Latest / The Promote Podcast / Savills Gobbles Eastdil & Ray Washburne's Second Helpings
Transcript
- Hiten Samtani (00:03) So who do you want to play, the CEO or the receptionist? Will Krasne (00:05) I'll be the receptionist. Hiten Samtani (00:11) I'm Simon Shaw, the new CEO of Savills. I've just struck the biggest deal of me life, the acquisition of Easto. As I was coming down here to do this, one of our receptionists said, Will Krasne (00:21) Simon, you look a bit peaky. I know people really come to this podcast for the accent work, so, you know, happy to do it justice. Hiten Samtani (00:28) And I said, well, actually I am a bit knackered. Will Krasne (00:31) Strap in chap. ⁓ Hiten Samtani (00:42) Welcome back to the Promote Podcast, your insider guide to the money and mania of the CRE markets. I'm Hiten Samtani Will Krasne (00:48) and I'm Will Krasne Hiten Samtani (00:51) A shout out to our sponsors, Loan Boss, the best in class CRE debt management software. Will Krasne (00:56) and Bravo Capital, a leading HUD and Bridgelander. Hiten Samtani (00:58) This week, we dive deep into the &A deal that's all anyone in institutional CRE can talk about. Savills yep, Savills, is buying Eastdil Secured for $1.1 billion. Now, this gives the Brits some serious capital markets firepower estate side, but the devil lies in the details of the golden handcuffs. Next, we strap on our Lucchese boots and head to Dallas, where legendary dealmaker Ray Washburne has grand plans for convention center. Washburne's the kind of CRE cowboy that we're obsessed with here at the Promote, so this is going to be good time. Will Krasne (01:29) If you remember from the Thanksgiving mailbag that I did solo, he was my wild card pick for the Real Housewives of CRE. So I've been waiting to do this story for quite some time. Before we get into the punch list, our signature rundown of the newsiest news in CRE, if you're going to be in Nashville on March 26th, look us up. We will be speaking at the PREA Research Conference and we'll be the handsome guys on stage. So come say hi. Hiten Samtani (01:38) Amazing. Let's do it. We'll be talking about the art of storytelling and its growing importance in the GP toolkit. Expect a lot of references to sweaty John Gray. Alright, let's go with the punch list. Will Krasne (02:05) Let's start off with private credit, where every story is, what is it? My wife asked me what private credit is the other day, so I know it's really breaking through. Hiten Samtani (02:11) Do you remember when it used to be called shadow banking? Now it's become mainstream. Will Krasne (02:15) Everything is the Winnie the Pooh meme where he's with no pants and then wearing a tuxedo. So that's basically what this is. downstream impact of the banking reform post recession where banks had much more capital regulations. Dodd-Frank caused them to have to hold more stuff on their balance sheets, they had to market differently, risk was different. Hiten Samtani (02:33) We've talked about how private credit is now the banking system, at least as it pertains to CRA, right? Most of what we see out there is driven in some form or the other by these big debt funds that have popped out. Will Krasne (02:44) Absolutely. It's really the entire funding system for the whole alternative space writ large. I literally got a text today. I'm going to read this. Let's do it. Riveting podcasting. continue to be impressed by just how cheaply Apollo will lend construction debt in order to hit their deployment targets. Athena is like the people at the NBA games with a t-shirt cannon that is cranked up so high that they can get to the fans sitting high up in the $5 seats, except Athena is blasting out bundles of cash. Hiten Samtani (03:11) my god, that is absolutely incredible. Kudos to whoever that is. But why are we talking about this right now? JP Morgan has started marking down loan portfolios of certain private credit groups. Been primarily private credit loans made to software companies, but could potentially spread to asset-backed loans as well. Will Krasne (03:27) going to Jamie Dimon Hiten Samtani (03:31) I'm going to say this, but when you see one cockroach, you're probably Will Krasne (03:33) I'll be more. But if this gets into the software space, there's the famous quote that all the podcasts had going around from Bob Smith 10 years ago saying that software contracts are better than first lien debt. What we're learning is that they're not. They're extremely not. And what JP Morgan is doing is basically saying that we're going to mark your collateral like for real for what we think the value is worth. And that just means that they're going to be able to borrow less moving forward. Hiten Samtani (03:55) So this has implications basically for back leverage, right? Which is how a lot of these debt funds make all of this work. Will Krasne (04:01) Yeah, and if back leverage gets harder to come by, then front leverage gets lot less attractive. Hiten Samtani (04:07) So a debt fund will go out and do a 270 million dollar construction loan, but they typically do not hold that 270 million on their books. They then go and get back leverage from one of the traditional banks for a large chunk of Will Krasne (04:18) think of it this way, if you are borrowing a construction loan like SOFR 270, that's not an acceptable return for the annuity at theme that they're paying, you know, or a lot of these places, they go borrow money on a warehouse line more cheaply and