Times Square Trainwreck, Royal Renters and Blue Owl Bytes the Dust

Summary

THE PROMOTE PODCAST
Host: Hiten Samtani (“Bard of CRE”) & Will Krasne
Episode: Times Square Trainwreck, Royal Renters and Blue Owl Bytes the Dust
Date: February 25, 2026

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Episode Overview

This week, Hiten and Will break down three seismic stories shaking up the commercial real estate (CRE) world:

• A deeply troubled Times Square megaproject and the wild world of EB-5 and global capital vaporized in Midtown Manhattan
• The unraveling of Blue Owl’s multi-billion-dollar data center ambitions, exposing cracks in the data center gold rush narrative
• The rise of “royal renters”—the ultra-wealthy who disrupt the logic of the high-end NYC condo market by choosing to rent and pay astronomical monthly rents

Full of sharp industry analysis, war stories, inside jokes, and memorable industry quotes, the episode journeys from shocking Times Square flops to the frothiest ends of the luxury rental sector, with stops in data center drama and CRE family intrigue.

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Key Discussion Points & Insights

[00:23] - The “Extreme Docket”: What’s Coming

• CRE development as “an extreme sport” requiring a wild streak
• Today’s focus: Times Square megaproject failures, Blue Owl’s data center woes, and the “rich renter” reshaping multifamily/condo markets

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[02:05] - Punch List: The Week’s CRE Headlines

SVO Selling the Transamerica Building

• SVO (Michael Shvo) and BBK's high-profile San Francisco office investment is being sold
• BVK invested ~$2B in portfolio, expected to lose half
• Prospective buyer: Out-of-left-field Yoda PLC, Cyprus-based, with founder Ioannis Papalekis ("Invests in shipping, healthcare, technology and real estate in Cyprus and Greece. Of course, people list their vehicles on the TSX... not really so much in Cyprus, that hotbed of capital markets activity." – Will, [04:12])
• Likely signals end of massive SVO/BVK/Deutsche Finance partnerships

Stone Peak Buys Marinas Portfolio from KSL

• $700M deal, part of a hot “exotic alts” asset class race (similar to self-storage, mobile home parks)
• Institutional interest driving up prices, as “mom and pop” assets get rolled up (see: Bain, Sun Communities, Blackstone)
• "It's just finding the new one that you can say the same buzzwords in investment committee and get people excited about it." – Will, [06:32])

Dept. of Homeland Security/ICE Warehouse Buy-Up

• DHS/ICE spending $38B buying warehouses for detention centers
• Private prison operators, forced sellers (like Blue Owl), and political/bureaucratic dynamics mean “exits can be multiples of what you expected” – Hiten, [08:05]
• “You want to buy from a forced seller, and then you want to sell to a forced buyer.” – Will, [08:38])

Roosevelt Hotel: Geopolitical/Real Estate Boondoggle

• Steve Witkoff, a key Trump ally, engineers a deal for Manhattan’s Roosevelt Hotel (owned by Pakistan, used as a migrant shelter)
• Now the federal government is in the mix—a “two-country, bureaucratic boondoggle” ([10:17])

Blackstone/Livecore Property Management Moves

• Large owner Livecore hinting at moving all multifamily PM in-house; Blackstone rumoured to follow after Air Communities acquisition ($10B deal)
• "One ring to rule them all" for PM via tech, scale ([11:00])
• “Third-party everything” is less sustainable; vertical integration is the winning model at real scale

Kushner Family Drama: Verus Residential

• Jonathan Kushner (Murray’s son, not Charlie’s) takes control of Verus Residential with Vista Holding & Affinius
• Verus’s renters have average incomes of $480,000; signals high-end of multifamily is a different animal ("This deserves its own podcast." – Will, [13:23])
• Sets up later analysis of what the rise of the “rich renter” means for multifamily and condo markets

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“Bombs Over Broadway”: Times Square Trainwreck Deep Dive

[15:07] - The Boondoggle at 1540 Broadway (“TSX Broadway”)

• The vision: Not just hotel/retail, but vertical integration of the landmarked Palace Theater, raised 29 feet in the air (to build underneath)
• Funding: $800M in equity, $500M in EB-5 “cash for green card” funds, $1.3B Goldman construction loan, plus additional high-net-worth “club” money via UBS
• “Safe to say, that money did not return to UBS’s ultra high net worth clients.” – Hiten, [18:14])

Project Fallout

• Cost overruns, complications of landmarked buildings
• Parallel debacle at nearby 20 Times Square
• EB-5 investors (mostly Chinese) surface as mezzanine lenders—USIF tries to move funds between projects; investors sue ([19:31])
• Fortress and L+L negotiate a deed-in-lieu with Goldman Sachs, avoiding tens of millions in transfer taxes, but leaving EB-5 investors hanging
• Massive litigation over “bad boy guarantees”—developers potentially on the hook for $900M ($520M principal + at least $370M in interest)
• “Probably the largest bad boy carve out that I’ve seen.” – Will, [21:30])

Takeaways

• At every cycle top, untested developers “Icarus into the sun” with Manhattan megaprojects
• “Let's do the single most complicated, hard to deliver massive project that we humanly can in the middle of the most high profile location on earth.” - Hiten, [23:01]
• Retail investors, especially international, often bear the brunt of multi-level capital stack creative financing when the music stops
• “If you’re an orthodontist at UBS, you too can own a piece of the Tempo Times Square.” – Hiten, [23:44])

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[24:46] - Blue Owl Data Center Drama: The AI Rush Hits Reality

Blue Owl’s $4B Lancaster Data Center (Pennsylvania)

• Blue Owl attempts a $4B data center; project facing funding roadblocks
• “They’re betting their reputation on this asset class.” – Hiten, [25:37])
• Public market and activist heat (Boaz Weinstein); founders possibly facing margin calls; troubles with BDCs
• Media counter-spin: Blue Owl disputes claims of funding woes, says exposure “less than 1% of the book,” echoes Blackstone’s office playbook (“If you’re really winning, do you respond at all?” – Will, [27:50])

