in real estate, you
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can do anything as long as the other guy agrees to it. Braemar's largest shareholder, Wafiq, said he described the breakup fee as, quote, one of the most brazen acts of self dealing we have ever witnessed in a public company, adding, we believe Mr. Bennett engineered this outcome himself. This is not governance. This is theft.
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B
Dressed in a suit to quote Kiki Palmer. Sorry to this man.
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A
Okay, next one Florida man, Ken Griffith. This seems inevitable that he is turning Miami into his power center.
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B
I will say this. How many NBA titles has Miami won since Ken Griffin has decided to go there?
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A
Damn. So Citadel and Citadel securities are taking about a third of that 1.7 million square foot tower in Brickell. They've also bought out the units in stealth. They've done one of those condo buyouts.
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B
Yeah, at the Solaris condo. This is his whole little campus. I expect if you work at Citadel securities, you gotta worry about getting paid in like, Confederate scrim. This is what Ken's just trying to keep you right there.
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A
I would argue that Jamie Dimon doesn't have the kind of influence in Midtown, even with his 5 million square feet that Ken Griffin's going to have in a town like Miami, which is so much smaller, where he has direct access to everyone in charge and they're basically rolling out the red carpet for him. Did you see that video of him with reliving his maybe his college days that he missed out on?
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B
It's horrifying.
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Money can't erase schlubbiness.
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B
Luann de Lesseps from Real Housewives New York really had it right when she said money can't buy a class. The owner user bid in office has gotten really big. And this is a little bit different because Ken has more money than God and people think, oh, it's the hedge fund. It's really not. It's Citadel Securities.
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A
Citadel securities is the market making firm.
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B
Yeah. It's as close to a money printing machine as has ever existed. It's indicative of what you're seeing with JP Morgan in New York and some of these other folks throughout New York, San Francisco who are buying their own office buildings because prices got depressed. They could buy land a good basis or Occupy or the delta between rents and value was so out of whack that it just made sense for Ken. I'm sure there's a huge tax arb here that's driving all this.
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A
I think There's a little more than that though. A lot of these titans of finance just want to do a little empire building. And there really is nothing like building your own building. Building your own campus.
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B
That's a very fair point.
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A
Stamp on the skyline. That really does matter. I told you last time I went to the JP Morgan building, over improvement doesn't begin to describe what it looks like. It really is like a, hey, I am a new deity of this market and this is what I've built. Okay, next one. I'm actually a little sick of talking about schemes and scabs. Hard to believe, but it's true. We couldn't pass this one up. What is going on here? This is a made for HBO special happening. And listen, let me just say, I'm from the same community as this guy we're going to talk about. You gotta hit the gym if you're planning these mega scams because those perp walks do not look good in those tight outfits.
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B
So an arbitrator. This is the largest award I think I've ever seen since like the taking of Getty Oil or Joe Jamail. By the way, we gotta put this in the show. Notes Carl Icahn talking about how he negotiated the settlement with Joe Jamail post Getty Oil.
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A
Oh, I like that. Okay, we'll do it. Yeah, I haven't seen it now.
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B
Oh my God. It's incredible.
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A
So $1.3 billion in arbitration award made to a guy called Mohammad Honarkar. He was a telecom mogul who then parlayed that fortune into a real estate portfolio. Along came a guy called Mahindra Makhijani and he convinced Anarkar to JV his portfolio. Like basically roll the properties into this JV that they had. And then Makhijani, he was arrested last week. This is now a federal complaint. But he allegedly went and took loans from banks and promised them first positions. But they were actually, they were subordinate to some other debt that was issued by his own company. So it got really messy here.
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B
I honestly almost don't understand how this scheme was set up. It's more complicated than if you just tried to make the money legally. So they got Honarkar to do this joint venture by saying, we're going to bring 30 million of equity. Yes. And they never did that. They brought 20 million of equity. And that equity came from a loan against Honarkar's own properties which he somehow didn't realize got taken out.