earn a spread because again, they're selling money. And if your money gets more expensive to sell at the front part of that chain, it ripples all the way through. And eventually what it means is that a lot of the equity stuff can't work anymore. Hiten Samtani (04:46) Next one, we talked a week or so ago about the dreaded BTR neutering bill. It has now passed. It is now law. Will Krasne (04:52) Well, Hiten I'll give you some grace for not having to watch. I'm just a bill on Capitol Hill in the U.S. education system. It is not law. is extremely not law. Hiten Samtani (05:02) fuck my bad, it's okay. Will Krasne (05:04) It's past the Senate, it's now going to the House. There's a couple of outcomes here, which are one, the president just makes the House Republicans eat the bill as it is. think that is probably unlikely given the thin majority in the House, given how great everything else is going and how much political capital he's got. Everyone in the Senate, even those who, a lot of folks who voted for this bill have huge problems with it and recognize that part of what's in here, specifically the for sale provision that we mentioned last week. Hiten Samtani (05:33) that basically in seven years you've got to offer up this property. Will Krasne (05:36) You have to sell it, but the problem is that a lot of these are zoned on one plat. So if you have a property that you've got to sell in seven years, you then have to go replat it to every individual. Like how is this going to work? It's absolute nonsense. And what it means effectively is that no one's going to build non-attached townhomes because you just can't for built rent. And that's been a huge amount of the new home construction in the United States. And obviously new home construction is like one of the backbones of the US economy. So if that goes down, the economy goes down. So a lot of ripple effects there. Anyway, we'll see what happens in the house. It's been signaled by Steve Scalise and I always get this guy's name right. It's not French Fry banking services guy. French Hill. Hiten Samtani (06:16) A perfect legislator name. Absolutely perfect. Will Krasne (06:20) They've signaled significant opposition to the bill and it's going to go into conference in all likelihood. My educated guess on what's going to happen is this will get changed in the dark of night because no one wants to be seen as coming out for private equity. Hiten Samtani (06:37) Next one. So we've talked a lot in the promote about this sprawling case of mortgage fraud. There is a lot of borrowers out there who bought a certain property, made a fugazi purchase of that certain property with a related party and took out an inflated loan on it and pocketed the proceeds. A lot of mortgage firms, appraisers, brokerage firms have been enmeshed in the scandal. And we've seen some actual convictions play out. Specifically, New Jersey and Lakewood, New Jersey has been the hotbed of some of this activity. And we've seen a number of people go to prison. for this. For a while though, we haven't seen any activity and you wonder, hey, as you said about the cockroaches, you see a couple of these, you would expect more and more. However, there's been so much dysfunction in the US Attorney's office in New Jersey that they haven't been able to bring too many more of these cases. Will Krasne (07:24) One way to avoid seeing more than one cockroach is if you stab your own eyes out with a spoon. So that's sort of what the New Jersey Attorney General's office has done. Hiten Samtani (07:34) All right, next one. A massive air quotes from both of us here, Banash Kanazi, sold a Beverly Connection, which is a popular mall in LA, to Cedar Sinai for $270 million. That's a pretty big price tag for something that was appraised at a lot less than that recently. Will Krasne (07:51) There's a couple of interesting takeaways here because everyone on this listening to this podcast I'm sure has heard wall of maturities or appraised values or slash and this that and the other. again, appraisals 99 % of the time they come in at the purchase price, which makes sense because if there's a buyer and a seller in a market like that's the price, that's what it's worth is what someone's willing to pay. That's what Anne Rand told me back in the day before she died penniless. This property had been troubled for a while. Ashkenazi had a big MBS loan had been in a workout forever. Hiten Samtani (08:19) And more broadly, Ashkenazi had quite a few troubles in his large retail port. Will Krasne (08:23) He's had a lot of troubles. so this thing got, he had like 210 million of debt on it, 170-ish was part of San Basin workout forever. Appraisals came in at sub 200 and it traded for 270 million dollars. Hiten Samtani (08:34) The big takeaway here was finding the one of one buyer. You think of what Sotheby's sold that site on the Upper East Side, their former headquarters to Wild Cornell for an insane price, I think $1,000 plus a foot. And it's because Wild Cornell was really just needed it for its campus expansion. So comps were kind of irrelevant. AB Rosen did the same thing with Bloomberg at 980 Madison. I think they paid as built $4,700 a Will Krasne (08:59) That's exactly right. It can only really happen in gateway markets in good locations. A lot of these things don't trade on cash flow. No one makes real cash flow from the trophy office or the trophy retail. It's like an NFL team. You make the value on the residual going up. You