CoreWeave & the Economics of Hyperscalers

• CoreWeave as “the WeWork for data centers”: huge obligations, asset-light, re-leasing
• Lenders increasingly wary of exposure to “AI-exposed” tenants who lack established cash flows
• "We saw it. We passed." (Senior specialty lender, passed on the deal – [27:49])

Stargate: OpenAI’s Flagship Data Center

• “Joint venture hasn't hired any staff, not actively developing any data centers... partners are arguing... and OpenAI couldn't get financing.” – Hiten, [30:16])
• Even OpenAI, SoftBank and Oracle can’t get billions for projects without proven revenue
• “Lenders want cash flows, security, guarantees. Not willing to back a multibillion-dollar construction loan with an unproven business model.” – Will, [30:20])
• Industry-wide risk: If narrative cracks, the music can stop abruptly ("Roadrunner running off the cliff...if you look down, you’re going to fall." – Will, [31:14])

Macro Implications

• Data centers became the new “digital railroad” where CRE capital could flood in big checks after the collapse of office and retail
• If the AI/data center thesis stumbles, fallout could echo the fiber-optic crash of 2000—eventual use, but catastrophic loss for investors
• “The shadow banking system is the new banking system given the new capital requirements.” – Will, [33:15])

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[33:38] - Rich Renters: The Rental Market Has a New Royalty

Outrageous Manhattan Rents & the “Rich Renter”

• Vacancy rates up, rent growth myth busted—unless you look at the very top:
  • Example: David Weinreb’s West Chelsea apartment rented for $177,000/month ("A two and a half percent rental yield before factoring any expenses..." – Will, [34:37])
  • Bad Bunny: $150,000/month at The Jardin
  • Naftali’s unit: $95,000/month lease
  • “I've never seen prices where they're at...” [35:26]

Why So High?

• Little new product, 421a tax abatement rush is over, capex-constrained pipeline = historic shortage at high end
• Rents at $90/foot in some new builds
• Capital efficiency: “If you're spending $177,000 a month, what do you care? It takes you ten years to spend that much.” – Will, [37:45])
• Renting also serves as a tax-avoidance/tax-blurring strategy for footloose wealthy

Cultural/Demographic Shift

• Number of U.S. renter households earning $1M+ has tripled since 2019
• "If you buy, the IRS can track your days, but if you rent, no public filings — makes auditing/hunting for residency-based taxation much harder." ([36:27])

Market Impact

• Developers may increasingly target luxury rentals and skip condos (“Why build a condo then, right?” – Hiten, [38:23])
• Multifamily and condo market logic at the top totally upended

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Notable Quotes & Memorable Moments

• “Big ticket development is an extreme sport. Its most avid practitioners have to be a little bit crazy.” – Hiten, [01:23]
• “If you’re an orthodontist at UBS Private Wealth Management, you too can own a piece of the Tempo Times Square.” – Hiten, [23:44]
• “Let's do the single most complicated, hard to deliver massive project that we humanly can in the middle of the most high profile location on earth.” – Hiten, [23:01]
• “If you're really winning, do you respond at all [to negative press] or do you just say nothing?” – Will, [27:50]
• “We saw it. We passed.” – Senior executive at a specialty lender, on Blue Owl’s data center deal ([27:49])
• “If you look down, you're going to fall. But if you keep looking ahead, you can make it to the other side. And that's sort of where we are.” – Will, about market psychology in CRE ([31:14])
• “I've never seen prices where they're at.” – Douglas Elliman broker, on luxury rental surge ([35:26])
• “Why build a fricking condo then, right?” – Hiten, [38:23]

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Important Timestamps

• [02:05] Punch List segment starts
• [15:07] Times Square Trainwreck deep dive begins
• [24:46] Blue Owl Data Center segment
• [33:38] The Rich Renter segment

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Summary

This episode showcases why “money and mania” are indeed inseparable in CRE:

• Times Square’s legendary megaprojects demonstrate international capital’s ability to chase complicated dreams—often with spectacular casualties
• The data center gold rush may already be hitting fundamental limits, as lenders balk even for AI poster children and shadow banking inches mainstream
• The high-end rental tidal wave in NYC hints at much deeper trends surrounding wealth management, taxes, and development strategy, with “royal renters” reshaping risk and reward at the very top

Stay tuned for more sharp, irreverent, and insider takes each week from The Promote.

Transcript

[A]

My mind constantly wanders to foolish places,

[B]

but I have the discipline now to pull it back in so I can lead to extraordinary outcomes.

[A]

I guess in this case, the extraordinary outcomes being not one, but two of the biggest development boondoggles in the history of Times Square.

[B]

And that's really saying something.

[A]

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

[B]

And I'm Will Krasny.

[A]

A shout out to today's sponsors, Bravo Capital, a leading Huddenbridge lender and loan

[B]

boss, a best in class CRE debt management software.

[A]

Did you notice what I'm wearing today,

[B]

dude, Merch looks fantastic. Actually, no, this is better than merch swag.

[A]

We're gonna have the Promote Podcast swag up for you guys in a few weeks. This is a very, very early sample, but it looks good. You know, you got the 1031 logo on the sleeve right there.

[B]

Make sure you really hit the tricep push downs over the next couple weeks so that it really pops.

[A]

This is a good reminder for people to write us a review because on the back of the shirt it says, feels like I should sign an NDA to keep listening, which is an actual review that we got. So write us a review and you may end up on the swag.

[B]

What other podcast does it for you?

[A]

Exactly right. Today's gonna be an extreme docket. Big ticket development is an extreme sport. Its most avid practitioners have to be a little bit crazy. But today we dive into an example from the crossroads of the world, where things got, I think, truly unhinged.

[B]

Yeah.

[A]

We then look at the latest alarm bells ringing in the high octane world of data center development. Blue Isle is staring down a multi billion dollar void. And OpenAI's marquee Stargate project has. Has had major challenges powering up. Finally, we explore the rise of the rich renner, a dynamic that's reshaping the multifamily and arguably the condo markets as well.

