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Arbor's Looking Glass and Alexandria's Pipette Dreams · The Promote Podcast

• Hiten Samtani (00:06) Let's do a little Yiddish one-on-one for the audience. So in the classic trope, a schlemiel is the guy who spills the soup. Will Krasne (00:13) And the poor sap that it gets spilled on is called the schlimazel Hiten Samtani (00:19) We're now at the stage in the real estate capital markets where we're speaking of double schlimazel Will Krasne (00:24) Or, as they would say at Enron, a Schlamozzel squared. Nothing for you. Hiten Samtani (00:41) Welcome back to the Promode Podcast, your insider guide to the money and mania of the C R E markets. I'm Hiten Samtani Will Krasne (00:46) And I'm Will Krasne. Hiten Samtani (00:50) Shout out to our sponsors, Pensford, the only interest rate advisory focused exclusively on CRE. Will Krasne (00:56) Bravo Capital, a leading HUD and Bridgelender, you should also check them out for both SNFs and BTR. So essentially any three-letter acronym that has a residential component, throw over it. Hiten Samtani (01:07) You'll also hear during this episode from our friends at Gibson Dunn. Top attorneys at the firm take us inside the cap stack in a series of conversations. This week it is time to address the multifamily distress from the other side, from the lens of the lender, specifically one of the biggest players, Arbor Realty Trust. Arbor's been walloped on Wall Street. Its stock is down 73% this year. It's suspended its dividend. It's been kicked off the small cap 600. It's the target of short sellers. And it's been getting twice bitten on some loans that it made at the peak. Will Krasne (01:37) Other than that, Miss Lincoln, how was the play? Hiten Samtani (01:41) Can Ivan Kaufman pull off a great escape? Next, we put in a call to the men in the white coats. Alexander Real Estate Equities is selling off large chunks of the life science empire that it defined a whole category with. Will Krasne (01:53) Before we get into those stories, let's kick it off with the punch list, our signature rundown of the newsies news and CRE. That is brought to you by H Equities. If you're in a transaction right now and you are trying to find that last little bit of capital on the Code GP side, or you need bridge debt, Hiten Samtani (02:10) York City Marathon Week, so final push to get over the line. Will Krasne (02:13) Just like in the marathon, when you hit mile 20 or you raise 85% of the money, you're halfway there. Call up your man Elliot Horowitz at HEquities. That's at haquities.com. Lots of things happen this week, but the most catnippy thing for us is that Hatten had a series of conversations with Raphael Taladana. Hiten Samtani (02:34) I did. This is the former wild child of New York City real estate. I have found out that he's resurfaced as a sunbelt investor. With Rafi as always, the details are a little bit murky. Just know that he is active in the sunbelt market. He is mellowed a little bit over time, but he's still got that dog in him. Will Krasne (02:51) So many questions. One, is he still worth a fuck ton of money, bro? Hiten Samtani (02:55) It's fuck load of money. Please get it, right? Will Krasne (02:57) I know it was on the banner of the email list at one time. But two, is he still living in a rent stabilized apartment? Hiten Samtani (03:03) I'm not quite sure of his living situation. For those who came in late, Rafi Toledano, this Wonder Kind in his mid-20s had amassed one of the East Village's biggest portfolios. This is at a time when the red stabilized trade was still hot. This is about four years before the tenant reforms nuked that whole business plan. Rafi came in really hot. He picked up these portfolios, borrowed a ton of money from Madison Realty Capital, got himself into huge trouble with the state AG. And his empire essentially melted and then he vanished. He was gone. A week ago, I got a message from a broker saying, This is unusual. And he's like, Rafi Toledano's out there issuing press releases about deals. The only problem is this deal hasn't traded in four years. Will Krasne (03:47) Yeah. Hiten Samtani (03:48) So I start calling around, and it turns out Rafi Toledano has been amassing the Sunbelt portfolio under a new hold code called Sorrento. And for whatever reason, I think his AG Five year ban is coming up in January. He's decided he wants to be out there again. The most charitable way to think about it is he frontdated some of these transactions and is now announcing a bunch of deals that he did in some capacity four years ago. What? That that was my takeaway too. The thing about Rafi and the thing that makes him so compelling is that he was always unbelievably talented. Will Krasne (04:24) The thin line between love and hate with these guys, it it is really thin. If you just used your powers for good, what could you have done? In hindsight, you might say, if you're just coming