find someone who is not going to underwrite it. They don't need to make an IRR. They may not even be underwriting owner occupancy. If they're buying it for some other reason other than an IRR, they are able to pay something that makes no sense to you. but can make tons of sense to them. Hiten Samtani (09:29) Ashkenazi we should say has been having quite a run in LA. He recently bought the former Neiman Marcus site in Beverly Hills for 50 million dollars from the carcass of the Sax background. Will Krasne (09:38) I love when the same guy is setting the high and low end of the market at the same time. So good for a billionaire band ashton housey. Hiten Samtani (09:45) good for Big Ben. Alright, that's it for the punch list. When we come back, Salvozit's eastill. Well, you've worn many hats in your glorious life so far. Pro baseball player, thespian, tornado remediation specialist. I want to ask, which was your least favorite? Will Krasne (10:06) 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, ugh. My spreadsheets were beautiful, but at what cost? Hiten Samtani (10:27) Sounds like you had good ROI, but your ROIBD, return on invested brain damage, not so good. So what changed? Will Krasne (10:33) 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 at 10. But the one-click DSCR testing, every lender adjustment, every unique requirement automated. ⁓ my God. Hiten Samtani (10:53) No more getting surprised by your own cap stack. Listeners, check them out at loanboss.com, that's loanboss.com, and tell them the promote sent you. Will Krasne (11:05) So the big news in CRE that you had a lot of inside the deal numbers and a lot of the commentary. why don't you take a look at Savills? First of all, they are studly. I will stick with that for. But Savills buys Eastdil, the number one investment bankers in real estate. Hiten Samtani (11:18) Sadly till you die ⁓ The number one or maybe the only investment backers in real estate. This was ⁓ a massive &A transaction. We knew that Eastdil had been courting buyers for a while. Temasek and Guggenheim had backed a management-led buyout in 2019, which meant that the legend Roy March, Mike VK, and a bunch of other senior executives took control of the company from Wells Fargo. And we knew that there was an exit kind of coming. It finally happened, but it happened with a very unlikely buyer, Savills out of London. Will Krasne (11:53) Yes. Hiten Samtani (11:54) And they're paying $1.1 billion, which is, there's a couple of things to think about there. One, it's a very nice exit for Temasek and Guggenheim, who I think bought in at a roughly $400 million valuation. Will Krasne (12:05) A lot of times when people talk about, they made quite a bit of money on their exit in real estate, they do this a lot too. You got to figure out, what did you put in along the way? What did you have to invest beyond this? My guess is that this is a pretty capital-light business. Hiten Samtani (12:18) My understanding is they didn't really have to, once they did that 2019 transaction, Eastdil kind of hummed along. We obviously had the pandemic and then the recovery from that. It's not like Eastdil was a cash star business that needed a lot of financial love. What we should say about Eastdil specifically, there's a couple of things. One, think that tracing the arc of Eastdil's deals is akin to tracing the arc of institutional CRE. They've been involved in everything. You take the Blackstone EOP LBO, the largest in history at the time. You take the Anbang deal to Waldorf with Blackstone. You take any of the mega transactions that you think about when you think about big ticket deal making in CRE. Likelihood that Estelle's involved is pretty high. Will Krasne (12:58) And East Real's corporate history, I think, sort of mimics real estate's institutionalization over time as well, founded by Ben Lambert, legend. Hiten Samtani (13:06) Absolute legend in the business. Very comfortable kind of buying and selling pieces of the company as the markets moved. 67, Ben Lambert, founds this company, which is the first ever real estate investment bank. It's a subsidiary of Eastman Dillon Union Securities. A years later, he sells it to Payne Weber. In 1980, he buys it back. In 1986, he sells half of it to the Japanese. In 1994, he buys that stake back. In 1999, Wells Fargo acquires a majority interest. And then Wells Fargo in a few years kind of smushes together secured capital in Eastdil, which makes Eastdil secured. In 2019, Roy March, who is now the Alpha dog, leads a management-led buyout and it's a $400 million valuation then. Lambert dies in 2021. And in 2026, we are at the Salvos transaction. Will Krasne (13:59) It's actually really helpful because you start off with the conglomerate era where for whatever reason, like Disney was into master plan community development or Sun Oil had a master plan community arm or everything. Hiten Samtani (14:11) Or like the Japanese bought a studio, right? Yeah. Will Krasne (14:14) for whatever reason. And then it's okay, that's done. And then the Japanese come in, then that's done. And then banks want to get into real estate, so they come in. Hiten Samtani (14:24) I was listening to Roy March, excellent interview with Roy talking about his career, we'll put it in the show notes. But Roy said that at one point B of A was looking to buy Eastdil and kind of make it its real estate eye back. Will Krasne (14:34) makes a ton of sense, and real estate is largest asset