[B]

An incredibly tasty docket. Let's kick things off with a punch list. Our signature rundown of the newsiest news in cre.

[A]

You've got the black T shirt on, so why don't you kick this off? Let's schwo.

[B]

Hot off the presses. SVO is in contract to sell the Transamerica building. Bought this in 2020 as part of the epic spree we've talked about with with bvk. Spent a massive amount on capex. Has also spent a lot of legal dollars fighting core club.

[A]

Yes, that's right.

[B]

Has signed some huge big ticket leases, but quite a bit of space to

[A]

be spoken for, obviously. One of the marquee properties in the CHVO BBK portfolio we talked about, BBK had invested, what, 2 billion ish with Michael.

[B]

Yeah. And they were expecting to lose a billion.

[A]

About half of that was not meant to come back. There's been talks that they're looking to cut ties, which fell entirely. But there's a bunch of properties that are still in play. Remember, a lot of them have already been lost. Transamerica seemed to be one that is in relatively good shape, but there's still a lot of work to be done and maybe BVK doesn't want to hang around while Chabot figures that out.

[B]

Success begets cash outlays where it's like, great, we signed a huge lease. Your reward is that you got to give a bunch of free rent and send a massive check to the tenant rep. So it's tricky. Who knows what the total number is in terms of their basis. I would suspect that they're going to take a loss here.

[A]

I want you to be very careful with the semantics. When you say they, I think you mean BVK may take a loss here. Shoe's going to be just fine.

[B]

Oh, yeah, Chabot's fine. Michael Schroe's doing great. He's going to be selling crypto in the netherworld or whatever.

[A]

What's amazing is when all the news was swirling about BBK dumping him and stuff, Michael's Instagram was so laser focused. There's a new Ferrari. I believe there's a new EV Ferrari that was his entire Instagram for a couple days.

[B]

I really hope he paid the import

[A]

duties on that to the buyer here.

[B]

Yeah, all of these folks are swooping in to buy SF office, you know. Is it divco, divco West, Blackstone? No, it's Yoda. Adventure, excitement. A Jedi craves.

[A]

Not these things. It's Yoda PLC based out of Cyprus. Ioannis Papalakis is the founder and largest shareholder of Yoda plc. I can tell you, I have never heard of Yoda PLC in my life. They do not seem to own anything significant, at least in the us. They're pretty big in the Greek. Cyprus. Cypriot hospitality space.

[B]

Fun fact. I'm actually personal friends with the Cypriot ambassador to the Vatican.

[A]

Quite a gig. I think you would donate a promote on one of your projects to be a fly on the wall in that meeting between Iannis and Michael, if that ever took place.

[B]

Oh, definitely. Not because this whole thing is nonsense. Reading this off the Forbes profile of Yanis Papalekis, it's just tremendous. He invests in shipping, healthcare technology and real estate in Cyprus and Greece. Of course people list their vehicles on the tsx. They list them in the US even. They list them in England, in the footsie, wherever. Not really so much in Cyprus, that hotbed of capital markets activity. I guess he owned a stake of something called Global Worth which I'd never heard of. It owned offices in Central Europe. He sold his stake in it for $300 million and then the did you know? Section of the Forbes website. So did you know before starting Global Worth he developed commercial real estate in Romania.

[A]

I did not.

[B]

Achieving a 175% rate of return for himself and his investors.

[A]

I think they're going to get a decent number for this building given that it's gone to kind of a out of left field buyer. But yeah, I believe that if this one trades then you're going to very quickly see the dissolution of the massive SHVO BVK Deutsche Finance partnership.

[B]

I think if is a pretty big. It will trade to Yoda or not, who knows.

[A]

All right, next one. Marinas. We've talked a few episodes ago about exotic alts and all these assets that were formerly non institutional are being rolled up and sold to the big institutions. And we have a great example here. Stone Peak is paying about $700 million for a marina portfolio currently owned by KSL.

[B]

KSL owned a huge portfolio of hotels. They had skiing, they do resorts and had put together this marina business called Southern Marinas. And Marinas as we've talked about has become a really hot institutional asset class. Bain has a roll up in there. It's honestly one of these things where it's like the same type of dynamics with like mobile home parks and self storage and whatever. It's just finding the new one that's. You can say the same buzzwords in investment committee and get people excited about it.

[A]

People are investing in experiences. Supply constraints are pretty severe. Those are the kind of things you'll

[B]

hear mom and pop owners, fragmented ownership. We can bring in institutional best practices. And what's funny is that you've got the folks who are in early on this are already looking to cash out. Centerbridge had suntex Marinas. They're looking to sell Sun Communities bought a marina operator during early Covid and was sort of seen as like a natural pivot for Boba home parks and ended up selling that. It was called Safe Harbor Marinas. Blackstone's infrastructure arm bought that Stone Peak. Also in the news because their founder just donated half his carry to make sure the company's first fund hit the hurdle rate.

[A]

That's an honorable thing to do.

[B]

He's already made a gazillion dollars, and so he's doing it just to make their tracker look records look better. I don't think it's, like, totally charitable on his part, but better than the alternative.

[A]

All right, let's switch gears all the way to the other end of the spectrum. The Department of Homeland Security and ICE are spending, what, $38 billion to buy, essentially, properties for detention centers. Some pretty gnarly stuff here.

[B]

This is nuts. They're paying crazy prices to buy warehouses throughout the United States. And private prison companies are looking to expand their partnership with ice. They're looking to renovate and operate new sites, particularly in red states. Some groups are refusing to play ball with ICE and aren't selling. Others are Blue Owl.

[A]

Others have no such qualms, I guess.

[B]

Yeah, well, Blue Owl, I mean, if your BDC is crashing and your CEOs might be facing margin calls, like, maybe.