into this, we bought some rent stabilized buildings in the East Village, whatever. What's a banana, Michael? What could it cost? Hiten Samtani (04:40) And all. Will Krasne (04:41) This was a hundred and thirty-five something million dollar transaction. Yeah. Every single New York group that did this was after it. Hiten Samtani (04:48) Treetop, E and M, the Cushners, they were all into this like village rent stabilized game. And he beat out everyone for this. He just went over his skis a little bit. And this is when the regulatory winds were starting to shift in New York. He became the poster child of the kind of the rent stabilized abusive landlord. Correct. Will Krasne (05:07) Great that he comes back through the promote. Rafi come on the pods. Hiten Samtani (05:10) Alright, next one. We've talked about significant data center pushback, but there is one county in Pennsylvania that's taking the other side of this. That's gonna be the contrarian play going forward. Will Krasne (05:22) Luzerne County in Western PA, they just voted to triple their data center overlay, their zoning area. It's almost 5,000 acres. Hiten Samtani (05:31) This is coming at a time when county after county is imposing moratoriums on data center development and cracking down pretty hard on projects that they've already greenlit as well. Will Krasne (05:40) You might think though, okay, these rubes, they don't know what's going on. Not so. They've already done a massive data center deal. They sold a an assembly to QTS, so Blackst for Hiten Samtani (05:52) QTS the Blackstone joint. Will Krasne (05:54) just under six hundred million dollars. The landowner group, and it's I think a hundred and ninety-four families that Glenbrook Group has assembled that own the land for this campus. They sort of I think have the right idea here. They're giving it back to you, the people, as Bain would say. They've donated forty three million dollars as part of this upcoming sale and community benefits, including most notably, twelve million dollars for the construction of a micro hospital. And this area hasn't had very much h healthcare at all. So this is I think the contrarian play, as you said, but also the path forward for some of these communities to get what they need. Hiten Samtani (06:29) The battle for data centers is really a battle at this point for hearts and minds and power. And this is a way to take care of the first two. I was talking with the data center operator who is making nice with a lot of these counties. And he said, Some of them now, they don't play around at all. They come to you with a list and say, This is what I want. Thank you very much. As the broader tides are turning against data centers, a few savvy counties are saying, you know what, this is happening. Might as well milk it. All right. Next one. This whole theme of etchasketching capital stacks has become one of I think the promotes pet topics in the last six or eight months. Will Krasne (07:08) This is probably the most prominent one of these so far. Rock Point Group, which is a really large private equity firm. My first job in real estate was an offshoot of Rock Point Group. Rock Point in 2019 bought 100 Summer Street. So main line in Boston, it's not called the main line. I know that. It's the back pay, but main and main location for an office building in Boston. Rock Point bought it for $800 million in 2019. And they got a four hundred and seventy million dollar loan from Wells and Haten. What did they buy it back for? Hiten Samtani (07:43) They have bought it back for $260 million. So just about a third. This is great. They know the building. They know how to operate the well, they kind of know how to operate the building. They understand this location. And the lenders have come to Jesus on these things. And finally, there seems to be a clearing price for a lot of these distressed skyscrapers. Will Krasne (08:03) It's seven years on. Some of these assets, it's just too much debt, but it's performing well. Yeah. This one was a third vacant almost with office. The vacancy is so important because to get to 95%, it's not like Rezi, you can drop your rents and people will move in. You need to spend a humongous amount of capital. Hiten Samtani (08:22) Tens of millions of dollars. Will Krasne (08:23) That really only makes sense if the entire basis is reset. And this is reset in such a way where the senior lender is taking about a 50% haircut on this thing. I would love to know whether it's the same fund doing this, a different fund, or perhaps even an SPV, where you just think, hey, we're coming back in on this thing at a great basis. Because at $260 million, you can spend the millions of dollars you need and charge super low rents and undercut everybody else. And that's really the business plan. But again, it requires capitulation. Hiten Samtani (08:55) This is the same playbook that's being employed by the likes of six one West, David