class in the world. And I think something we'll get into as part of this discussion is you don't have to put a lot of capital into it. And a lot of this becomes stickier revenue. Hiten Samtani (14:46) And maybe before we get there, let's talk about this last buyer. So Guggenheim and Temasek, deep pocketed Asian capital in Temasek, which is Singaporean state controlled entity, and Guggenheim, which is your boys. Will Krasne (14:58) Guggenheim, one of the most eminent names in finance in New York, basically creating this full service investment bank. They brought in Alan Schwartz, used to run Lehman, played baseball at Duke. Todd Bolley was there before leaving to establish Eldridge. Hiten Samtani (15:09) Jonathan Goldstein was there for a second, he now runs Kane International, is teaming up with Vladi all over the place. Will Krasne (15:14) Yeah, K International owned by Eldridge. They do a lot of really creative stuff and then Temasek who most famously bought Purepoint in the recent season of industry Yes They paid 400 million for it and two and a half X in six years With I presume some pretty nice dividends along the way like not a bad outcome and not what it could have been though I think they were trying to get more when the Hiten Samtani (15:22) Yeah. Bloomberg story broke that they had hired BDT and MSD. Guys, change your name. It's a terrible name. When they had hired BDT MSD to shop Easto, executives were teasing a valuation of four to five X what it was in 2019, which means $1.6 to $2 billion is kind of where they hope to end up. But brokerage is a tough business. We always say a broker ring is a great business. To be a broker can be an incredibly lucrative profession, but brokerage is a tough business. Will Krasne (16:01) It is and then multiples reflect it. This is ten times EBITDA. Yeah, that's the type of business that is. This is not a business that's gonna trade mid-tie teens and it also doesn't really trade a book value because it doesn't have any assets other than people. Hiten Samtani (16:12) What's that whole chestnut about going up and down whenever your talent walks in and out? Will Krasne (16:17) your product walks out the door every day. It's also really, it's gonna be lumpy. It's gonna follow the real estate cycle to a certain extent. Hiten Samtani (16:24) Let's talk about the disparity in the lockups here. So Temasek and Guggenheim are actually going to be released as in they can basically cash out within 12 and 18 months, their lockups expire. However, when you dive into the filings, you realize that the talent, like the rainmakers essentially make Eastdil Eastdil. They're locked in dude. They're here for four, well, technically the fourth, fifth and sixth anniversaries of the deal closing. That's when they fully vest or when their lockup ends. They've got pretty serious golden handcuffs here. Will Krasne (16:56) They do and I think it's also interesting that you still obviously private is taking a lot of public stock. One, that's very tax efficient so people want to do that. But two, having a currency is really important for &A. That's one of the reasons why people go public. Hiten Samtani (17:08) You made a good point about how Newmark and Cushman and the likes can kind of juice comps with stock, right? That was the big competitive advantage they had over Nistel, which has lost a lot of people to those kind of companies. Will Krasne (17:18) Right, but with that comes a nice stock award you got there. It'll be a shame if you left and something happened to it. Hiten Samtani (17:26) Exactly. So here, Savile's stock, you know, it's not Amazon. It's kind of been going nowhere for the last year or so. And it's about a third off its late 2021 highs. The upside is kind of iffy. Will Krasne (17:33) No, Yeah, but what you're trying to do is you're trying to shift the revenue mix because if it's harder to grow revenue, you want to create a higher quality of revenue. And that's what the multiple you trade on. That's how it increases. We talked about capital markets. That's really where all of these folks want to go. They want to go to recurring services and they want to go to stuff that's less one off than sales. I sales are sexy. They get the book written about you. Hiten Samtani (18:02) Yeah. That's the stuff which creates the myth, right? Like John Grey cutting Roy March's hair in the boardroom right after the EOP transaction was consummated. That's the stuff that makes you a rock star. But if you look closely at the big dogs, CBR, EJLL, et cetera, capital markets is like a small chunk of the pie. Will Krasne (18:18) They want services with long-term contracts that they can count on and Hiten Samtani (18:22) So property management, facilities management, consulting, that kind of stuff. Will Krasne (18:25) That's been the whole first services collier's playbook. That's why that company's worked to a greater extent than some these lumpier earning companies. The revenue tells it all. 2021, they did 862 million in revenue. Hiten Samtani (18:37) this is the Zerp era, everything is happening right in the morning. Will Krasne (18:40) And then in 2023, they did 367. So I mean, you're talking about two year, greater than 50 % revenue decline with nothing else changing. Risk is your stability of cashflow. And these businesses definitionally are pretty lumpy and don't have that much stable cashflow. Hiten Samtani (18:56) E still is secured specifically because it's dealt with, known for kind of