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A
The contribution agreement was structured thusly. They permit the conversion of the loans made by Kanner, which is a Makhi Johnny entity, into equity in the JV entities at the option of the members if the JV entities that borrow the money perform well. But if the JV entities do not perform well, then the parties can maintain the transaction as a loan and require the entities to repay Kanner in full.
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B
Read the fucking docs, man. This is ludicrous.
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A
My guys don't fuck around. In fact, when Honarkar was booted out as manager, a group of armed individuals seized the Hotel Laguna with Makhi Johnny saying, I'll put 32 fucking guards here. So things got heavy.
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Real estate's moved into the digital world. Sometimes you just got to have an old fashioned billboard. And that's the most effective form of media.
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Oh, man, it's really bad. Apparently Makhi Gianni's crew ran corruption billboards around Laguna beach featuring Honarkar, a cop, and the city manager just torching his reputation. The reason this is interesting beyond just this crazy case is that two regional banks that are very active CRE lenders were deeply involved here. So Zion's bank and Western. When Zions disclosed this fraud, a billion dollars of market cap was wiped.
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B
Right then, yeah, it was 13 something percent. It's like a little bit of the wild west here. And you've seen banks pull back. That flow of capital is really important to the development world. If that spigot gets turned off, it just means there's going to be less development sort of writ large. And right now, despite being at war and all of the other things going on in the world, spreads have been tight, market's liquid. But the thing I think is important to note is that you never know what the lit match that's going to start the fire is going to be.
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A
That's it for the punch list. When we come back, we'll be talking Mercedes Benz and Brandon Condos. Okay, I'm here with Aaron Krewitz from Bravo Capital. What are some of the elements of the business that you'd like to see come in or evolve in the next. Let's call it 12, 18 months.
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C
We're optimizing for quality. And if that's what your goal is, your first question has to be, how can I attract more quality borrowers? And of course, higher leverage, lower rate, speed of execution, scalability, those all matter. But if you ask a borrower today what do you want from your lender? They'll tell you, we want off market deals, equity. And I want to bring in teams that can do that. To not have a Shoulder shrug when your borrower needs something. Right. And to not say, oh sorry, like I can't do that. But to say, I will run through a wall for you and I'm going to find a solution.
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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
We're both fascinated by the branded condo boom in Miami. It's like an imprimatur of quality and
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B
status and class, I would say not quality explicitly, not quality.
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A
Fair, fair, fair, fair, fair. But basically when you have so much development in a market like Miami or Dubai, which is where this brand condo thing is the most prevalent, you need to distinguish yourself in some way. You need to stand out. Everyone's doing waterfront projects, everyone can get PITB format their things and you need to have some sort of way in. So the way that Miami developers and Dubai developers have done it is they've done these brand partnerships with Bugatti Cavalli, Porsche Design, with Gil Desert kind of being the pioneer of this. Yeah, Aston Martin, there's a lot of these. And one of the guys, that is our guy, Michael Stern, JDS Development Group. People from New York are probably going to know him best for a couple of projects. One is the Walker Tower which is a smashing success, which we're going to talk about. And 111 W. 57th St. The skinny skyscraper which is less of a success, which we'll also talk about. So how do you want to get into this? The reason I guess we're talking about this Will, is that Mercedes Benz tower was heading to the foreclosure deck.
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B
So Florida again is a little bit unique because you can launch sales well before the project is completed and you can use people's deposits as part of the capital stack.
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A
The pre sales is the engine for building. In fact you will often just launch a project and sales are kind of lackluster and you'll be like eh, forget it. Someone described it to us, I think it was David Hochfelder from Naftali as like an option on the land.
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B
Almost exactly. And so this one was launched with a lot of fanfare. It is almost 800 units. Supposed to be a $2 billion sellout which again kind of interesting because these are bite size prices relatively. This is not the Maybach, this is the C class. Yeah, it's little C class. Little C class. You get your high school junior and this has sort of been screwed since jump street. So Cottonwood Management, pretty big debt player. They bought one of the initial construction loans. I think it might have Even been the land loan.