[A]

Maybe you do the deal. So they're looking to increase capacity to over 90,000 beds, and they're going to have to move fast. And this is one of those things I think about which makes your business so interesting and exciting, is like you may accumulate these properties and have a certain exit number in your head, and then out of nowhere, this new massive bureaucracy comes along and has an unlimited budget and is willing to pay whatever, because this is the center of their political campaign, in a sense. And suddenly the exits you can have are multiples of what you might have expected.

[B]

You want to buy from a forced seller, and then you want to sell to a forced buyer. That's sort of what we have here. Also, politics aside, this is just another dynamic in real estate. Everything is a real estate story. I wouldn't have had ICE paying top dollar to take out warehouses in remote Pennsylvania on my bingo card earlier this year.

[A]

Okay, one more tale of government involvement here. This one is extraordinary. My guy, Steve Witkoff, one of the most interesting characters, I think, in real estate writ large. He is now Trump's My Man Friday for any geopolitical situation, from Vladimir Putin to the Ayatollah. Steve Witkoff is in the mix everywhere. I'm gonna drop a profile in the show notes an early profile in the observer, but it captures the man pretty well.

[B]

Steve Wyckoff, honestly, he can solve any issue except owning multifamily in Santa Monica.

[A]

So Witkoff is involved in what is one of the biggest real estate boondoggles in New York, the Pakistani owned Roosevelt Hotel. We've talked about this massive hotel before.

[B]

Yes, we have.

[A]

It has been used as a migrant shelter for quite a while. They had a pretty lucrative deal with the city. That deal ended. Pakistan was looking to figure out a new way to cash in because of major tax implications. This was probably going to be a ground lease, right? This was not something they were going to sell outright. J.P. morgan was in the mix for some time. That didn't happen. The brokers got switched over and now the US Government, the federal government is involved and Witkoff apparently made this all happen. Help me make sense of it.

[B]

There's no way to make sense of it. The thing that made the most sense was JP Morgan coming in and adding it to their campus because again, they have the private dining room which is booked out a month in advance for analysts trying to make reservations for their managing director.

[A]

There's no walk of life where you can't play status games. The US government is coming in here. So we already had a bureaucratic boondoggle of an extreme level in the Pakistani government. Now we've added another one into the mix. Two countries that are going to determine the fate of this prime piece of real estate in New York.

[B]

Just as it should be. Let the free market decide. This is a little inside baseball, but Livcore has started talking to a bunch of their third party PM providers. Basically taking them out to the bus stop and or the train station. Sorry, that's what happens in Yellowstone. They're bringing it in house.

[A]

This is a pretty big deal because these are tens of thousands of units. Chatter is that Blackstone is going to do this across their multifamily holdings, pull them in and create kind of a Sauron of property management.

[B]

One ring to rule them all through

[A]

their Air Communities acquisition. Remember the one they did for about $10 billion a year and a half,

[B]

provided all the air cover for all the deals that didn't happen in 2024 and 2025.

[A]

The word is that Blackstone is going to use the Air Community's umbrella and the tech stack and the learnings and whatnot to create this mega PM company that's going to put a lot of pressure on maybe on the big guys like Greystar too.

[B]

That's smart because these guys third party everything. For the most part, none of the big private equity firms really are vertically integrated. They're obviously like very integrated with third parties that they use and they have really in depth asset management teams, but they don't do PM for the most part. But setting up these types of platforms makes sense at scale. And if you look at the largest owners in the country, they're all vertically integrated for the most part. Greystar is Maa Morgan Michael's organization. All those folks have it in house.

[A]

The next one, a bit of family intrigue at the highest level. So Charlie Kushner has been making a play over multiple years for a company called Verus Residential. Verus is a very interesting apartment owner and we're going to talk about this in one of our big segments, so I'm excited. Verus average Renter makes what, $480,000?

[B]

They do. And so Varys, it's extraordinary. Taking a step back, it was formerly Matt Cali, which was one of the, I'd say old scions of New York New Jersey real estate. They owned millions and millions of square feet of office, mostly a lot of suburban office.

[A]

Is this also area property partners, all

[B]

the other the area guys, Matt Cali, all that sort of were like one thing and went their separate ways. Of course, in 2021, I think they rebranded to solely focused on northeast multifamily. And they own thousands of units in sort of Jersey City, high end New Jersey markets, which is again, part of why their average renter income is so high. Yeah, because these are prime supertanker buildings. Greater New York area.

[A]

Marianne Gilmartin was CEO for a hot second.

[B]

God, good for her.

[A]

This kind of comes back to our broader theme that we've talked about quite a bit in the last few weeks of retake privates. Right. And Charlie Kushner had been agitating to take Varys private for a long time. Varys had kept rebuffing his offers, and now Kushner has taken control of Varys Residential. But it's not the Kushner you think. It's Jonathan Kushner, who is the son of Murray Kushner. And Murray and Charlie have a pretty colorful history.

[B]

They do indeed. That deserves its own podcast.

[A]

I would highly suggest you read Gabe Sherman's piece on the Kushner family dynamics. We'll put it in the show. Notes Murray Kushner's son Jonathan, through a company called Vista holding, is taking control of Verus. They're getting backed by a Phineas.

[B]

Yep.

[A]

So this is going to be a good one. A bunch of family intrigue there. And this gives them like an incredible apartment portfolio with very well heeled renters. It's going to be a Topic of conversation in a second. All right, that's it for the punch list. We'll be back in a second with Bombs Over Broadway. All right, I'm here with Aaron Krovitz from Bravo Capital. Aaron, let's get right to it. What's the story behind this mythical 100% HUD approval record?

[C]

It's pretty straightforward. We have an amazing team. We're pure play hud. We're focused on bridge to HUD all day. We're both fully HUD licensed, and we also offer balance sheet bridge financing where we could finance deals over $100 million, just like we did in Miami, Brooklyn, and Jersey City.

[A]

And what's the secret sauce? How do you put it all together?

[C]

It's our underwriting. We don't rush deals to market and hope they stick. We know what HUD wants before we submit, so there are no surprises. And we have a real balance sheet, so when we go, we go.