larger transactions in general. It's known for big ticket ⁓ &A and that kind of stuff disappeared for the most part in that two or three year period. Now it's very much back now. They've made quite a run of it. They're number one on &A advisory. They've been all over the data center game, obviously as well. They did the Blue Owl $18 billion financing for that Oracle data center. Will Krasne (19:20) The new CEO, Mike VK, I think really tried to call this out. Debt placement for Eastdil is now 42 % of revenues. Hiten Samtani (19:27) That's a big, big ratio. is. % is a very stark. Will Krasne (19:32) Well, here's what really blew me away. Their average loan arrangement was $220 million. That is staggering. And I'll tell you too, they talk about productivity per employee. He's still sort of top of the marks in that, or per capita productivity. Like that's why. You don't need 10 times as many employees to arrange a $225 million loan as you do a $22.5 million loan. Hiten Samtani (19:36) $225. There are a couple of wild cards here though, because you just mentioned Mike VK, who's a Drexel Burnham alum. Long time he's still stalwart. I think when Secured Capital came in the mix, he became part of the executive team. Very well regarded in the industry. But what is funny to me that not once in the earnings call, which had on the dais the Savile Simon Shaw, aforementioned, Mike VK and the new CFO of Saviles, Roy March was not mentioned once. Roy March, absolute industry legend. CEO of Eastdil for 20 odd years. Is this like his riding into the sunset moment or is he gonna quote stay involved in deals as some people at Eastdil have been saying? Will Krasne (20:30) If you've got the legacy clients, still service them, take them to lunch, take them on the boat. ⁓ Hiten Samtani (20:36) Davos in the desert. We should take a minute to just step back and appreciate. Can you imagine how much juice Roy March probably has? Kings and Queens kind of juice. Will Krasne (20:46) Just go read Liar's Ball. It just tells you the juice that Roy March had. It is pumped. It's up there. Hiten Samtani (20:53) He was up there, he had the swagger. One of the things that Sal was trying to buy here is this direct C-suite relationship. And Roy's the kind of guy who could be like, oh yeah, I sold MBS's father that portfolio 20 years ago. Let me make that call, right? And if you don't have him in the mix day to day, I wonder if that has the same heft, but we'll see. Will Krasne (21:10) And I think though, too, it's tough to have that kind of guy as the CEO or public face of a public company. Hiten Samtani (21:16) Well, larger than life, doesn't quite work. Will Krasne (21:18) Yeah, it just doesn't work. that's not any shot against him because he's got the talent of brokering. He's up there with anybody, but that's a different talent than like making a public stock. Hiten Samtani (21:29) And so now he still is kind of in two businesses, right? It's in the talent retention business. In the next six months, a couple of things are going to happen. There's going to be a lot of soul searching among the Will Silvermans and the Gary Phillips and the Grant Frankles of the world. Should I stay here? Can I see enough upside to kind of ride this out? And there's also going to be a lot of poaching conversations happening with the new marks and the CBRs, et cetera, because they're going to look to pick off talent. Will Krasne (21:52) Walker Dunlop. Absolutely. The stock too. It is golden handcuffs at some point, but like if the stock doesn't perform, people don't give a shit as much about the stock. Hiten Samtani (22:01) couple more interesting nuggets that came out of the filings. I'm out of from heaven for us because normally you don't get this kind of visibility into a private company like Eastdil, especially a company like Eastdil. Like if you try to figure out who the top brokers are at Eastdil, it's actually very hard to do. Compare that to like a Newmark, CBR, et cetera, where they're in the hierarchy of the commercial observer story. It's very clear. But at Eastdil is just the deal was brokered by Eastdil secured. And so it's hard to put all this together. One that jumped out at me was There was a $195 million special incentive package. Once the sale process started, maybe a year and change ago, they started giving out cash incentives and bonuses and retainers to a lot of their top people. Will Krasne (22:43) This is part of making the residual value in the multiple higher because if no one's locked up, then what are you buying? You're buying like cool business cards. That's really about it. Hiten Samtani (22:54) You know, I have a Roy Hilton March business card in my cardboard box. Will Krasne (22:59) That's what you're buying. So it makes sense to do that. And again, when they talk about the transaction, I'm Savile's, don't worry about that, that amortization over four years. I thought we got that covered, but that's a way to make sure that like you're buying something that's sticky is to have those guys stick around and you got to make it worth their while. $48 million a year is not nothing. What's their EBITDA? Hiten Samtani (23:06) Got that covered, yeah. The other thing to think about it put the East Hill Salvo's deal in the context of the broader brokerage &A that's been happening. So the 1.1 billion price tag coincidentally is exactly what TPG paid for DTZ. The opening salvo in the super brokerage formation of Cushman and Wakefield. A couple