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A
Yeah, I think Maxim was the initial lender.
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Yeah. On the land they refinanced the property. The other thing about all these is they all get refinanced like nine times throughout construction because given the sort of length of pre sales and everything. And so Cottonwood bought this, I think it was 86 million bucks. And then Cottonwood sued JDS saying they were in maturity default. Also during that period, this was a featured property on owning Manhattan, even though it is neither owned nor in Manhattan. So the other thing that happens with these things as well, to get the density, in a lot of cases it's not just a rezoning, it's a push and pull. You got to do something for the city, you got to do something for the neighborhood. And there were real obligations that JDS took on to get the 791 units they had to build a firehouse. I think they were supposed to contribute 8 million and they had to put in $5 million for quote unquote, public benefits for parks or what have you. Now those are not huge numbers in a billion dollar project, but it's real cash you got to spend.
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A
Yeah.
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And it's cash you got to spend early and that you can't really recoup. JDS has this lawsuit from Cottonwood saying they're maturity default. That foreclosure caused the city to notify JDS saying hey, you're in default on this public works agreement. And if you're in foreclosure, can't get more money from your lender, can't refinance, can't spend that money.
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A
Condo development is specifically high end. Condo development is such a momentum game. Once you're going, you've got to go. If you have any hiccups, any delays on the way, it could be death. And that can happen in cases like this.
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B
You can't restart this. It's really, really difficult outside of somebody else coming in.
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A
So we thought this was going to go for foreclosure. However, apparently there's some movement now with JDS in talks to bring in Jeff Soffer of Fontainebleau, one of the dynasties of Miami. In fact, he's the son of our guy Don Sofer who passed recently. We had a really fun episode, I thought on Monkey Business and Don Sofer there. But Jeff Soffer runs his development company. He might be coming in here and then recapping the project in partnership with jds.
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B
I would bet SOFR is not putting in much if any cash equity. I think what he is doing Is he's bringing in a name, expertise and a balance sheet to help JDS get a refinance done here. Right around 1 billion. And it's sort of the mad libs of forceful finance. Right now. You've got everything. So you go from the usual suspects of B, T, M, S, D to your favorite a Cpace. Cpace, yeah, yeah, we got a $200
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A
million Cpace apparently in the mix here. JDS has had some troubles in New York before as well. So the Brooklyn Tower, what I think people call the Tower of Sauron in downtown Brooklyn.
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B
Yeah, I lived pretty close to it.
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A
Silverstein took that over, was the lender on that. They took it over recently. So it hasn't been smooth sailing for him for quite a long time. Michael Stern is such a fascination for both of us. Let's go back and talk about the rise and fall of the what FT called the skyscraper king. Let's talk Michael Stern.
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B
So Michael Stern is one of those
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A
guys who kind of came out of nowhere. He was not a person. And then he was Michael Stern. There was no in between.
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B
Yeah, There's a great BizNow article I want to say from eight or nine years ago about David Derrasich, who was one of his early backers in Australia.
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A
The Aussie derivatives trader.
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B
Yeah, derivatives trader who I think he put up the non refundable deposit for Walker Tower. He was part of JDS's Gowanus deal. It sort of went sideways. And this guy, Michael Stern, the lore, as the youth would say, is that he went and built a bunch of single family homes throughout. And so he knows construction. He's the bricks and sticks guy.
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A
When I was at the real deal, we had a shorthand for what this developer is good at. What this developer is good at. So Harry Macklow was the guy who could charm the pants off the zoning commission and had an eye for architecture. Michael Stern was always the guy who knew how to get shit built.
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B
Yeah. And the project that made him famous and I think is when you think of combination of best timed but best product for that time, just Walker Tower I think is about as good as it gets. The story there was the Verizon building, correct. In what in the West Village?
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A
18th Street.
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B
So not even like the most fashionable location in the world.
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A
Yeah, Very complex construction job. Right. Old floor plates, hulking building, et cetera.
