Latest / The Promote Podcast / Exotic Alts (w/ SomeraRoad's Ian Ross) & Taconic's Lab Leak
Transcript
- Hiten Samtani (00:03) What is it that Dorothy Boyd said in Jerry Maguire? She's sitting in coach gazing wistfully at crews up in first class. Will Krasne (00:09) First class. Ian Ross (00:11) Used to be a Will Krasne (00:14) That was in 90s though, and we've currently reached the point where the planet itself is the better life. Hiten Samtani (00:28) Welcome back to the Promote Podcast, your insider guide to the money and mania of the CRE markets. I'm Hiten Samtani Will Krasne (00:33) and I'm Will Krasne Hiten Samtani (00:38) Today we're talking exotic alts, the cute, far-flung corners of CRE that are starting to catch some serious institutional heat. So think car washes, aviation hangers, and the like. Will Krasne (00:48) Just remember, your biggest business partner is the government and it ain't what you make, it's what you keep. Hiten Samtani (00:52) Indeed, we also look at Taconic's failed experiment, pun perhaps intended, in New York's life science market. $2 billion deployed and not very much to show for it. Will Krasne (01:02) Before we begin, here's what I want for Hanukkah. Go to Apple, Spotify, or your podcast vendor of choice. Register to review. Tell people why you're obsessed with this podcast. It helps my ego. And I'm supposed to say that it also helps more people find the podcast, but really it's that first part. Hiten Samtani (01:17) There's one dude, Bravissimo de Acquisizioni, who set some kind of new unhinged record in the Promote Psycho universe. He listened to eight episodes of us in a single day, give or take 150 minutes of the Promote podcast. Will Krasne (01:30) No accident that his development deals will likely hit the Promote. Outstanding stuff. Also, go check out the Promote Insider, our premium tier for paid subscribers at just $30 a month. I'm working on a piece for it right now. Hiten Samtani (01:42) you can find it at thepromote.com slash upgrade. Alright well, let's get exotic. What is happening in this space of formerly kind of random assets, car washes, airplane hangers, marinas? It's all starting to get a lot of institutional interest. Will Krasne (02:02) As Stefan might say, New York's hottest club is tax shelters. Needless to say, this place has everything. The big, beautiful bill earlier this year made a bunch of changes that made real estate writ large a more attractive asset class on an after-tax basis, but it really poured gasoline on the fire for a couple of these asset classes that have 100 % bonus depreciation that you're able to pull forward in year one. And essentially what we mean is more of the 39-year depreciable life, like everyone kind of knows this. Ian Ross (02:09) everything. Will Krasne (02:31) but certain asset classes and certain property types have the ability to have more of the property depreciated in year one, offering more year one tax savings. And so what we've seen in the last 90 days really is a flood of transaction volume into these types of assets because folks who may have made a bunch of money on AI or if you're David Geffen and you didn't insider trade the Warner Brothers deal and you have a lot of gains to offset. that you can invest into one of these asset classes and- Hiten Samtani (03:03) You roll up your mega gains from Nvidia or what have you and put it into these like rinky dink things. Will Krasne (03:10) These are private equity backed leases on just phenomenal real estate. Hiten Samtani (03:20) What does it look like? Do you have a network of Armenian brokers that you're going through for this stuff? Will Krasne (03:24) There's honestly a whole cottage industry for it, not necessarily for some of more esoteric asset classes, which we'll get into later, but for car washes, gas stations, things like that. Marina's a little bit, there are brokers who really specialized in this stuff. There's a whole network of knowing who has 1031 capital, who's got gains, and who is looking for a shield. A lot of those folks are looking to buy stuff towards the end of the year because if you have that uncomfortable conversation with your accountant in October, you still got some time. Hiten Samtani (03:33) Marinas too. I would imagine that as a result of all this institutional investor interest, price of the brick got to go up, no? Will Krasne (03:59) Yeah, and I mean, if you have taxable investors, this is a huge thing that you can offer them. The broker network, you call it Matthews and you're like, what is your inventory of gas stations? Like, I want a hard corner. Ian Ross (04:11) Gangsta, I suppose. Will Krasne (04:13) corners. One of these tenants this cap rate like you can sort of get the poo poo platter of it Let's put some numbers around it. Yeah, let's do it's all kind of like in the ether So there's a great article on Globe Street of all places Hiten Samtani (04:24) Alright, I'm in. Will Krasne (04:26) They talked about a car wash on Biscayne Boulevard, was 3,300 square feet plus or minus. And essentially, though, is that if you can do the deal with debt, so call it high 60s leverage, with 100 % bonus. So for a $5 million car wash, roughly this is where this traded, which by the way, staggering number per foot for a car wash. We're talking like $1,600 a foot. Hiten Samtani (04:46) Yeah. What are we talking about? Okay. Will Krasne (04:53) So for a $5 million car wash with a $1 million land allocation, you can get $4 million of depreciation in year one. to call it like $3 million of debt, $2 million of equity, you're able to offset more than what you put in year one. And so if you're in the top tax bracket, you can see seven figures of federal tax savings. Hiten Samtani (05:11) Wow. So I would imagine prices have crept up at least double digit figures. Will Krasne (05:16) Broker says that they've climbed 25 % in six months since the pill got passed. Hiten Samtani (05:21) I was talking last week to you about how industrial brokers are probably feeling pretty good right now after the culture being dominated by office brokers. Imagine the day where the car wash guy from Collier's is like the top producer in his office. Will Krasne (05:34) No, seriously, it definitely could be. In real estate, one of the things about it is that this is a downstream impact of legislation and real estate can be saved or ruined by... Hiten Samtani (05:43) 1986 Tax Act, for example. Will Krasne (05:45) Right, so one stroke of the tax pen can have meaningful differences in this. even in multifamily, for instance, that garden apartments have more depreciable property for year one than mid-rise or high-rise. On the margins, it impacts flows into those asset classes as well. Hiten Samtani (06:06) So, you know, well, we have resisted bringing on too many guests on the Promote Podcast. We kind of didn't want to turn this pod into a book tour circuit, which is what a lot of CRE interview pods tend to become. Will Krasne (06:17) Everyone's got to do what they got to do, but yeah, I'm not really trying to help Brad Jacobs sell books. We've tried to do them differently. We have folks on who are in the thick of the juiciest topics in CRE and try to get them to nerd out on what they're up to. And there's been so much demand for interviews done in that promote style that we are giving people what they want. Hiten Samtani (06:21) It's just not our style. Indeed. And I'm excited about it, which brings us to today's guest, Ian Ross from SomeraRoad So Ian's an interesting guy. He made his bones at a family office in the wake of the GFC. think it was called Triangle Assets. He was buying up Distress CNBS paper for pennies on the dollar there. And then he started his own shop in 2016, basically employing the same playbook. And they've since branched out into development as well. They're doing a resi project in your old neck of the woods. Hotel Bossert is going to be a resi project. So that's going be fun. Will Krasne (07:06) It's going to be pretty spectacular. Say B unit, Hiten Samtani (07:09) And he's also got a major thing going on in Nashville. doing a 30 story hotel condo, which is going to be the Pendry. we're not talking about any of that today. We wanted to talk to him specifically about the Mile High Club. We're going to talk only about aviation infrastructure, which is a quirky corner of CRE with explosive demand and very, very, very favorable treatment from Uncle Sam. Will Krasne (07:31) Bonus depreciation is a hell of a drug. Hiten Samtani (07:33) It really is. I enjoyed this chat a lot. What jumped out to you? Will Krasne (07:36) Honestly, the velocity of execution in this portfolio. Yeah. But doing something this fragmented at scale takes brute force, and it's very impressive how they've been able to put this together. Hiten Samtani (07:39) Is this I would imagine they've set up a ground game, God, it's turning into a lot of airplane puns, but I'd imagine they set up a ground game at least a few years ago and now with Triple B coming into play, it's all manifesting quite well. Will Krasne (08:01) They've taken advantage of Bernoulli's principle. Hiten Samtani (08:05) I also got to say whoever's pressing his shirts deserves a raise. They were very