of multi-billion dollar deals that went into that. ⁓ hasn't worked out too well. In fact, TPG said they're going to piece out of that investment. Will Krasne (23:41) RPG's got other things to worry about. The other one that we have to mention and close to my heart because they did a lot of hotels back when I was a young pup doing hotels and if anyone has any swag from this company please send it to me. ⁓ HFF man. Holiday, Fenneglo and Fowler. JLL bought HFF and Hiten Samtani (24:02) for 1.8 billion and change, like that. Will Krasne (24:04) Loved HFF. It's funny, if you see JLL guys who were HFF, they're still like, yeah, we're HFF. Hiten Samtani (24:09) Yeah, like Chris Beck and those guys. think a couple of them are listeners actually, so shout out to them. Will Krasne (24:14) Obviously, Barry Gosin did Bill Newmark differently, really just sort of grave dancing. Hiten Samtani (24:20) Marcus Shopping, Robin Ellis notably was one of them. Then he bought Berkley Point for close to 900 million. And then he just said, all right, Howie Lutnick's gonna give me all the money I need. And then he just went poaching. was poaching season right there. Harmon's Bees, Jonathan Firestone from Eastdil, who's basically their co-head of debt and kept going. Will Krasne (24:39) It mimics the equity side of the business where you used to have the cowboys like the guy we're about to talk about next, who's one of the dying. And now it's just all these corporate behemoths that are publicly traded. Roy Marches are out and Simon Shaw, the former accountant is in. Hiten Samtani (24:54) and you look a bit... Actually I am a bit knackered. Strap in, you got another day of it mate. Will Krasne (24:59) she said. I'm sorry. Hiten Samtani (25:14) I'm here with Aaron Krowitz of Bravo Capital. Aaron, $2 billion in deals, 100 % HUD approval rate, five years since launching. How do you keep that streak going? Will Krasne (25:23) Down to our team, our underwriters know what HUD wants, we're a f***ing play HUDlander meaning everything we do is HUD and bridge to HUD. No taking shots and just hoping. When we go, we Hiten Samtani (25:33) really go. ⁓ Will Krasne (25:38) four days from our submission to HUD's approval and it goes back to knowing the ins and outs of the program so that there is no guesswork. Hiten Samtani (25:45) Sniff's assisted living, feels like such an arcane world full of very complicated regulations and such a specific cast of characters that you really need to know Cole to make this work. Will Krasne (25:55) We're steeped in state-by-state regulations and distinctions, but we're not just about HUD. We also have a very strong balance sheet bridge affiliate, Bravo Property Trust, and we just financed over $170 million out in Miami and $125 million in Dumbo, Brooklyn. If we have conviction, we move forward. Hiten Samtani (26:14) Thanks Aaron, and where can people find you? Will Krasne (26:18) We're at bravocapital.com. Hiten Samtani (26:30) So I gotta confess before your extraordinary mailbag, I did not know who Ray Washburne was. Will Krasne (26:35) That's what I'm here for is to broaden everyone's horizons for lunatic real estate GPS. So I got to say I was fired up about this in the news. Hiten Samtani (26:44) This guy is such a character, I loved reading about him. Will Krasne (26:47) So this segment ostensibly is to talk about Ray Washburne wanting to build an $800 million hotel near the Dallas Convention Center. But it's not about that. Really, it's just an excuse to talk about Ray Washburne. Hiten Samtani (26:57) What a cowboy, incredible career. We wax eloquent about this dying breed of deal maker who goes, just goes balls out, pulls off these audacious deals, does it all over again, risks everything and makes things happen. Who's my Miami guy that I'm thinking about? Sofer. My guy in Atlanta, Tom Cousins. This breed of deal makers is going extinct and we're so glad we have someone like Washburne in the mix. All right. So what's happening here? Dallas Convention Center is getting a three and a half billion dollar. Upgrade slash expansion as a lot of these convention centers across the country are doing and Ray Washburne wants to take a chunk of it. He owns what the Dallas Morning News former plant or HQ. Will Krasne (27:37) So he bought the Dallas Morning News headquarters, which is right next to the convention center for something like $28-29 million in 2019. Hiten Samtani (27:45) But he didn't stop there. He had a couple tricks up his sleeve. Will Krasne (27:47) He did, and so he asked for a ton of public money to help subsidize this redevelopment project, and they were sort of being tough with approvals and funding. And so he goes, you know what? Hiten Samtani (27:56) He invoked Will Krasne (27:59) He's like, you know what would be really good amenity for this convention center that would make a lot of people really excited to come here? It's a giant data center. Hiten Samtani (28:07) And the city figured out the problems and came came Will Krasne (28:11) Yeah, they paid basically double his price for half the property. Hiten Samtani (28:16) And this is the amazing thing from the news article. Washburne said he had to buy the data center firm out of their contract but declined to provide further details citing an NDA. Will Krasne (28:27) I bet he insisted on it. Hiten Samtani (28:29) Well, I think we should say about Ray Washburne in general. There's a lot of myth-making involved with this guy. There's a lot of