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B
Yeah. There's power things everywhere that have to removed. The story here is that he got the equity, they tied up the building, Jurassic put a non refundable money and somehow got this thing closed. But the equity on this was Star Capital Group, or they were at least a big portion of it. And I guess Barry went up to the roof, looked around for like 10 minutes and then just said to the
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A
guys, let's get this done. That's what he's getting.
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B
And to be fair, that is what Barry does. I believe that completely. And ended up getting built and just sold like absolute hotcakes.
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A
They were hoping to get 1800 a foot. They ended up north of double that. So they ended up at around 4,000 a foot. So an absolutely incredible outcome. And as you've talked about will in general, one fund can mint you, one deal can mint you to kind of keep you going in Michael Stern, you could argue that this was his only incredible success out of everything he's done.
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B
That's completely correct. But that deal sort of begat 111 West 57th. I think property Markets Group was involved in this too.
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A
Kevin Maloney recently, he was on stage somewhere and he said 111. Architecturally, it's a marvel. Financially, it was a disaster.
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B
The org charper 111. It's one of the best things I've ever seen on the Internet. It's so good. Kevin Maloney's quote reminds me of a quote that I heard from another real estate developer about a project in Brooklyn who we are both friends with the sky and main lameness. And qualitatively, everybody's happy. Quantitatively, nobody is happy.
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A
Shout out to our guy. This happens a lot in condos, actually. Happens a lot more than you could think.
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B
So Michael Stern, they're not even just 111 was 57. He did the American Copper building, which is sold for a massive number to our good friends at GO Partners. He built Brooklyn Tower, which is another
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A
Fitzroy, the Stella projects in Florida that
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B
he's getting sued left and right and center on.
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A
Michael Stern definitely has a reputation in the market. People have very strong feelings about him one way or the other. I don't think he's a neutral character.
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B
No. He famously doesn't use Union Construction. He self performs as a gc, which can be very good because it saves a lot of money and also very bad because your GC doesn't get a ton of reps. It's not lend lease. This project too, I think is sort of emblematic of a lot of Miami real estate where splashy names, big party, ton of hype, and then not a lot of there there.
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A
What happened with the D and G project, his other big Brandon condo project? That's at I believe at 888 Brickell. What's going on there?
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B
Sotheby's was the broker on that and they're suing him for half a million dollars of unpaid commissions and expense reimbursements, marketing fees. One of the craziest factors is there was some site that was talking a lot of garbage about JDs.
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A
Yes, that's right.
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B
He sued to try to. We're going to start calling this the Stern effect and not the Streisand effect.
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A
The Walker Tower building, the Verizon Building was designed by an architect called Ralph Walker. To be honest, this guy was like a middle of the pack guy. He wasn't what we would call a starchitect. However, starchitects are a creation of the mind. And what Stern did, which was so brilliant, he's like, if we can pump up the legacy of this Ralph Walker guy, we might actually have something. So he actually commissioned a book. He went to an architecture historian and he commissioned a book about Ralph Walker. He had an exhibition in the lobby of the building and pretty soon people were coming down there to check out Ralph Walker's masterpiece. We talk so much about condo development being smoke and mirrors. This is one of the most explicit and frankly brilliant examples of making that happen.
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B
As the kids say, you can just do things and it's brilliant. And it worked out tremendously well. Condo development, almost more than anything else, it's really not repeatable or scalable because it's so dependent on timing and just the nature of the beast is that you have to go quick when you're
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A
building this kind of product. Right? The tippy top luxury in whichever market you're in. You're also in the center of the whole shady money universe and the buyers and you don't ask too many questions. Wasn't Walker Tower featured in Billion Dollar Whale? Yeah, let's talk about that. So Khadim Al Qabesi, an Emirati businessman who was at the center of the incredible book called Billion dollar whale with Jho Low. He was the buyer here for the $51 million record smashing penthouse unit at Walker Tower.
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B
Yes. With the great view that Barry Sternlich so admired it. But yeah, you're in the macro verse of the nation states, which can be a cloudy place to be.