Werner, and they're buying these buildings for next to nothing. You have enough money to do what you need to do to get the building up to snuff. Will Krasne (09:07) Let everybody know that I see it all. Farmview Ventures in DC, also doing this. Good job them. Hiten Samtani (09:12) Savannah too. Savannah's been doing a lot of this. Is there no downside to losing office buildings? You've talked about this before. As long as you lose money in the right asset class, you're okay. Will Krasne (09:22) Yeah, if you lose money conventionally you're totally fine. Hiten Samtani (09:26) Okay, next one. Our boy with the great jawline, Tyler Henritsey uh raising one point nine billion dollars in five months. And that's not all. TPG has raised five billion through a fund in related vehicles for uh for what exactly? Will Krasne (09:43) Liquidity for assets, not unlike a hundred summer that we just talked about. TPG goes across the capital stack. They wound down their mortgage rate, but they're going back more to equity investing. Five billion is no joke. That's a real size fund. I I don't know if the top, the size of their previous opportunity funds, I would wager they were similar sized, but this is a good number and really good for them to have the striped powder. Now the question is like, how are you going to spend it? Hiten Samtani (10:08) Okay, next one. We'll get ya and mangle ya. What's going on? Will Krasne (10:13) I'm obsessed with this story. This is crazy. Hiten Samtani (10:16) You and I have both spent many hours on the FT and the journal this past week reading about Wild Goat Chow and and the sudden collapse of this firm. We think about the industries we cover, brokerage where talent goes up and down the elevator. Law is essentially that too. Will Krasne (10:30) It really is. And I think the business of law has changed so much because now, especially with private equity, partners are getting paid twenty, thirty million dollars a year. Hiten Samtani (10:38) Yeah. There's an amazing nugget. There's a partner at PJT who has never practiced law and is now moving over to one of the big law firms because it's just so much more lucrative to be on this side. Will Krasne (10:50) As a lawyer, you make straight cash, homie. Yeah. There's no carry. There's no promotes. There's no promotes. And this has happened before. Dewey LaBeouf blew up. They brought over a bunch of talent. They guaranteed them huge sums of money and couldn't handle it. But what's interesting with Gwile is that they had no debt. And I think it's more of a situation where I think the person who was gonna get named to take over the firm. Hiten Samtani (11:12) And she said no. Will Krasne (11:14) And that just sent shock waves all the way to the ground floor of the building. I used to watch The Good Wife. All the time. And I just kept thinking of when Alicia leaves and it's this massive galvanizing event for Will Gardner. And he's just like, We're going to eleven. We're gonna become the biggest in the Midwest. And then while this happens and everyone just leaves and they all go to greener pastures where they can make more money. We talk a lot in real estate about is it the guy or is it the C Yeah. And in law, it really is the guy. Hiten Samtani (11:41) You could argue in brokerage there is a little bit of that too. The Harmans and the Speezes, they've been able to take a lot of their business with them. For sure. The reason we're talking about this is really there's a real estate component here, quite a big one, north of eight hundred thousand square feet, and the office market nationally is going to be left unspoken for. Will Krasne (12:00) Most prominently, they're one of the largest tenants at the GM building, and the GM building has an upcoming loan maturity. Hiten Samtani (12:06) So it's a $2.3 billion CMBS comes due in June or July. And the additional little masala here is that the special servicer on that loan is our boys from SL Green. You don't say. Just to be clear, I think Boston Properties is probably going to be able to figure this out. They have a 400,000 square foot hole, but this is the greatest time to be in the office leasing business. It's just about timing here. Will Krasne (12:31) They even call it out on their earnings call. Doug Lind from BXP said there is a vast gap between where the in-place rent is at the GM building and where we believe or perceive the market is. This is the type of thing in general you'd be excited about. Yes. If your boss probably you're not excited about it though, if it is nine months before an a loan maturity. Okay. Hiten Samtani (12:51) Okay, next one. Blackstone Mortgage Trust has had our torid time. They have reported a 327 million net loss for the third quarter. Stock obviously not very happy with the news. Will Krasne (13:03) Down eleven, I think, in the last month, down forty-two over the last six. The explanations exactly what you would expect. Hiten Samtani (13:10) While