[A]

You were telling me when we were chatting offline that you closed a HUD Express Lane deal in four days. That's absurdly fast for hud Hiten.

[C]

That's why we get up in the morning. At Bravo, we're here to break records. We're here to innovate. And when you have tight documentation, the right underwriting, that means speedy approvals and speed.

[A]

Means a sponsor can close quick. Thanks, Aaron. Good to have you on.

[C]

Thanks, Hatten. And you can find [e-mail].

[A]

I love maniacs. Probably more than the next guy. We've got a pretty special one here.

[B]

What's great is that you say that and you stopped trying to, like, call our listeners psychos, but beside the point. So let's talk about Broadway.

[A]

1540 Broadway. How would you define what the vision was at TSX Broadway? It wasn't just hotel. It wasn't just. It was kind of a elevated form of development here.

[B]

What's so funny about this property is that it's got the Palace Theater there too.

[A]

Lpc designated for listeners who might not be familiar with New York. LPC means it was landmarked.

[B]

You can't do anything with it. So no matter what you build, you

[A]

got a little bit of jazz hands.

[B]

I think it's worth taking a step back and just talking quickly about how we got here. Larry Silverstein owned the site in the 80s and redeveloped it as an Embassy Suites. In 1990, he tried to get this corner where the Palace Theater was. LPC designated it, he built around it. You could stay and look over the atrium at your Embassy Suites when you Wanted to see a Broadway show at the palace theater.

[A]

So in 2016, the Nederlander organization, which is a big player on Broadway, stepped in with a partner out of left field called Mayfield.

[B]

And Mayfield's founder and CEO has an interesting perspective on things.

[A]

Yeah, wasn't really a massive player in New York real estate at least, but has done a bunch of things elsewhere. He said the following in an interview a few years ago. The most satisfying moments in business I've ever had inevitably depressed me because I always feel whatever minor success I've had is so small compared to others like Mr. Jobs, Mr. Zuckerberg, Michelangelo, Da Vinci, and Rosa Parks. If nothing else, that is the greatest collection of characters you can think of.

[B]

I love New York.

[A]

The quote that we mentioned up top was obviously from Marc Siffin as well.

[B]

It's great that he says that my brain's too complicated.

[A]

And this is the mid 2010s money's flowing and thick and fast again. Just to set the scene, the apogee of global capital flowing into New York real estate, specifically through a program called EB5, which is a cash for green card program. The US immigration fund, which is the regional center that we're quite fascinated with, was at the center of a lot of this stuff. And here they were helping them raise what, close to $500 million for this project.

[B]

Yeah, and L and L Holding, big New York developer and Fortress, were both part of this too. They raised about $800 million of equity. They raised about $500 million through the EB5 visa program from USIF, and then on top of it, got a $1.3 billion construction loan from Goldman Sachs. So basically, they got over $2 billion, two and a half billion dollars to build in Times Square.

[A]

And spare thought for the ultra high net worth clients of ubs. This is essentially a club deal, which means you're pooling funds of ultra high net worth clients. Famously, 432 Park Avenue had one of these through Citigroup, raised 400 million odd for that. But you're going to your ultra wealthy clients and saying, listen, I got something special for you. And this turned out to be the largest equity check that UBS had ever raised for a project like this. Safe to say that that money did not return to UBS's ultra high net worth clients.

[B]

A chunk of it returned to UBS via fees, but did not return to the clients. So you're thinking, what would they build here? Massive office building, condos? No, no, no. They're building a Tempo Hotel.

[A]

What does that even mean, do you want to break it down for people unfamiliar?

[B]

There's not a whole lot of tempos out there. So I don't think this is really grab much purchase. But long story short, shockingly, the two and a half billion dollar hotel didn't.

[A]

It didn't take, didn't.

[B]

Cash flow, we should say Will.

[A]

There had been massive cost overruns because you have a untested New York developer.

[B]

You're dealing with a landmarked building at the base of this. So they had to, I think, raise the theater 30ft or something like that.

[A]

29ft. Yeah. Into the air and then build retail and entertainment below it. Pretty complex job. Not something you would start your New York career with, so to speak. And let's be clear, he did not start with this project. Mayfield had another project in the mix nearby called 20 Times Square.

[B]

Obviously gave that one back too.

[A]

Yeah, Natixis took a bit of a bath there.

[B]

You got the Swiss banks and the French banks losing a lot of money, retail money on these things. Considered donations to the Human Fund for New York City.

[A]

So this brings up a dynamic that we see with a lot of these foreign sources of capital. So 20 Times Square was going underwater. This one, 1540 Broadway, needed extra money. USI Fund tried to take EB5 funds from 20 Times Square and funnel them into this project. Basically saying, money's fungible. Let's move it to this project, which has a better shot of success. The Chinese investors did not want this to happen and sued. And so there was more cost overruns, more legal fees, more delays there too.

[B]

As part of this, the loans came due in 2023, and USIF again wanted to either recap or sell 1540 Broadway.

[A]

In general, we should say that EB5 funds are typically packaged as MEZ. Right. And that's where they sit in the cap stack. Typically. Yep.

[B]

And by the way, you can't just shift money from one project to another with different sponsorship. That's just crazy.

[A]

I don't know. A smart guy told me that you can do anything in real estate as long as the other guy agrees to it.

[B]

But the Chinese investors sued, so clearly they didn't get to agree. But the loan comes mature on 1540 Broadway. USIF wants to recap or sell. Problem is that no one's going to recap you at a value that makes sense. And no one wants to buy this thing for more than the debt. And so Fortress and L and L ended up negotiating with Goldman, who were the senior construction lender, and ended up doing a deed in lieu. And part of the reason you would do that is that there's a massive amount of transfer taxes that you would pay. And if you do a deed in lieu, they avoided tens of millions in transfer tax. And USIF kind of felt that they were left in the dark. They. They have a great quote in their complaint from a former senior officer of Fortress saying that the deal with Goldman was, quote, designed and implemented in order to deprive USIF of their bargain for rights. So usif, the reason that they're filing this lawsuit too, is they claimed the transfer in the deed in lieu violated a mez loan agreement, which triggered a bad boy guarantee.