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A
Okay. Every origin story like this typically starts with the David Jurisdict, someone who just took a bet on a guy that he liked, someone who worked in kind of a quote unquote boring job and wanted to do something a little bit more romantic and just said, all right, have at it. That's something a lot of our listeners have probably seen and experienced.
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B
You could be back in some guy doing condos on 18th street, and sometimes it works, sometimes it doesn't. But it is exciting. And this is going to be interesting to see if he can pull another rabbit out of his hat at these two projects down in Miami.
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A
Will, 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?
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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 debt tab was really, really annoying. Maturity dates, Extension options, Rate caps.
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A
Ugh.
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B
My spreadsheets were beautiful, but at what cost?
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A
Sounds like you had good roi, but your ROI BD return on invested brain damage not so good. So what changed?
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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?
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A
A 10 in this day and age?
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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.
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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. You said you got several emails from folks.
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B
I did.
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A
What's happening?
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B
I really enjoy that everyone seems to think I also write the newsletter. I'm just not going to disabuse anyone of that notion. I did get several emails last week after he published the breakdown of how the TIA real estate account which manages what, 20 odd billion on behalf of teachers all throughout America? Y and they gave their prospectus recently and the numbers were not great.
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A
The numbers were not pretty at all. They detail their latest acquisitions and dispositions. Things happen in the market, but this is a pretty long string of beatdowns. Out of the 15 properties that they sold in this period and call it a nine month period from June 25 through February 26 they realized losses of $429 million. They got their asses handed to them on office deals. On multifamily deals. It's been a bad run.
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B
It's a little bit unfair to mention the total loss because clearly one Massive loss can offset quite a bit of gains. So why don't we talk about, of the 15 deals they had, surely majority were profitable and we just had one or two big office losers, right?
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A
Nah. No, most of these, I think there were three deals that had somewhat modest gains. The rest of them were just, just all losses.
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B
It's been bad.
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A
In general, we're fascinated by these bargain buys that a lot of people are making. David Werner, 601 west, et cetera. And we always look at y 70% discount. This time we have actual color and information on that previous seller and how they mark those losses. So let's talk 449th Avenue. So this is a Manhattan office tower, Nuveen, or tia. Let's just for clarity's sake, just call them Naveen. Naveen is the manager that runs the TIA account. So they had bought it with Taconic 270 million, which is about 650 a foot in 2018. Taconic's taken quite a few bats themselves. The idea was that this would be an alternative to Hudson Yards. And recently there was a short sale of the property for just 100 million, which is $240 a foot. And remember, an organization like Nuveen holds the majority equity on projects like this, right? So Taconic is walking away, losing not very much, but nuveen took a $160 million loss on this.
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B
That's not good.
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A
One of the pushbacks that they had was these accounts are mark to market. So it's not fair. Can we talk a little bit about that?
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B
I do think that there is something to this because there are more than one component to return. Like real estate generates cash, essentially, and that reduces your basis and is a meaningful component of return. If you buy something and you sell it for what you bought it for over 10 years, what's your return? It's what's your cash on cash? So like that's a meaningful component of the total return. Again, not totally fair to look at this, but these are staggering numbers.
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A
This is not just a blip, Will, right?
- [26:52]
B
No, it's not a blip. And also, generally speaking, the value of a property and the cash flow it generates are correlated, correct? So if you have a ton of losses, generally that means the cash flow is going down.
- [27:04]
A
Maybe this was just a bad year and everyone has a bad year. But no, I went back to the previous prospectus and you see these kind of giant losses too.
- [27:11]
B
My favorite is the Fort Point office.
- [27:13]
A
Oh, God. They paid Clarion 225 million for a five property portfolio in Fort Point. That's in Boston. They sold four of the properties recently for just 56 million. They lost money on the last one, too. So it's just a rough, rough go. Someone, I assume, is reviewing these losses, flagging these kind of things. No. Or this just kind of keeps going in the dark.