stories that are partially true, have a little grain of truth, might be true for a second, but everything is fluid with this guy. Will Krasne (28:40) It's one of these guys where like, he's not lying. But it's also not like... Hiten Samtani (28:44) Really, the truth? You can't handle the truth! Will Krasne (28:46) We need more of this. This is what real estate used to be based on. Absolutely. I think I've held off long enough. We're gonna talk about Highland Park Village now. Let's go. So Ray, his background, he's a restaurant. Hiten Samtani (28:55) or with an N or without the N. I prefer without the N. It's classier. Will Krasne (28:59) Yeah, I always say restaurateur, not restaurateur, right? so, chain of Mexican restaurants, very successful guy. And one of the locations was in Highland Park Village, which is in Highland Park in Dallas, one of the most upscale neighborhoods in America. Hiten Samtani (29:14) and long established real money. If you're not familiar with Texas, it's hard to appreciate just how much wealth is in that Dallas-Fort Worth corridor. It's actually incredible. Will Krasne (29:24) Highland Park is where Billy Bob Thornton's wife wants to go live in Landman. That's where the Hunts live. Like that's Hiten Samtani (29:31) Well speaking of the hunts they're involved here. Will Krasne (29:33) Yeah, so he's in Highland Park Village. I'm just gonna read his description of how this transaction So again Highland Park Village is this what half a million square foot a little bit larger retail center one of those just biggest Most show-stopping assets in in this market Hiten Samtani (29:47) And it's owned by this dynastic family called another dynastic family called the Millers who I think they paid what five million for it way back in Will Krasne (29:54) It had five million dollars for it and this thing just like shit cash for the better part of half a century. So it's seen better days because you know there's 12 or 13 people, however many, getting distributions out of this thing. They're not really like spending the extra dollar to juice rents and juice sales that they should. Hiten Samtani (30:08) when your basis is that fricking low, you sometimes don't, you kind of don't push as far as you should. Will Krasne (30:14) It's not the right thing to maximize IRR, like, who's to say who's wrong? You know what they did? They bought it 50 years ago for $5 million. They can afford to not do the flower pots. But anyway, I'm just going to quote this story because it's just tremendous. again, grain of salt with all this. So this is from D Magazine, which is a sleep. Hiten Samtani (30:30) Shout out to D Magazine, one of my favorites. Will Krasne (30:33) I was having dinner here with my wife one night, Washburne says, between quick sips of an Arnold Palmer. And one of the waiters had heard someone talking about how they were thinking about buying Highland Park Village. So I happen to see Henry Miller III walking by and I call him over. He pulls up a chair, puts down a shopping bag, and I say, are you selling? Hiten Samtani (30:51) Isn't that incredible? The couple of things here where you could just pull over a scion like that and have him pop by. The second though, think of how much foresight and training you have to have to get the right kind of waiter who would hear that little nugget and then come back to you on it. Will Krasne (31:06) yeah. You'd be like, Mr. Washburne is going to want to hear about this. I hope that guy got a finder's fee. anyway, he then says, called him the next morning. Washburne continues telling the story in an excited rush. The deal had dropped. I said, I'll be in your office in five minutes. I hurried over there. We made a handshake deal. And a few months later, the contract went through and I bought it. Hiten Samtani (31:08) Lost, do know what I just heard? Semi-bullshit. Will Krasne (31:27) ⁓ I'm sure there was some truthiness there as you said, but here's where it gets really interesting and why I love this story. Ashburn was making the rounds last year with these Instagram reels talking about this. And so he has about this two minute and 50 second clip about how he bought Highland Park Village. Hiten Samtani (31:41) It's electric television, that thing. Will Krasne (31:43) So good. The one thing we neglected to say about the sale is that happened like right in the teeth of the Great Recession. he's under contract for $170 million. Ray Washburne does not have $170 million. Ray Washburne probably doesn't have $17 million. And he buys this thing, he hires HFF to go get debt. Hiten Samtani (31:50) liquidity forget about it. They basically knock on every lender's door. Everyone's like, guys, this is not happening. Will Krasne (32:06) No, no better than that. So HFF they're like, hey, we found the needle in the haystack. There's a German bank. The German bank is gonna lend you the money. And he's like, hell yeah. Yeah, that's great. So he tells the story. He's like, I'm an open-ended day for the Rangers. My phone rings. HFF calls. Says this is the first time this has happened in the 500 years of this German bank, but got to the CEO and they said they ain't doing the loan. So he goes back to the millers and he says, I don't have the money. And the miller Hiten Samtani (32:12) course. There's a little bit of a spoiler here, but think about these dynastic families and how they're organized. There's a lot of family members who are collecting checks and want to collect more