crisp. All right, let's cut to our conversation with Ian Ross from SomeraRoad Ian welcome to the promote podcast Ian Ross (08:16) Hey, great to be with you guys. Appreciate you having me on. Hiten Samtani (08:19) Yeah, we really are. So I would imagine the big beautiful bill is the catalyst for a lot of the things you're doing. It's a great bill. It's a popular bill. Talk us through when this strategy really formed and what is it exactly. Ian Ross (08:32) We've been working on private aviation and aviation infrastructure for a number of years, but the big, beautiful bill and the 100 % bonus depreciation, which was brought back, certainly made our business even more compelling. Hiten Samtani (08:45) what specifically changed and what kind of changed in the underwriting or the pitch. Ian Ross (08:50) This year, Trump brought back 100 % bonus depreciation for assets that had an element of accelerated depreciation. What's unique about private jet hangars or aviation real estate is that they sit on ground leases. Traditional real estate investment, you carve out the ground value, the land value, from what can be depreciated. Hiten Samtani (09:14) That's give or take 20 % or so, right? said? Ian Ross (09:17) Rule of thumb, the general paradigm is to take about 20%. Passes muster with the IRS, know, 10 times out of 10 if you carve out 20%. When you have a ground lease, there's no carve out for land. 100 % of the asset is depreciable or qualifies for some element of depreciation. Will Krasne (09:37) So let's quantify that. If you're a taxable investor, apples to apples at the end of the day, it's not what you make, it's what you can keep. So on an after-tax basis, like how much juice would an investment like this in a car wash, private aviation investment make relative to a fixed income investment? Ian Ross (09:54) Are we talking about depreciation or yields on the investment? Will Krasne (09:57) No, post tax, post depreciation shield, apples to apples yield on like a high yield bond. Ian Ross (10:03) I'd rather just stick to depreciation than go into like the return profile of the investment class, if that's okay with you guys. Will Krasne (10:09) Like it's 100 % bonus, what does that mean just in terms of savings? Like you can write off XM. Ian Ross (10:13) Yeah, sure. So what's unique about this is that there's no allocation for land value. 100 % of the asset is depreciable because there is no land carve out. What's further interesting about aviation real estate is the ramp. So the ramp is all of the concrete that surrounds these buildings or these hangars or the FBOs. And the ramp fits under something unique called a land improvement. When you look at the big beautiful bill, when you look at accelerated depreciation, land improvements qualify for bonus depreciation and are 100 % depreciable in year one. And when we look at our aviation assets, I'd say about 50 % of them are structures. The other 50 % of it is land area, but improved land. And that portion is 100 % depreciable year one, qualifying for that bonus depreciation. The remaining assets are traditional commercial real estate, 39 year depreciation assets. Obviously with some cost segregation that can be accelerated a little bit to earlier years. But now when you step back, 100 % of the asset depreciable, about half of that 100 % depreciable in year one as a land improvement, and the remainder following a more traditional and cost segregated depreciation schedule. Hiten Samtani (11:30) Okay. In terms of demand for this asset, has there been sort of an explosion of demand at all? When you and I chatted a little earlier, you were talking about how it's quite an inelastic asset class. You can sort of up rents without too much sweat. I was talking to someone in the aircraft finance space and he said the wait list for some of these things is 10 years to get in on these hangars. So you can imagine there's some wiggle room. Ian Ross (11:52) there. Absolutely. The supply and demand fundamentals in private jet hangars is phenomenal. When I think about private jets, I always say you don't park your Ferrari in your driveway, or you don't park your Global on the ramp. You protect that asset. In most markets, it's more expensive than your home, way more expensive than your home. It's your most prized possession. In a hot weather climate, you don't want your avionics getting fried from 110 degree Vegas heat. In a cold weather climate, you don't want rain, sleet, snow. messing with your paint, just messing with the overall aircraft. You want to preserve its resale value for such an expensive asset. So it's very