- [27:34]
B
It just keeps going in the dark. If you're a pension fund like this, or, I don't know, are they technically a pension fund or.
- [27:41]
A
Just think of them as a giant investment manager. They manage, obviously, all the teachers funds, but they also do other stuff. Yeah, right.
- [27:47]
B
But when the teachers. The funds come in constantly, they're being replenished all the time. And. And that's a lot different than if you are just raising discrete funds and then you got to go raise another fund. The teachers are still getting paid. It's a different gig. And it's a different type of investment business than it is if you're raising discretionary funds, trying to get opportunistic returns. They're looking for things that are all safe. This type of capital. They are not buying the contrarian thing.
- [28:14]
A
They're not doing development deals. They're not doing some esoteric Marina stuff. Exactly. No.
- [28:19]
B
They want to be down the middle as possible. And the problem is, is that to win those types of deals, you gotta pay the most. You're not stealing them. There's no real alpha. You're generally buying them pretty leased. Safety can appear illusory because if you're fully leased and something changes, then all of a sudden your outcomes are all to the downside. And that's really what we've seen over the past five, six, seven years, where stuff that was previously deemed to be really safe turned out to not be. And this is the type of capital that was buying the stuff, trying to be safe.
- [28:57]
A
This entire episode led up to this. Man, this is sensational stuff.
- [29:02]
B
Just to give a little bit inside baseball on how this works, generally speaking, I'll put together a draft of the rundown on, like, Saturday or Sunday, and we'll record on Monday. I read this and said, my God, we must do this. And I took the actual workday of my ostensible day job to do this because I was so inspired. So what are we talking about? This is a Bloomberg article from this past week. It's how private credit lost big on Bob Bull's mobile home park empire.
- [29:38]
A
A literal gypsy founded a luxury caravan company in the UK called Royale Life. He had already declared bankruptcy in the past, so this was not his first Rodeo. He raised about $2 billion of debt from ICG and Frickin Avenue, which is the biggest private credit player in New York, and again, is now bankrupt. So how did we get here? Who's our protagonist? Let's start there.
- [30:00]
B
This is Robert Bull. Yeah, he took it by the horns. A literal gypsy, like Brad Pitt in Snatch. Save your breath of code your pirates look. So what's the heck of two roof lights? The silence asks for infrastructure.
- [30:15]
A
Just to be clear, listeners, in the US Especially in the us, it's considered a derogatory term. In this case, Bull and his family use the word deliberately. Tyson Fury, the heavyweight champion, also refers to himself as the Gypsy King. So that's the caveat. We're done with the PC talk.
- [30:30]
B
Also, Gypsies often travel in caravans, which are essentially mobile homes.
- [30:34]
A
Yes.
- [30:34]
B
All of these things start with a actual, clear, unique insight. Yes. And his was. We're gonna make caravans, but nice.
- [30:42]
A
Yes.
- [30:43]
B
It's sort of like how we talked about Tillman Fertitta doing what poor people
- [30:46]
A
think, rich people, restaurants are affordable luxuries.
- [30:49]
B
Yeah, affordable luxury. That's kind of what Robert Bull did. It's a really good insight. These are hard things to build because people don't really want caravan parks near them. And he found this really clever loophole where you could convert land that if they'd had some historical precedent for residency.
- [31:03]
A
It's just genius.
- [31:05]
B
Yeah. You could turn it into housing for caravans. And it created an arbitrage.
- [31:09]
A
Can we talk about a couple of the use cases in which he, in fact, made this happen?
- [31:13]
B
Yes.
- [31:14]
A
Okay, so you've played paintball, right?
- [31:16]
B
Well, once, maybe.
- [31:18]
A
One Royal Life property, which was valued at less than 4 million pounds in 2021, was dotted with huts that had formerly been used by paintball enthusiasts to recreate the 1964 Battle of Nam Dong in Vietnam. Bull's consultants argued successfully to the local authority that the existing structures established enough precedent to justify residential use. Absolutely fucking amazing. So good.