higher rates and an elongated office recovery impacted our reserves and book value, our watch list is now at the lowest level since twenty nineteen. Will Krasne (13:17) And the remainder of our legacy portfolio is performing well and shrinking rapidly. Hiten Samtani (13:22) We saw this with the Apollo Reed. They basically were eaten up by the mothership. That's one likely outcome here. Will Krasne (13:29) The question is just why do any of these companies have a mortgage read? Why do they need to exist just structurally? Because they now have such big private credit arms. What does the REIT accomplish that they couldn't accomplish elsewhere? Hiten Samtani (13:42) That's it for the punchlist, when we come back. Will Krasne (13:44) We have a fake holiday where your kid doesn't go to school because it's Arbor Day. Hiten Samtani (13:51) Okay, let's go inside the cap stack with Gibson Dunn. Eric Meer from Gibson Dunn, welcome back to the promote. Eric Meer (13:58) Thanks for having me again. Hiten Samtani (13:59) We're talking pref today, which has become ubiquitous in cap stacks. There are certain considerations that both sponsors and anyone who wants to get into the pref space as a provider should be keeping top of mind. So what are they? Eric Meer (14:13) Oftentimes preferred equity is a stand-in for an additional tranche of debt in the capital stack. And so it's helpful to think of a preferred equity provider as effectively just another lender. And that dynamic will color a lot of the negotiations. Hiten Samtani (14:29) How should Pref be thinking about their position in case of a default? Eric Meer (14:33) Well, it depends on when in the origination of the transaction the preferred is coming into the capital stack. If the preferred equity provider is coming in simultaneously with the closing of the mortgage loan and the mezzanine loan, then they're very much a junior lender in the capital stack and they should be treated as such. Just like a mortgage lender or a mezzanine lender, a preferred equity provider should be entitled to assert its remedies upon a default. Now, a sponsor is going to be cognizant of the fact that. Unlike a mortgage lender or mes lender, a preferred equity provider could take over control instantaneously. Hiten Samtani (15:09) The sponsor has always had at the back of their mind that they have a little time to figure things out, but when it comes to pref, that may not be the case. Eric Meer (15:18) Exactly. And so if we're representing the sponsor, we would oftentimes want, for instance, a lengthy period before the preferred equity provider has the ability to trigger a foresale, replicating the period of time that a mezzanine lender would have to take title through a UCC foreclosure. So the name of the game, if you're the sponsor, is to uh try to delay the point in time in which the preferred equity can take over the control of the property. Hiten Samtani (15:44) These capstack dynamics are so fascinating. Eric, thank you so much for sharing them with us. We've covered a lot of the bigger syndicators one by one. Scott Everett. Will Krasne (15:59) My new LinkedIn friend. Thanks, Scott. Hiten Samtani (16:02) Allen Stahlcup, Nitya Capital here and there, but we haven't quite looked at the lenders as closely as we probably should have. We'll start with one of the biggest ones, Arbor Realty Trust. This is Ivan Kaufman's mortgage read, one of the biggest players in the agency lending game, one of the biggest players in the Sunbelt Syndicator lending game, C R E CLOs. They're all over everything, and they are facing pretty severe tests right now. The stock is down 73% this year. They suspended their dividend. There are short sellers breathing down their neck and they're getting into double REO territory. So lots to chew on here. Will Krasne (16:40) Sellers have been circling for a while. Yep. Based on this thesis that they're lending really recklessly to Sunbelt syndicators, the backdrop of their economics is not great. They suspended their dividend because they're running out of cash. They had an eighty-five million dollar loss in Q3. Stock fell 25% alone on Friday. Ivan Kaufman, the CEO, founder, head honcho, chief cook and bottle washer. Hiten Samtani (17:04) Big guy, I think, overall in the evolution of the mortgage read industry. Will Krasne (17:08) You know, he even said that multifamily values are down another five, fifteen percent and they're non-performing loans, rose. They have thirty-two now. I think it's six hundred and fifty million up from nineteen last quarter. This is not just a situation where they're taking hits from the market, but underlying businesses, all right. These are big numbers that they're losing. And it's not even the money that they're losing. If you look at the loan book, there's just sort of holes all over the place. Hiten Samtani (17:31) There's rot at the core is what their critics are saying. So let's talk a little bit about