checks. If this deal is now in jeopardy, a lot of those cousins and uncles and aunts don't make their money. So they are kind of a little bit of a soft target here. Will Krasne (32:51) They are, and once you make the decision to sell, you're selling. That's the thing. Getting there is hard, but once you're there, you want it to go through. So he gets them to take a, what's $80 million first lien at 2%. Just unbelievable, like the balls. Hiten Samtani (33:03) Owner's note. ⁓ Incredible. three years. That's government debt levels, right? Yeah. Will Krasne (33:12) Just incredible. And so he's then got a 90 million dollar hole and he's like, all right, like between what I could put up and there was like 70 million left. So I go to every rich guy I know. Hiten Samtani (33:22) Real estate is often a club deal, right? Pull out the Rolodex, call everyone who's got a certain level of net worth and see if they're interested. his Rolodex luckily has guys like Harlan Crowe on it. Will Krasne (33:33) So Ray Washburne, in addition to being a successful restaurateur, did the most important thing to be a great real estate investor, which is he married one of the richest families in America. He married into the Hunt family. You can marry more money in a minute than you can make in a lifetime. So again, your standard person trying to tie up Highland Park Village could not do this. But he ends up getting Harlan Crow and some other Dallas billionaire who he won't name into a competition. So he gets him down from 15 % to 12%. Long story short, when he bought it in 2008, Hiten Samtani (33:42) What's the thing you say you could get? I think he paid what, $170 million in the end? By a distance the most ever paid for Dallas retail. Will Krasne (34:05) which was a staggering price. A giant amount. again, we talk about like buying a trophy asset, buying a great asset and like the right to outcomes here. In 2008, we bought this, the village did 80 million of sales across the entire, all the stores there did 80 million sales. The rents were way below market because again, people couldn't afford to pay more because they weren't making any more money. The center had been a little bit shabby. They hadn't been reinvesting in it the way they should. And tenants rent is really impacted, one by the comps, which he had an interesting insight, which he's talked about, which is that the comps weren't other Dallas retail centers. The comps were like Beverly Hills. Fifth Avenue. ⁓ Hiten Samtani (34:41) This is my overall thesis for luxury. Like obsessed with the idea that at the very tippy top of the luxury market, be it condos, retail, hotels, whatever, they're only competing with each other. They're not really competing with the local market. That's my grand unified thesis. Will Krasne (34:57) And he was proven to be 100 % correct because rents were really low because that's all tenants could afford to pay based on their sales. And I think he did 80 million of sales the year he bought it. And I think the sales have 10x'd since then. That means the tenants can pay a lot more rent and they're willing to eat a huge rent increase if their sales go up in a commencement fashion. And that's what we've seen. And so I'm sure he's refied out Harlan Crow and he's doing quite well. Hiten Samtani (35:19) Wow. Dallas has always been a bastion of wealth, but that city's changing very quickly. There's an immortal line from Harold Robbins about the three most boring things in the world, and it's home cooking, home fucking, and Dallas, Texas. It's changed quite a bit since then. Will Krasne (35:36) That it has. again, first of all, the balls it takes to go ask for a 2 % seller note for $80 million on this asset. then the risk appetite it takes to go get 15 % paper for another $80 million. It's $12 million a year of interest expense you've got to be paying. These are the type of guys like Harry Macklell behind the GM building. that's this type of this. It's a smaller nominal check size, but this is that type of swing. It's not just seeing like what's there, it's seeing what it could be and knowing you can get there and levering up everything you can to get there. Ray Washburne, we salute you. Hopefully Dallas steps up and gives you 20 % of the cost for your $800 million hotel at the convention center, which ostensibly we should have been talking about. Hiten Samtani (36:13) I love this line, which is just such an ominous way to end it, where he said, Will Krasne (36:20) I mean, how long does that NDA on the data center last? Hiten Samtani (36:31) That's it for the Promote Podcast this week. Eastdil went across the pond to find a willing buyer, and now the game becomes all about convincing their biggest rainmakers to stay put. And the king of the Dallas Buyers Club has grand plans for the city's venerable newspaper campus. We'll be watching how he bullies the city into going along with his vision. Will Krasne (36:48) We'll be back next week with more CRE Insider Goodness. Thanks again to our sponsors, Bravo Capital and Loan Boss. Hiten Samtani (36:54) You can find them at BravoCapital.com and LoanBoss.com. Did you see we finally got another new review? Will Krasne (36:59) We did, and I want to thank the reviewer who put in so much thought, heart, and empathy into this review. It was William Carlos Williams-esque, and it was just... good. It good. Hiten Samtani (37:14) The guy's not wrong. I'll see you next week, dude. Thank you. Ciao. Will Krasne (37:18) Thank you.