important to keep a jet hangered. You're dealing with a customer that's got a high willingness to pay, extraordinarily price inelastic. The real estate that caters towards this demand, it's like beachfront property. You can't build more of it. We're not building new airports across America in population dense areas. Hiten Samtani (12:50) Two things on that. One, the initial demand coming from the private jet owner themselves. Has there been some change in their environment? Will Krasne (12:57) Well private jets themselves now are highly depreciable assets as well. Totally. So there's probably been more demand just on the buying jet side. Ian Ross (13:06) Aviation as a category is growing immensely. Something about like 80 % of all new private jet deliveries end up in America. Jets are getting bigger. Their tail heights are getting higher. Planes are staying in service longer. Private aviation is becoming more attainable to a larger set of the population with the advent of things like jet shares and charters and fractionals. And frankly, with the decline in quality of commercial aviation. Hiten Samtani (13:34) Don't you follow that dude, the private jet guy on Instagram? Will Krasne (13:37) It's really annoying when famous people block that guy. Ian Ross (13:41) Kim Kardashian took a lot of heat years ago. It's actually germane to this conversation. She was repositioning her plane, I believe, I want to say it was from Burbank to Camarillo. And your private jet guy on Instagram was tracking her and commenting on the ⁓ environmentally unfriendly use of a jet to ferry it around empty just to pick her up more conveniently. I'll tell you why that problem is. It's probably because she had an arrangement at, let's just say Camarillo, for a hangar for a better fuel program. She needed to hang her a jet, so she hangered in, let's say, Camarillo and repositioned it to pick her up when she needed it. Will Krasne (14:16) If you It's not gonna change Hiten Samtani (14:19) Tell us about the acquisition strategy here. You kind of likened it to beachfront property. What does this look like? What's the universe of brokers or people who kind of hustle the stuff? Who are the Roy Marches and Adam Spees, cetera, of this world? And what does that look like? Ian Ross (14:33) short answer is it doesn't exist. It's a highly fragmented space of mom-paw ownership. We've amassed a portfolio of about 300 million plus in assets. We have a pipeline of another 600 million ahead of us, but it's a very challenging to sort. Hiten Samtani (14:48) Okay, so there's no unified Newmark type of shop here that sources deals or has like a good pipeline of deal. Will Krasne (14:55) And a lot of them are in areas which are, and I know there's been famously a big issue with flight plans in think East Hampton around that FBO where the millionaires don't want the scents of millionaires and billionaires planes coming through their, over their houses. Ian Ross (15:03) Definitely. You'd be amazed if we do work in 50 markets across the U S there's a lot of wealth all over America. And actually when you get to these secondary and tertiary markets, the demand for private aviation from that wealthy class actually starts to grow. When you have worse airlift in a market like Omaha, the wealthy class or the corporate jet user wants that ability to get anywhere at any time and can't rely on commercial aviation or commercial airlift to get there. Hiten Samtani (15:37) Perfect segue to something I wanted to ask. So I spoke with a dude in Chattanooga who works in this space. And he had a question which was, because he's seen this happen a bit, he said, how do you underwrite the potential that a local government might take back the asset at the end of the ground lease and they get to take it back with the improvements that you've made, correct? Does I understand it? Yeah. How do you underwrite that? Ian Ross (15:58) The FAA regulates ground leases on airport jurisdictions to be 50 years at max. Most of the jurisdictions we work with cap that about 40 years. It's just something that you have to get comfortable with and leasehold interests are prolific across real estate and it's just an element of our underwriting. I'm not going to tell you that. Hiten Samtani (16:19) Political juice is an element here, take it. Without getting specific, I would imagine. Ian Ross (16:24) There's a ton of politics and over drinks that would tell you a lot more about some of the nuances. But one thing I want to note on our aviation business, it's not just about buying existing hangars in favorable supply and demand paradigms. It's