Ivan. He started Arbor when he was still in law school in the 80s, both Rezi on commercial mortgages. It went public in 1992. BFA bought it a couple of years later. And then Ivan bought back the commercial lending division. He said at the time, I am fairly young and sitting back and kicking my heels up is not what I plan to do. And boy, he did not do that. Will Krasne (17:56) No. And Ivan, I have to say too, has been one of the larger folks who've utilized the small balance loan program through Fannie and Freddie. Hiten Samtani (18:04) He worked with the agencies to birth that program. Will Krasne (18:07) Bro. When we talk about Fannie and Freddie loans, there's large balance and small balance. The large balance loans are the ones we generally talk about when you're going to the permanent markets. The small balance loan program, that's not Blackstone, that's not Starwood. When you talk about like the dentist who buys an apartment complex, like that's the guy. I can't tell you how much liquidity it has created in that market and how much of the value of those small balance properties are held up by that liquidity. It is an absolute game changer because otherwise you had to go to a local bank. You had to sign recourse. The fact that you could get non-recourse debt I.O. thirty year AM, unbelievable. Hiten Samtani (18:43) I would estimate that probably half of our audience on the multifamily side is probably a big user of the SBL program. It's the lifeblood of this market. Will Krasne (18:52) yeah, I've done I think five. Hiten Samtani (18:54) What are some of the underlying problems with Arbor's book? Will Krasne (18:57) They just have a ton of exposure to the markets that have gotten annihilated. Seventy odd percent of their book is multi, which has had a really hard time. And then single family rentals are the remainder. Not only is it just multi, it's also concentrated in Texas, Florida, Arizona, Georgia, and then New York too. That's two thirds of the portfolio. So you're talking two-thirds of the portfolio are the hardest hit market. Hiten Samtani (19:20) Yeah, and a lot of their borrowers are the people that we've talked about that were riding high, amassed tens of thousands of units in record time, and then went under pretty violently. And so Arbor's often on the other side of that trade. Will Krasne (19:32) They've been trying to get ahead of this as well. You hear me say on this podcast loss like first loss is your best loss. And they've been writing down debt in recent quarters to try to sort of get ahead of future losses. We talked about the 32 non performing loans that have a six hundred and fifty million dollar balance. This is real money for a company that's not this isn't JP Morgan. This isn't Jamie Diamond saying that our Fortress balance sheet will weather the storm. Hiten Samtani (19:58) Another chunk of them that went bad, they found new sponsors. And in many cases, Arbor went and financed those properties again, even though in some cases the underlying economics of those properties haven't changed very much. You catch that exchange. So Brian Buffon, who is the president and I think is on borrowed time because he was Comparado's guy at BSP. Will Krasne (20:19) yeah, this is incredible. Hiten Samtani (20:27) He was asked about a couple of 2025 vintage loans that had gone bad. Analyst said something like, Does this speak more broadly to that vintage? And he says, No, those were a bit of a special situation. Quote, those were previous REO positions that we sold and then rewrote a loan to a borrower. And so those were REOs in 2025, sold in 2025, new loan put on, and then we're looking at that distress again. That's the double schlamezel. That is getting screwed once and then taking that property back via foreclosure and then putting it out to market again with a new sponsor, financing that sponsor because in many cases no one else would, and then getting hit again. Will Krasne (21:06) Here's the thing, is that from an accounting perspective, that first one doesn't count. Hiten Samtani (21:10) Yeah, for Gazi, it's a wazi, it's a Will Krasne (21:13) They basically created this this sale and got paid off and they don't have to take the loss on it until Hiten Samtani (21:22) Later. It's not quite extended pretend, it is something akin to it. Will Krasne (21:26) It's bigger and more nefarious because you're punting the losses to later. And you have to remember in early twenty twenty five, we were thinking, How many rate cuts are we gonna get? Supplies falling off a cliff. So you write these loans and you think, We're just gonna eke our way through this. That has not been the case. Rates are the most important, I think. But secondly, the performance that we thought was gonna happen hasn't happened. And there are green shoots, like things are getting better, but it's not to the extent you needed to outrun these problems. Hiten Samtani (21:54) There's a pretty damning research