[A]

Nice.

[B]

That makes the developers personally liable for the $520 million that they invested, but plus at least $370 million in interest.

[A]

That is an insane amount of interest. So $900 million is what they're on the hook for personally.

[B]

Probably the largest bad boy carve out that I've seen. We've seen this too, with other funding mechanisms. So we talked about EB5. That's all over the place.

[A]

We've talked about taste.

[B]

Exactly. We saw it with the taste. There's always these different little veins of capital that you can go after. And we're seeing it now play out in private credit, where all of private credit is trying to go into retail money as well. We'll get into it in our next story.

[A]

That's going to upend the dynamics in that market about control and rights and recourse if things go bad, as they are starting to go bad as well.

[B]

Do you think that this type of transaction precludes you ever working together again? Not so. Fortress is involved with USIF and other projects, so they're part of a joint venture developing the remaining sites at Pacific park in Brooklyn, which was the Greenland boondoggle.

[A]

So who are the winners here? Goldman's probably going to be in a lot of trouble. Usif, who knows? Because they made a lot of their money from fees. SL Green won a management contract here.

[B]

So good for that.

[A]

I don't know. They probably got paid.

[B]

Yeah, they might be the only winners.

[A]

Where did Mayfield end up? What else are they up to?

[B]

They are getting smoked, as you said, on 20 Times Square, too. What's really important to take away here is that one development's really hard, but human behavior is as old as the hills, as Jesse Livermore would say. And at the top of every cycle, you have the guys who've never done nothing, never, who are saying, I'm going to do not just like A simple let's build 20 units in bed sty and call it a day. They're like, let's do the single most complicated, hard to deliver massive project that we humanly can in the middle of

[A]

the most high profile location on earth. Basically.

[B]

What did they say in Princess Bride? The two rules, don't get in a land war in Asia and never go in against a Sicilian when death is on the line. And then the third would be don't do a landmark Times Square development at the top of the market. We mention this because we look at these types of guys who really, they're like Icarus going into the sun. And you've got like Joseph Ben Natti over in Sutton Place.

[A]

I was just going to mention Ben.

[B]

And it happens every cycle. The way people are able to con these retail investors into putting capital on these things, it's honestly, it's one of the great hallmarks of America and capitalism.

[A]

Does make you feel a little bit patriotic that this can happen over. It does.

[B]

Because. Because if you're an orthodontist at UBS Private Wealth Management, you could. You too can own a piece of the Tempo Times Square.

[A]

So will you violate any debt covenants recently?

[B]

So funny you should ask. I have been in technical default recently. I mean, who among us, right? But not since Q4.

[A]

Ooh.

[B]

And that's not because I paid off the loan. It's because that's when I started using Loan Boss.

[A]

I can't believe how old school some of our listeners are. They're still crunching DSCRs in Excel and all that.

[B]

Ugh. Total waste of time. Risky business to boot. Loan Boss runs the entire process for me. One click. Covenant testing. Incredible. Instant cash flow forecasting. Impeccable. And my favorite nerdy delight, the live forward curve. So I hate having to go download the forward curve. And then it's always vertical. And you got to alt HVT to have it go horizontal. Make sure the index match works. Works like ridiculous.

[A]

They've just got it sorted here for you.

[B]

Much better. So thank you, Loan Boss listeners.

[A]

Check them [e-mail] that's loneboss.com and tell them the promote sent you. Blue Owl Capital is trying to build a $4 billion data center in Lancaster Penns, which is one of your sweet spots.

[B]

First of all, it's Lancaster. You say it as fast as possible. We know that you're an outsider.

[A]

There you go. So Lancaster Pennsylvan $4 billion data center project Blue Isle is obviously one of the marquee names in this whole data center game. They're trying to build everything, trying to finance everything. They're in with Pimco on the Meta project. What is it called? Hyperion. They're all over the space and they're betting honestly the future of their firm and the reputation on this asset class.

[B]

And they're having some serious issues with it. They've had a bunch of issues with their BDCs. Boaz Weinstein's gone activists on one of the publicly traded ones. They halted redemptions at something they tried to merge. Another thing. Honestly, I'm just a dumb real estate guy, so a lot of this is above my pay grade. All I know is that it's some shenanigans. There's also articles that Doug Ostroover and Mark Lipschitz are potentially facing margin calls on their personal stakes because the stock has gone down so much.

[A]

They've been giving some pretty defensive interviews in the financial press. I saw something in Barron's that was quite interesting too.

[B]

There's some really interesting media play here. So bi again, grain of salt reported that Blue Owl couldn't find financing for this Lancaster data center. So this project, formerly a printing company, owned these two facilities in Lancaster, went bankrupt. Machine Investment Partners. 8 millimeter. Underrated. Classic.

[A]

I love that movie. It's so depressing. I wasn't allowed to watch it for a long time.

[B]

By the way, it's great that Machine bought this asset because if devoted watchers of 8 millimeter will remember that the guy who commissioned the tape is from Harrisburg, which is right up the road.

[A]

Oh, God, that is a deep cut. Why is this so interesting? It brings in a lot of the different players in this new asset class that we've talked about. Remember Core Weave?

[B]

How could I forget?

[A]

Coreweave went public recently. The easiest way to think of coreweave is it's like a wework for data centers. Right. It puts stuff together and then brings in the hyperscalers and all that. They went public. They were seen as the litmus test for the asset class writ large. How would you say this?

[B]

They were the litmus test because they didn't own anything. It's like they were like Lloyd Dobler. They're like, they don't want to asset light. Yeah, we don't want to make anything or own anything that's processed or whatever. They were just the marketplace, as you said. And they had these enormous lease obligations, but then they would go find tenants to cover them.