- [31:47]
B
And the prices here, too. The story is littered with. He bought this for $400,000 and then borrowed $9 million against it. After getting this arbitrage, he bought it
- [31:59]
A
for 400 with the cousin shipping in 100k, and then they immediately appreciated it.
- [32:04]
B
Or he bought it cousin for way above market value.
- [32:08]
A
Yeah. Reminded me of. Remember that Lower east side property called Rivington House?
- [32:12]
B
I do indeed.
- [32:13]
A
The scene of a major scandal in city government. So what happened was our boy, Yoli Landau, nursing home operator, we've talked about in the Sniffs episode Bought this property from the city and there was a deed restriction which it stipulated that could only be used as a nursing home. Somehow he got that restriction lifted and then he went and sold it to Slate Property Group almost instantly for double the price to build luxury condos. And it was a huge thing, but the whole thing was. Yoli found the ARB and Robert Bull here seriously found the arb.
- [32:43]
B
And as he was building up this business, he managed to convince one of the largest British based asset managers, ICG Intermediate Capital Group, to lend him hundreds and hundreds of millions of dollars based on this thesis. The stories about his controls at the company are just laughable. No idea how much cash they had, no idea what they owned. They're supposed to be managing all these construction projects. At one point he was supposed to have thousands of lots under construction. I think he had like seven.
- [33:10]
A
It's pretty bad. And you can see how the contagion might have started, right? Private credit, desperate to do deals hella liquid, needs to put money to work looking for alpha in these random asset classes. And here was something that could. You can see the pitch. British retirees are loathed to travel by air. There's more and more money, baby boomers, whatnot. They've got to go out and explore the countryside. This is the way to do it. We all have lists of places we'd like to go and things we'd like to see and experience, don't we? Well, what you waiting for?
- [33:40]
B
Yeah, and Ibiza and Mallorca have gotten more expensive. They're priced out, so they got to stay local. There's a whole thesis behind it and it makes quite a lot of sense. At one point he raised 2 billion in total of debt. He was on the Sunday Rich list saying he was one of the whatever, however many richest people in Britain with 10 cars. He has a wife who looks like she's off an assembly line and a Norwegian beauty queen. Yeah, Norwegian beauty queen. But throughout this, the thing starts to collapse on itself. And when he was taking the picture for the Sunday Times ritualist, he was in active default and all the cars were rented.
- [34:21]
A
It's really bad. He's a thicker lad. He Sundays, I was four stone heavier than I knew I was punching above my weight. Which is a funny thing for him to say because she's stunning. Everywhere we go, people look at her. But I'd been so badly hurt that I didn't believe in love. I thought, this is amazing. I thought, if I'm going to go through this again, I'm going to go for a 10 or an 11. And look, she was playing her role too. She's like, we're going to get you some new teeth. We're going to get you hair plugs. We're going to get you all skinny. We're going to give you the makeover that you deserve for someone of this level of wealth. And they were living that life and they were playing that game, and they played it very well. And everyone around them got rich for a time.
- [34:57]
B
For a time. Until things started to go south. So again, he had declared bankruptcy before. A literal gypsy.
- [35:05]
A
Yes.
- [35:06]
B
He is adjacent to quite a lot of the criminal underworld. One of my favorite parts of this entire story is that he took a private loan from a gentleman called Fred Doe.
- [35:16]
A
The kind of guy you don't want to mess with. A guy.
- [35:20]
B
And he is apparently affiliated with the Kinahan cartel, which is the very famous Irish drug dealing empire. Do you want to guess the interest rate on this loan? Because we talk about private credit. They're really generating good returns, a lot of cash flow. Like, what do you think Fred Doe is putting capital on?
- [35:37]
A
This has got to be a loan shark rate. So let's call it the default interest rate in New York. So 24%.
- [35:42]
B
It's 100% a month.
- [35:47]
A
He's not the kind of guy who's just going to take you to court when you don't pay. He's the kind of guy who's going to send guys to show up outside your house, which he did. Or accost your employees, which he did.