report by Fragments, and it said that in the first half of 2026, Arbor sold about $113 million of foreclosed real estate. On that real estate, it provided $108 million of new financing to the new sponsors. Nearly 96% of the selling prices were financed by Arbor itself, the report states. The transactions reduced its foreclosed property holdings, but most of the exposure remained on the balance sheet as new loans. Will Krasne (22:24) Risk cannot be eliminated, only transmuted. Hiten Samtani (22:28) How do you climb out of a hole this deep? Will Krasne (22:31) The first one is stop digging, stop writing new loans. That's really it. If this is about preserving liquidity, working out solutions where you can, but maybe stop writing multifamily loans in the sun belt right now. I do want to talk about this earnings presentation. They have this illustrative liquidity bridge on their earnings slide, which you see a lot how we're gonna get from A to B. Sure. And They're talking about how they're raising capital. And one of the ways they're raising capital is suspending the dividend. They're saving $60 million or raising 60 million of liquidity, is what they're saying. And John Hampton, Australian hedge fund manager, had a pretty on-the-nosed point about this. He says, The maths doesn't math. He's Australian, so that's why it's maths. Hiten Samtani (23:12) That's exactly. Will Krasne (23:13) I have $100 in my pocket, $100 of liquidity. I was about to go to the shop and spend $10, but now I'm not going to the shops. So I have a hundred and ten worth of liquidity. Not spending money, it seems, magically creates more money. Hiten Samtani (23:27) They've been making quite a few changes. They brought in Meridian Capital's number two, Yoni Goodman, and he has been installed as the COO and looks like the heir apparent. They plan to raise 60 million through the suspension of the dividend, another 150 million through sales and payoffs, and then get more back leverage and then more sales of assets that they've taken over at the REOs. Will Krasne (23:48) Viceroy research has been short and their report is alleging quite a few naughty things from Arbor from a modeling and financial control perspective. Arbor allegedly manually hard coded financial data of borrowers to deflate their returns and improve the financial image of the borrowers. We Hiten Samtani (24:03) This is a pretty damning quote. Will Krasne (24:04) believe Arbor has materially fabricated this data to win address the ability of their tenants to repay their loans. That is a big statement to allege of a publicly traded company. Though I will say, who among us hasn't goal seeked to find what we need? This Hiten Samtani (24:17) happening at one of the big boys publicly traded REIT. Imagine all the behind the scenes frenzy at the smaller non-public lenders out there who went in on this Sunbelt boom and now are facing some pretty massive shocks. Will Krasne (24:31) It's tough. This is why I always sort of look askance when someone says, Why would I invest in the equity? I can make the same returns in debt. Are you making those returns? Like, are ya? Hiten Samtani (24:52) JP Conklin, welcome back to the promote. Tell me about the conversations you've been having post-Rate Hike. I would imagine there's been a deluge of inquiry, concern, existential doubt since then. speaker-3 (25:04) The most pressing question is how many more hikes will there be? A lot of the discussion is around, I can probably live with two or three. Anything above that starts becoming pretty painful. And so a lot of the discussion that we're having with customers is how likely is it that we'll see more than 75 basis points of total tightening? And I've been punting on things like selling or refinancing or even hedging decisions because I kept expecting rates to come back down and now I don't know what to do. Hiten Samtani (25:33) But Pennsford, you've been a hand on the shoulder for these investors for about twenty years now. What are some of the evergreen reflections you can apply? Because a lot of these people, this is their first dance, this is their first brush with this kind of pressure. speaker-3 (25:45) First thing I tell them is the lender requirement shouldn't be their hedging strategy, that they should decide what is best for them and their business independent of what the lender is requiring. From there, let's have a discussion around what are your disposition plans and what are your risk tolerance. If something might cause you to not be able to sleep at night, let's try to eliminate that risk. Hiten Samtani (26:05) JP Conklin, thank you so much for being with the promote. Aaron Crowitz from Bravo Capital, welcome back to the promotion. Sniff speaker-4 (26:14) Hi Hiten, good to be here. Hiten Samtani (26:16) space, which as you know is one of our fascinations, has long been a black hole of data and intelligence when you look to put money to work in these