[A]

An Oracle or Google, Microsoft, et cetera,

[B]

et cetera for sure. And so this data center in Lancaster was going to be taken by coreweave. So an executive who arranges debt for major data center deals told them that the lack of interest was due to growing caution among lenders and investors about taking on sizable AI exposures with less than sterling credit. And a senior executive at a large specialty lender this is so good. This is so good, told Business Insider. We saw it, we passed.

[A]

It's just cold.

[B]

But the media spin I think is really interesting because if you're really winning, like do you respond at all or do you just say nothing?

[A]

If you have the financing in place or on the verge of getting it, you're just going to let the haters hate and you do your thing. However, Blue Owl responded and they said the central premise of the Business Insider article that we encountered financing challenges related to the Lancaster project is incorrect. They're flat out denying that there's any issues whatsoever. And then they're talking about their commitment was really just half a billion, not 4 billion. Like all they need to do is fill that half a billion dollar hole.

[B]

Right? And they're saying that they considered third party financing as as we would with any transaction as we explore alternatives before choosing the most attractive path forward.

[A]

And this is my favorite part. We've talked a bunch about the Blackstone playbook when it comes to any office bets that have gone sideways. They have a very, very specific line that they deploy, which is office is less than 2% of our owned portfolio in the US and Blue Owl is doing pretty much the same thing here. They're talking about how these data center projects were at less than 1% of their book.

[B]

I don't know if that's great considering how well their other book is going though. I guess you know ICE can only buy so many of their products.

[A]

The bigger point here, we've talked a bunch about data centers. An incredible flood of capital has gone into this asset class very quickly. One of the things you mentioned is you can't write a half a billion dollar check into a mall anymore. It's hard to do it in office anymore. But these big money managers need to do that somewhere. And so Tierra comes along, this new asset class that promises to be the lens into the AI boom, the digital railroads, if you will. Mark Gansey and all these guys are all over that narrative. And suddenly you can find so much money moving into this space from all over global capital, MGX and Abu Dhabi. All these players are flooding into the space. A lot of the tenants, the hyperscalers themselves are Betting billions of dollars. So you have this insatiable narrative of demand. However, there's a lot of holes in this narrative at this point.

[B]

Let's talk about Stargate too, because this isn't the only project where financing may be a little bit shakier than you might have thought.

[A]

So Stargate is this OpenAI flagship project that the Trump administration talked about very publicly. What's going on with that?

[B]

It was a joint venture between OpenAI, Oracle and SoftBank. The information put this out. So not in a grain of salt, bi. Grain of salt information. I think we're good. But they're saying that the joint venture hasn't hired any staff, they're not actively developing any data centers, and they say that the partners are arguing over responsibilities, how collaboration should be structured. And I guess OpenAI then tried to build stuff on their own, but they couldn't get financing.

[A]

They couldn't get financing. And this is like one of the top three hottest companies in the world right now.

[B]

Well, we talk about how narrative and vibes are more important than reality in some cases, but at some point lenders are going to say, hey, if you're building a hugely capital intensive real estate project, like, we need cash flows, we need security, we need guarantees. And lenders weren't willing to back a multibillion dollar construction loan, essentially from a company that has an unproven business model

[A]

and is going to essentially hasn't built really anything before.

[B]

They haven't built anything. And they're also in their forecast, they're like, oh, yeah, we're going to lose $80 billion or whatever it is over the next four years. They're heavily dependent on the capital markets. And the capital markets, it's not even if they freeze. It's like if the capital market gets a little colder and the water.

[A]

Yeah, just a little head up for

[B]

you, slightly slower, like they're in real. Could be in real trouble.

[A]

This is a really important point. You're making any Emperor's New Clothes type situation here. If anyone asks a question that slows this down even a little bit, even just that slight loss of acceleration can derail the whole thing.

[B]

You're the roadrunner running off the cliff. And if you look down, you're going to fall. But if you keep looking ahead, you can make it to the other side. And that's sort of where we are. And I think it's important to consider what happens to real estate.

[A]

You can't really repurpose the stuff very well.

[B]

You can't repurpose it. But I'm thinking more too. Like all of the capital that's gone into real estate, that has gone into this asset class, what if this is like what fiber in 2000? All that stuff eventually got used, but like all of those companies got absolutely torched. And what happens if you're Blue Owl? What happens if you're SoftBank? What happens if you've, you're OpenAI and you've committed so much capital to this, you need everything to go perfectly.

[A]

Look at the scale here. A lot of these projects are now trying to get investment grade ratings so that they can get access to cheaper debt. Fitch worked on 35 projects. The average deal size on those projects is $3 billion.

[B]

Basically each project is one Vanderbilt. And think of the coordination to do that. And we're doing that 35 times. It's just hard to fathom.

[A]

It's one Vanderbilt as projected today. But as we know in real estate development there are cost overruns. This is assuming that everything goes perfectly from here on out. And that is not the case with a project like this, with an unproven developer. The other thing that I think is important here is, you know how we talked about Steve Ross and West Palm beach and having the balance sheet to go solo and whatever the fuck he wants right now and it's such a glorious time in his life. Right. This is the opposite of that. You could be one of the most well funded companies on earth. Take Google. They still have to collaborate, they still have to stitch these cap stacks together with other partners. Like these projects are too immense for any single party, no matter how rich to take it on.

[B]

Absolutely. And look at meta. They're really trying to off balance sheet a lot of these things too because like they don't want it on their. They don't want it in their balance sheet.

[A]

Exactly.

[B]

So I think that sort of tells you everything you need to know.

[A]

If you look at the lender profile on some of these projects, most of it is obviously not banks. JP Morgan has been involved in a couple things, but for example, the one in Louisiana is a consortium between Blue Owl and pimco. So it's a lot of the shadow banking system we've talked about.

[B]

The shadow banking system is the new banking system given the new capital requirements. We know this is kind of broken containment because on my little Google RSS feed it gives me the suggested stories and I got one that says who is Blue Owl and what's gone wrong with it? One of the big things that we've talked about a lot on this podcast Is the softness in the multifamily rental market.