about developing new supply where we can. So about half of our business is actively seeking new sites to build hangars where there is available land and where there is unmet demand for jet hangars. Will Krasne (16:49) So on the investor side of this, and not specific to aviation, but also I think some of these other asset classes which have similar depreciable characteristics, the genesis for this podcast was one of my friends at one of the big pot shops was talking to Eastl's management team. And he said, what's the deepest bid sheet you've seen recently? Like, what are the assets? And he's like, there was an asset that had $400 million of year one depreciation. He goes, was the deepest bid sheet I've seen in five years. It was every single billionaire family office looking to offset AI gains. But you see that was like, Car washes too, assets that have like the same thing in Kerwa. Ian Ross (17:22) flushes, gas stations, oil changes. Hiten Samtani (17:25) shops like yours, not necessarily yours, but shops like yours are looking for that roll up plate to one of the massive PE shops at the end of the day. there, know Signature is owned by KKR here, like who, who is the end buyer for something like this? We talk a lot on the show about AUM gobbling and you know, when this gets big enough to gobble, who's kind of in the market for it? Will Krasne (17:46) Wasn't it Sky Harbor? Like they went public by SPAC a couple years ago? Ian Ross (17:49) Yeah. Yes. Sky Harbor is a public spec that focuses on the development of new hangars. Private equity capital, infrastructure capital has been actively gobbling up and rolling up FBOs, whether it's KKR, KSL, Apollo, Cascade, Blackstone. There's a variety of players that are very keen on aviation as an investment asset class. Folks are always trying to do something different and unique to separate themselves from their peers. When you look at the advent of life sciences, data centers, RV parks, marinas. These are all asset classes that a decade ago weren't considered institutional asset classes and all evolved with institutional capital finding places to seep into across our real estate ecosystem. Hiten Samtani (18:35) Well, you've been obsessed with marinas for a little bit. Will Krasne (18:37) Because at one of my first jobs, we were looking at a master plan in Tennessee that had the only place you could buy gas within like three locks on the Tennessee River. That was by far the most valuable asset in the development because it was just like basically a license to print money. My question was going to be about financing these things. In terms of like financing a leasehold like on the real estate side. Ian Ross (18:59) I'm gonna pass on that one respectfully. Well, I will tell you everything over drinks. I'm just not gonna tell the world on your podcast. Hiten Samtani (19:04) Okay, one final question then a little more fun one in the course of developing out this business. Any interesting anecdotes, any kind of portal into that world of private aviation that you want to share with the audience? Ian Ross (19:18) Let's just say owning 37 private jet hangars on the Las Vegas strip brings out a full cast of characters from casino owners to high rollers. A lot of interesting people that have been a joy to work with. Hiten Samtani (19:33) Ian Russ from SomeraRoad Road. Thanks so much for being with the promo. Will Krasne (19:36) Thanks for coming on. Ian Ross (19:37) Thank you guys, appreciate the time. Will Krasne (19:45) you Hiten Samtani (19:49) We have to talk about this life sciences debacle happening in New York City. Really interesting story from BizNow just dropped this past week. Taconic made a pretty massive bet, $2 billion worth on the space right in the wake of the pandemic. And you know, there's been some lab leaks there. Will Krasne (20:06) It's like the worst performing lab deal since Wuhan. So we talk a lot about asset classes that have become institutionalized and how this doesn't always just start as one of the major food groups. Stuff gets added in, stuff gets taken. Hiten Samtani (20:20) Data centers now is kind of the perfect example. And I think there's some cracks in that we have to get into in successive episodes. Look at the quantum of capital being deployed in those spaces, Right. And life sciences was definitely the bell of the ball ⁓ right as the pandemic arrived. Will Krasne (20:36) There's a public trade company called Alexander Real Estate Equities. Founded by the Marcus, Joel Marcus. Hiten Samtani (20:41) That's right. Are you sure it's Alexander Alexandria? Yes. Yes. Will Krasne (20:44) Alexandria, sorry. okay. One of my good friends works there, like I should know that. Alexandria Real Estate Equities was founded in the 90s, I believe, focused on lab space in the big hubs of San Diego, Boston, Cambridge, and as people would say, just outside Boston. It was one of the real estate darlings. They were early. It takes very specific build out. It's not random office build out. It's very specialized for what these people need. Hiten Samtani (21:10) You typically can repurpose office buildings to do this, but the build out is quite expensive. Will Krasne (21:15) That's what I was referring to. There's often like temperature controls you need. Stuff has to be either super hot to kill bacteria or too cold to preserve bacteria or like who knows. And built this massive company. The stock had done tremendously well and it's just fallen off cliff. Alexandria Real Estate Equities, their stock is down 74 % over last five years. It's quite brutal. There's been zero leasing activity in their portfolio and really New York, when this bet was made, was to be ⁓ one of the hubs like a San Diego, like a Boston. And that just didn't work out. Tons of capital came into the space. Hiten Samtani (21:49) And in New York, we were sort of building out the broader infrastructure for New York City to be that a competitive market in that space, right? We had Cornell Tech. There was a lot of incentives for biotech companies to set up shop in the state. Will Krasne (22:00) Well, Palacio had created a whole fund to help try to bring these here because these are great jobs, are very high paying, like it's a lot of economic activity. There's a lot of incentives to do it. And it just didn't work. Hiten Samtani (22:12) But just in work, you talk about Alexandria, which is a public company and the triumphs and disasters are there for us to see in the stock. But there are private players who took a pretty big swing at this and Taconic, which is the company founded by Paul Pariser and Charlie Bendit, was probably one of the biggest names in the space. Major developer, they've had tremendous success back in the day in meatpacking. They famously sold 1.118th to Google for 1.8 billion, which was a record, I think, at the time. Will Krasne (22:39) That's a lot more than they paid for it. Hiten Samtani (22:41) It's very true. They also had a lot of success with Samsung. They sold a bunch of buildings in meatpacking. So take it back to the pandemic. 2022, we're kind of through the worst of it, but there's a very big question, Marco, in kind of the idea of Office as a viable asset class in New York City at this time. So a lot of people are running away from Office and people who own Office or have money to deploy are thinking of repurposing it, thinking of making other bets. So to Connick, decides to go all in on life sciences. They start a division called Elevate Research Properties. They raise a bunch of money for it and they go shopping. Will Krasne (23:16) It's one of these things where you look at the stats and you think it's really compelling where there was more absorption in, I think, what, 2020 or 2021 than there had been over the past decade in New York. vacancy was 3%. But what you forget is these are competitive markets. And things change, and they're dynamic. And so one, there's a wave of supply, as everyone sort of read the same thing and started building. Hiten Samtani (23:40) your point. It's like if something happens in New York, capital can can move quite quickly because where it gets around a lot easier. Will Krasne (23:48) Well, and it's not even something where there was a lot, you might say, it's supply constraint because there isn't a lot of it, but how much, to your point, how much office was sucking wind looking for a new life. And so you had all of these buildings, which theoretically could be repurposed, not all them could. And it took someone with deep pockets and expertise to do it. Hiten Samtani (24:06) One thing for the record we should say is like the number that kind of got people excited, the leasing volume in the space was 433,000 square feet. That's not very much. Will Krasne (24:20) That's like, while Gottschall moving. Hiten Samtani (24:22) Exactly. That's my point, right? New York is still very much at fire town. But anyway, so Takana comes in. What I think Takana is very, very good at is raising money, building a very compelling narrative around a NASA class or space, et cetera. They've done this time and time again. They're one of the best at it. So they go and raise this life science venture. Will Krasne (24:41) So interesting is the