markets. What do you look for as a lender? speaker-4 (26:27) It really starts and ends with the operator. We wanna make sure that the operator is somebody who has extensive track record in the state because every state is like its own universe within skill nursing. And somebody who is successful with six facilities in Minnesota might not be successful with their first facility in Florida. We also want to really make sure they have a staffing plan. Staffing costs are a huge variable item. And then there's an opco and a propco structure for skilled nursing. And for our lending, it's been important to make sure that they're the same and that the ownership has a stake in the opco because we've seen some deadlocks where incentives aren't aligned and it could get very messy very fast. Hiten Samtani (27:13) Aaron Crowitz from Bravo Capital, thanks for being with the promote. We're doing something unusual this week. We're staying in the public markets. Another read to talk about, Alexandra Real Estate Equities. Will Krasne (27:28) such an interesting company, essentially created the modern life science industry. Joel Marcus, who founded the company and was longtime CEO, he's now exec chair, really a visionary. Hiten Samtani (27:39) He is to life science what Samzell was to the early REIT industry. Really set it up. Will Krasne (27:44) And did a lot of creative things that created these huge master campuses on the idea that all of these life science companies would want to be together, these buildings are really specialized. So doing it at scale made a lot of sense. And for a long time, this was an incredibly high performing stock. This is one of those companies that went vertical for the better part of 25 years. At its peak, something like a 40 billion dollar market cap company. If you got options at ARE, I mean you were making millions of dollars. As an employee. And you could get paid as well as an alternative asset management firm. This has over the last five, six years fallen off a cliff. There's been issues left and right. Hiten Samtani (28:24) Alexandria's stock was at what two hundred and twenty three New Year's Eve twenty twenty one. It's now down over eighty percent since then. Will Krasne (28:31) This is a fundamental driven decline. Savills had some data about life science vacancy across some of the big markets. San Diego is twenty-seven point six percent vacant. Boston is thirty-five point four. San Francisco twenty-three point eight. And those markets, like you're just toast. There's nothing you can do. Where are you going? No. Hiten Samtani (28:51) Alexandria recently has been selling off assets. They sold a stake in Campus Point in San Diego to our friends at KKR. Will Krasne (28:59) We've talked about what Apollo's doing with UDR and S read. This is actually very, very similar. Campus Point, I'm not a life sciences guy, but one of the crown jewels of this portfolio, an incredibly strong life science asset, they sold an interest in it to KKR for four hundred and seventy five million. Yep. What's interesting though about this is that similar to Apollo's structure, there's structure in this as well. Yes. KKR is entitled to a guaranteed minimum distribution. There you go. I would wager there's probably some sort of options in there, like maybe some sort of make hole. Alexander's also selling another big part of the Fenway mega campus they have Boston, and that's gonna reduce their construction spend. These c transactions come on the heel of a massive quarterly loss, six hundred and thirty-eight million dollars. It's not just the loss, it's the fundamentals. Rents are down, tenant projections are down. The company's expecting like a decent amount of leasing, but uh s more lease expirations than what they're filling. Hiten Samtani (29:55) The company did acknowledge as much in its recent NQ. This quote I think is quite telling. There can be no assurance that we will be able to release some or all of this space on acceptable terms without significant capex or within anticipated timeframes, even at reduced rates. So they're acknowledging that, hey, it's the extreme opposite of turnkey space. Will Krasne (30:15) In the solid days, it was one of these things where life science is incredibly specialized. It's so expensive to build that you have a mode around it. And now, you know, you might say that this is the worst part of office and the worst part of hotel. Hiten Samtani (30:27) When a company like this is vulnerable, the big boys show up. This is a rumor, so take it with a pinch of salt. In the spring, we had heard that Alexander was starting to take some meetings with the boys at BX. Will Krasne (30:41) It makes sense. Blackstone has had a ton of success in life science with Biomed Realty. The principles of Biomed went on to found IQHQ, which of course has gone less than stellar. Hiten Samtani (30:52) Well the human stories are what we at the promoter drawn to. So what do we say