[A]

We had a multifamily insider in the promote this past week share some pretty hard truths about the myth of rent growth in a lot of these markets.

[B]

Yeah. And you're seeing vacancies over 10%. Rents are flat over periods of years. There's one area where that's not true

[A]

and that's at the very, very, very high end of the rental market. Before we get into any of the macro and all the trends, let's just talk about David Weinreb, please.

[B]

Oh my God. So. So David Weinreb, former CEO of Howard Hughes. Bill Ackman was talking about. David is just one of one. Bill's guy.

[A]

Yeah.

[B]

Gonna build seaport into this massive cash machine. That didn't happen. He left the company.

[A]

Yep.

[B]

He had this unbelievable apartment.

[A]

Really nice. Really, really nice. In West Chelsea. Yep.

[B]

Yeah. And so he had it on the market I think for $75 million. Didn't trade but second place trophies.

[A]

He just leased it out for $177,000 a month. A month.

[B]

Now what's amazing is that based on the asking price and again it didn't trade there. Probably sells for 15, 20 million less, who knows. It's a two and a half percent rental yield before factoring in any expenses related to the property. So. Still really hard to make money as a single family landlord. Even at the super, super high end.

[A]

But, but think about this. I mean this 177k a month, this is not. This is now not just like a one of one situation. Our boy bad bunny paid what, $150,000 a month at the. The penthouse at the Jardin.

[B]

Yep, he did. And we've seen another one recently. A $95,000 a month lease.

[A]

And Naftali's building.

[B]

And that wasn't even on the park or anything.

[A]

Dude. I remember when it was headline news when I think at the Mark Hotel there was a unit that went for 75k a month. Do you remember that a few years ago?

[B]

Oh yeah.

[A]

Now we're seeing more and more of these deals at the six figure mark, let's call it.

[B]

There's a good quote from this article from a guy, Douglas Elliman. He said when the high hundreds per square foot for a rental start to become the norm, it's completely different from what we're used to. I've never seen prices where they're at. Again, it's really hard to build in New York. We had the rush from 421A to get your footings in and get done to get the tax break. But beyond that, permits have been at historic lows. If you have no new supply, you don't need that much demand to have increasing prices.

[A]

Not just permits, because obviously that is a big factor. But also availability of capital has been constrained for the last few years. And so four or five years out, you see the dent on supply for this very tippy top product.

[B]

Yeah, and that's why I always think it's so silly when people say, like, I only invest in red states like this. Again, not a political statement.

[A]

Sure, go for it.

[B]

Yeah, but. But with regulations and making it hard to build, that's where you want to own, because you can't build supply. There's another $125,000 a month apartment, at least at 70. Vestry part of a divorce.

[A]

I know. You don't even care about the price tag here. You care about the backstory. So why don't you cook? Yeah.

[B]

So Julia Hart, who co owned Elite World Group, the modeling agency, rented the penthouse that she bought with her estranged husband, Silvio Scalia, for $125,000 a month during their contentious divorce. I think this is a bigger trend because we talked a lot about folks moving to Florida, Texas, away from California, New York, and a lot of those folks have come back. And what? One way to avoid the tax man coming after you is to rent. Because if you buy something, they'll track your days. It just puts a headshot in your file. But if you rent something, there's no dock, like, it doesn't get filed with public records, and it makes it a lot less likely that you get audited. Maybe some folks are, like, taking the chance a little bit more and saying, hey, like, if I don't need to put a bullseye on my back for the irs, maybe I don't need to.

[A]

This comes with pretty massive demographic changes as well. The number of renter households earning a million dollars or more in the US more than tripled between 2019 and 2023. I guess if developers are seeing these trends, they're going all out in the construction of these units. Right. And then renters themselves are investing. I guess if you're paying 75k a month for your apartment, you might as well add a few bells and whistles on your own dime to it. Almost like you would if you bought a place.

[B]

Yeah, and it's more capital efficient, too, because if you're buying a $57 million apartment, you got to put 15 million down.

[A]

Sure.

[B]

So if you're spending $177,000 a month. Like what do you care? It takes you 10 years to spend that much.

[A]

Ken Griffin paid what, 238 million for his 220 CPS apartment?

[B]

He didn't.

[A]

That is a fricking white box.

[B]

Oh yeah.

[A]

You and I are kind of sympatical with this view here. Both of us would probably could see ourselves renting for a very long time instead of buying our primary home.

[B]

It goes back to some of the GP economics that I wrote about in my article on the promote, which you should subscribe to.

[A]

I wonder Will though what that means for the site selection, product selection. When a developer is looking at a market like Manhattan for New York, if

[B]

these are really where rental numbers are like a lot of stuff begins to penetrate.

[A]

Why build a fricking condo then, right?

[B]

Yeah, because that's why condos have gotten built is it was the only way to make the numbers work. But we're seeing big sites in Greenpoint that you've reported on and rents there are like 90 bucks a foot. Yes, those are numbers that like let you build and rentals in New York have sort of gone one way the last couple of years.

[A]

That's it for the promote podcast. This week a Times Square megaproject became a sacrificial ground for global capital. One of the loudest names in data center development is being met with radio silence in its quest for funds. And the emergence of the Frou Frou renter has warped the buy versus rent dynamic in top cities and might change how developers think about dirt too.

[B]

Thanks again to our sponsors, Loan Boss and Bravo Capital.

[A]

You can find them at loanboss.com and bravocapital.com Bravo just dropped a new white paper on the sniff industry. A lot of good insights worth checking out. I'll drop it in the show notes too.

[B]

Really, really strong stuff. I enjoyed it. We'll be back next week with more CRE Insider goodness and if anyone has a line to Blue Owl, please hit us up. We'd like their permission to pod either in the shell of the data center project or potentially we'll sublease some space in the city rooms building. Let us know.

[A]

I would love that Will. Thanks dude. Always a pleasure.

[B]

Thank you.

[A]

Ciao

[B]

Sam.