premier property they had, the Hudson Research Center, they'd owned that since 2012. They had. And they sort of saw this as an opportunity, like we can rebrand it, we can bring in fresh capital. Correct. And that's really what they did. They brought in Silverstein, to your point about JVs, at a pretty big valuation and immediately were able to get a construction loan. Hiten Samtani (25:03) I have a theory on this. ⁓ So 2017 is when this deal happened with Silverstein. They bought an 80 % stake in a $180 million valuation. What is happening at Silverstein properties at this time? Tal Carrot, the son-in-law, is kind of gaining power and starting a bunch of things and he wants Silverstein properties to be more than just an office landlord, more than just a rental landlord. He's thinking more creative. Will Krasne (25:30) Are you saying he's thinking elevated? Hiten Samtani (25:32) My pet theory is that a lot of these personnel decisions and these family firms end up manifesting in these sort of unorthodox bets. Will Krasne (25:43) The narrative is that this was unorthodox in that it wasn't traditional office, but it's very orthodox in that you have a name brand firm with sort of a thesis that makes sense on the surface. But again, like you dig in the tenant demand too isn't necessarily about raw square footage. I have no idea about life science at all, but it sounds like more of the demand is for smaller pre-built spaces for these startups. that are funded and they're like, we don't want to spend a year building out of space. We want to show up with our toothbrush and beakers and start experimenting. Hiten Samtani (26:13) They might be building for Moderna, what you really need is a space that's cheap and flexible and built to suit for startup to plug and play, basically. Will Krasne (26:21) Right, and that was not what they built. Hiten Samtani (26:23) So they were able to get Silverstein on board. They also got Square Mile Capital, the artist now known as Zephinius, to come in and give them a $200 million loan on this asset. Will Krasne (26:32) Right, construction loan and how's that building doing now? What is Silverstein, how are they feeling about the equity? Hiten Samtani (26:39) According to Tel Aviv stock exchange filings, because Silverstein's raised bond money. So according to bond filings there, Silverstein has basically written off the entire equity stake in that property. However, they did sell, I mean, there is like a bit of, they had sold something else to this fund. There was one called West End Labs. It's actually in the Disney ABC campus. And Takonica Nuvine had bought it from Silverstein for 230 million at 2019. Will Krasne (26:43) So, I'm glad it's back. Eww. Hiten Samtani (27:09) So I think that net maybe Silverstein turned out fine. Will Krasne (27:12) It's like what Mord Zuckerman said when he sold Wired and, uh... Yeah, he sold one for like $200 million and one for like six and he's like, ah, average out. Hiten Samtani (27:17) US News and all that stuff. But West End Labs is interesting as well. In 2021, Takonica Nuvine bought it from Silverstein for $230 million in 2019. A couple of years later, they got $400 million in construction debt on this building and they wanted to turn it into wet and dry labs, engineering zones, event space, conference center, et cetera. And they brought in LaSalle as their equity partner. LaSalle put in close to a little bit north of $200 million. Will Krasne (27:49) I bet that is not feeling great right now either. Hiten Samtani (27:52) They've had a lot of trouble with these. So Hudson Research Center, essentially equity wiped. West End Labs has had a lot of trouble. And then there's one more. What happened with Iron Horse? Will Krasne (28:01) Iron Horse. Iron Horse, so first of all, it was where Lou Gehrig was born, hence the Iron Horse. As somebody who grew up rooting for Cal Ripken Jr. when he broke Lou Gehrig's streak, it was kind of bullshit because Lou Gehrig actually would play one inning of a bunch of games and to keep the streak going. ⁓ Hiten Samtani (28:17) Real Madrid, when they used to win the Champions League back in the day, they only had to show up for the final and they would win the final. They didn't have to go through the entire process. Will Krasne (28:25) This building, they bought it and repurposed it again into this type of life science space. And they haven't even converted it. They haven't finished doing it yet. Hiten Samtani (28:35) Looks like construction is stalled, but has now visited the site. Nada, no activity. Will Krasne (28:39) What happened to the folks that they