- [35:56]
B
Yeah. And so ICG again, who is his lender? Robert Bull has borrowed money. ICG is nowhere near Fred Doe. Yeah, and apparently Fred Doe figures out that, hey, ICG gave this guy a billion dollars. So they clearly have got some money. So let's go try to see if we can get made whole. And so he then goes and threatens an ICG executive. And I gotta say, the ICG executive who is unnamed, if this were me in this article, this guy has balls the size.
- [36:21]
A
Yeah, just unbelievable.
- [36:22]
B
I put on everything ICG executive says, bring it. We're worth billions. I relish a fight.
- [36:29]
A
And Fred folds. He says, I'm a minnow. Why would I put on box of gloves with a chaps? Fred and ICG come to settlement. So all this heat's coming to Bob Bull from multiple fronts, right? His blue chip lender, his private credit lender in New York, and then Fred Doe. They're all coming at him. Employees aren't being paid, bills aren't being Paid. It's getting very, very bad. At the same time, he's yoloing in pretty hard, he's buying cars, he's flying private. He's doing all this stuff.
- [36:56]
B
Yeah. And what's crazy is that he almost got bailed out here because other big mobile home park owners were looking for this thing.
- [37:03]
A
Aum gobbling.
- [37:04]
B
Yeah. They were looking for British mobile home operators and a couple of folks, Sun Communities. At one point, the US mobile home giant, massive money. They were sniffing around looking for a British operator and I think were at one point in talks to buy them for 2 billion. Didn't get down the road there, but he was not far from pulling it off. He had a great story. Most importantly, he had the germ of a clever idea and he found something with tailwinds that was in the zeitgeist as being institutionally investable.
- [37:35]
A
There's two ways to attract the attention of big money. I described it recently as scale and kink. You're either buying up everyone else in the eventual buyout by the biggest of the big, or you're doing something so differentiated, so quirky, and building a lot of narrative around that. And that's what Bob Bull did here with his caravan business.
- [37:54]
B
Yes. Yes, he did.
- [37:55]
A
Which he doesn't call caravans, by the way. He didn't like that term. What was the term he came up with? Bungalows. So Bob Bull, where is he at now? You see a guy like this who's been on the mat twice, you'd expect. Maybe he's humbled, maybe he's contrite for all the money he's lost, for everyone. He wasn't. His lesson, Will, was never grow a business past 500 million quid. The UK really can't handle that. He was also really upset with his family. He's like, like, I made them, I gave them so much money and when I needed them, they just kind of walked away, all no help, nothing. And he said, look, I'm done with this business. I'm done with the uk. If you're a British guy down on his luck and you want to make a fresh start and do something even bigger, where do you go?
- [38:36]
B
I'm going to America.
- [38:37]
A
I believe in America.
- [38:39]
B
I believe in America. I believe in America.
- [38:46]
A
That's it for the promote podcast this week. We had to give you an extra dose of CRE's characters and capers because unfortunately, we're off next week. I'm hitting the road for the World Cup. I'll be in Dallas and Houston and Kansas City.
- [38:57]
B
Honestly, I might record solo.
- [38:59]
A
We might give Will a mail back.
- [39:00]
B
Let's put out some topics, see what people want me to rant on for a half hour.
- [39:04]
A
Yeah, listeners actually podcast promote dot com. That's podcastepromot dot com. If you want to hit us with some ideas, we might let Will cook.
- [39:10]
B
We'll see. No parents want to thank our sponsors, without whom none of this is possible.
- [39:18]
A
Loan Boss, the best in Class CRE debt management software. You can find them@loanboss.com and Bravo Capital,
- [39:24]
B
a leading HUD and bridge lender that lives and breathes cap stacks. They're@bravocapital.com and Real Property Captive.
- [39:30]
A
They're the first group captive for mid market owners. You can find them@rpcaptive.com see you in a couple weeks. Mush, mush.
- [39:37]
B
Thank you very much. Dags, dags. Yeah, dags. Ducks like that.
- [39:41]
A
Ciao.