about real estate, Will? What is real estate about? Will Krasne (31:02) Fathers and sons. Hiten Samtani (31:03) It's fathers and sons. ah Will Krasne (31:05) Joel Marcus and his son Steven have had some some problems. Alexander the company has sued Steven. He also runs a life science company based in the UK. Hiten Samtani (31:13) A across the pond. Will Krasne (31:14) They sued him over trademark infringement. Hiten Samtani (31:16) The son says that his dad asked him for help rejigging the capital market structure and the strategy. At the time, the share price was under severe pressure. Joel was under severe pressure as CEO. And the son says that his plan resurrected the company, saved his dad, but that his dad took the credit and quote, cheated him out of payment. Will Krasne (31:35) Steven actually signed an agreement saying he wouldn't be paid for this plan. There's an email from Stephen saying he agreed to not seek compensation. But Stephen, of course, says that the agreement was obtained under fraudulent circumstances. Just ugly. It's tough. Hiten Samtani (31:49) When we're running public companies, if our kids get involved in them, I don't know. It's terrible. Will Krasne (31:53) Yeah, I know. In addition to that, it's not just inside the house, it's outside the house too. There was a securities class action filed uh late last year after their third quarter announcements, which had three hundred million of impairments and a nineteen percent stock drop. That was dismissed, but still like not the greatest look. Hiten Samtani (32:10) Where do they go from here? There are very few operators who can do this at scale. It's not a portfolio that's really easy to chop up and operate, unlike, I don't know, multi-family and office. Will Krasne (32:19) So multifamily cap rates trade at the tightest because at the end of the day, people need to live somewhere unless you're in a town with eight people. If you drop the rent low enough, you can get people in. Yes. The same is true to a lesser extent with office. If you reposition a building at a decent location, you have cheap enough rent, you can get people in. There's some though, like retail and this, where it's not a it's a question of like the rent's too high. It's is anyone ever gonna show up at all? Hiten Samtani (32:43) It's binary, but zombie towns more often than not. Will Krasne (32:46) Yeah, like you can have a retail spot on the wrong side of the road with the wrong side of traffic and you just might never get anybody ever. Hiten Samtani (32:53) IQHQ for its spanking new trophy campus in San Diego where I believe they got a nine hundred million ish loan from OZK. They were not able to get a single tenant. One single tenant for that state of the art campus. Will Krasne (33:08) You can't wait for all the oversupply to work out because there's no leasing. It's not even a question of like in New York City office where Class B stuff has gotten converted and so overall stock has shrunk and therefore rents have gone up. If no one's leasing and you just have all this space, it's a really tough situation. Someone's got to take a private. I think that's the only way to do this because we talked about capitulation. There's a lot of capitulation, I think, that needs to happen here. Hiten Samtani (33:31) Will the capitulation of Alexandria meet the re-acceleration of Blackstone's thesis? You're at the precipice, Tony, of an enormous crossword. That's it for the promote podcast this week. Arbor is the most visible symbol of the pain that nearly every multifamily lender who turned the heat up in the ZERP era is feeling. And will Alexandria be able to resurrect the fortunes of life science? Sorry, I had to make a little life joke there. Will Krasne (34:04) Shout out to our sponsors. You are kind, you're smart, you are important. Hiten Samtani (34:09) Bravo Capital, a leading HUD in bridge lender. You can find them at Bravo Capital.com. Will Krasne (34:14) Pensford, the only interest rate advisory focused exclusively on CRE. Find them at Pensford.com. Hiten Samtani (34:19) And HEquities, your go-to on both sides of the capital stack for mid-market GP, find them at hequities.com. Also, big shout out to our friends at Gibson Dunn. We've got a live show tomorrow. Will Krasne (34:32) I kinda can't believe it. It's it's a real thing. Hiten Samtani (34:35) We've got Joe Lubeck in the hot seat, and then we've got a special guest who we will only reveal at the location, which is gonna be really fun. Yes. By the way, we've gotta do our special episode, I think the week after this one. I think we gotta do Night Itch in Whitehall. Will Krasne (34:49) Good choice. Like you can't go wrong. Maybe I'm gonna be on the Concorde flying during the recording of that episode. And if you don't finish before I lose signal, the podcast is over. Hiten Samtani (35:00) All right, I'll see you tomorrow in person. Yeah. Woo! Take care, man. Thank you. Thank you. Ciao.