hired a bunch of people to come in and run this division, right? Hiten Samtani (28:44) This is outstanding. They hired this guy from the architecture firm Perkins and Will to basically be their in-house design guru. But there wasn't enough for him to do. was just like, there was no activity. So he went back to Perkins and Will this past summer and he's now leading their life science and tech practice. You should read what he said, because it's pretty, it's amazing corporate doublespeak here. Will Krasne (29:04) I'm returning with a sharper understanding of the economic, technical, and regulatory challenges that our clients are navigating. Hiten Samtani (29:11) just this outstanding stuff. Will Krasne (29:13) If you can learn on someone else's dime, that's great. Hiten Samtani (29:15) Broadly zooming out, it's been a tough go for life sciences in New York City. There's been so much construction we've talked about. Inventory is now at nearly three million square feet and availability is at 27%. Will Krasne (29:27) And these guys own like 35 % of the inventory. Hiten Samtani (29:31) And New York City hasn't really given up on this ambition to be a life science hub. They're pushing for 10 million square feet of new lab space by the end of this decade. The EDC guy said something really interesting. said, we think in decades, we don't think in quarters or something. Will Krasne (29:45) When you think about it, makes sense because you've got meds, eds, and government here, and it should be space like that. But again, a lot of these rely on ecosystems. It's not as if you can just like plug, you can't drop Silicon Valley anywhere. Really tried, does not work. And a lot of it is just the clusters that you have and people bouncing back and forth across each other and all that. And that's just, that's just not in New York yet. Hiten Samtani (29:57) People have tried, right, Miami? That is why SF's rebound has been so violent in a way, right? When SF came back, that infrastructure was already there. So all these startups were there. The investors were there. It was much easier for it to just shoot back up when the AI thing happened. Will Krasne (30:24) Yeah, and that shouldn't be a surprise. Like, this happens every 10 years. You know, where it's dead, it's never coming back. And, okay, like, did Stanford go somewhere? Like, did St. Hill Road go somewhere? Is Atherton shitty now? No. Hiten Samtani (30:39) One of the things I thought about really with Taconic, obviously this bet hasn't gone well, how much skin in the game did they have? As I said, they're pretty good at OPM, they're pretty good at selling a narrative, they were able to bring in equity partners for the majority of it. Will Krasne (30:53) Hudson Research Center is sort of a perfect example. They bought it for $120 million and seven years later, recapped it at $180 Hiten Samtani (31:01) So they made their nut already in that first transaction. Will Krasne (31:04) It's a lot of like these old office landlords are giving back buildings and you're saying, Oh my gosh, poor them. Like they took out five times the building's value in cash over the last 20 years. Like don't cry for them. Same kind of thing here. Yeah. But it really impacts you though. We talked about how returns don't matter. Like these kinds of returns matter. We're talking about the difference between a seven and a 15. Doesn't matter. The difference between a seven and a zero is like pretty big. Hiten Samtani (31:35) That's it for the Promote Podcast this week. If you've got a warehouse near Idlewild where you used to stash bodies in the pre-JFK days, you might want to prep a bid sheet. Will Krasne (31:43) I love reading books about New York in the 60s and they keep saying I'm flying out of Idlewild. The Underworld series by the guy who wrote Black Dahlia. Hiten Samtani (31:48) It's the coolest thing. I haven't read books in a long time. Will Krasne (31:54) American- Hiten Samtani (31:56) Not since my son was born really. Will Krasne (32:04) Incredible. Let me just say very, very sad news out of Bondi. Horrible, horrible, horrible. And our good friend Eli Lever lost a good pal of his. May his memory be a blessing. We'll be back next week with more CRE insider goodness. And remember my Hanukkah present request is a review for this podcast on Apple or Spotify. Hiten Samtani (32:31) And mine, because why not, is you visiting thepromote.com slash upgrade and giving the Promote Insider a whirl. I'll see you next week. Well, thank you and happy Hanukkah. Will Krasne (32:40) Thank you, my son is enjoying his gelt. Hiten Samtani (32:43) Ciao!