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Evergrande Delusions & Chitty Chetrit Bang Bang · The Promote Podcast

• Hiten Samtani (00:03) What is the business of the Chetrit group? Will Krasne (00:06) We used to do real estate. Hiten Samtani (00:09) Used to do real estate? Will Krasne (00:10) Yeah. Hiten Samtani (00:12) So the Chetrit group stopped doing real estate. Will Krasne (00:15) Force. Hiten Samtani (00:16) By force of what? Will Krasne (00:19) No money. Hiten Samtani (00:29) Welcome back to the promote podcast, your insider guide to the money and mania of the CRE markets. I'm Hiten Samtani Will Krasne (00:34) And I'm Will Krasne Hiten Samtani (00:39) Shout out to our sponsors, Loan Boss, your mission control center for your CRE debt Will Krasne (00:43) and Bravo Capital, a leading HUD and Bridge Lender. They just dropped a deep dive into the top ten SNF markets that we'll put in the show notes. It's the type of granular operator focused data that drives returns. Hiten Samtani (00:53) This week we dive into two operatic stories of ruin on different continents. We begin with the tale of a Chinese property tycoon who went from being a steelworker to one of the world's wealthiest men before his firm, Evergrande collapsed and sacked the country's real estate market with it. Then we beam into a New York boardroom where one of CRE's pre-eminent girthy lads, Meyer Chetrit has given an extraordinary deposition. And finally, Blackstone's finding the secular tailwinds in the marina business might be strong enough to set sail. Sorry I had to do that one. You'll also hear during this episode from our friends at Gibson Dunn. In a series of conversations in the coming weeks, top attorneys of the firm take us inside the capstack. Will Krasne (01:34) This is a tough episode because these are sad. It's the flip side of the coin. But it's a reminder, we play with live ammo here. It's fun, the characters are amazing, but it's really hard and lives get ruined. And say that with no glee. It's just Hiten Samtani (01:49) It's just heavy stuff. Lots to dive into, but before we get into all that, let's get started with the punch list, our signature rundown of the newsiest news in CRE. Will Krasne (01:59) That's my audience. Hiten Samtani (02:03) Fisher Brothers has tapped the taste market for fresh financing. The financing itself is whatever, they're raising a hundred million to buy out JP Morgan's steak in six five third, but what it reveals about the company was much more interesting. Will Krasne (02:16) With the taste coming back and then everyone on X and Instagram talking about Kyle Chandler being amazing and lanterns and going back to Friday Night Lights, like the twenty tens are back again. So when you go to the taste, you have to report your company financials. So you get the cheap, easy money, non recourse, except for the B VI subsidiary, whatever. Your Hiten Samtani (02:35) Basically incorporated as a public company that floats on the Tel Aviv stock exchange. That's the mechanism. Will Krasne (02:41) Exactly. So Fisher Brothers, one of the preeminent New York City real estate families, they've got five point four billion of assets, two hundred and twenty million of NOI, and four hundred and sixty million of revenue. Hiten Samtani (02:53) Nice business. Will Krasne (02:54) It is a nice business. Now, math inclined listeners will say that's a pretty tight gap rate on that NOI to get to five point four billion. However, I I think includes some development assets. And also, too, for six five third, they're raising a hundred million. Not all of it's going to that. The majority is for working capital, general corporate purposes. In fact, they are buying out JP Morgan Stake for I think twelve million dollars in a building that's valued at four hundred and twenty five million. Again, for our math inclined listeners, that's because they have four hundred million a day. Hiten Samtani (03:23) A portfolio like that allows them a couple of side quests. One is they can go putz around in AI. Winston Fisher is gonna run some new AI innovation lab as well. Will Krasne (03:32) As one does. Hiten Samtani (03:33) And it could also allow him to go into a champagne off with Joe Lowe and see who can pop more bottles of cristal in Saint Tropez. All right, next one. Will Krasne (03:46) SF staying hot. We've talked about the office market in San Francisco being on fire for the last year, 18 months, and then of course the hotel market with the conversant newpon deal. This is the multifamily market having more transaction volume than it's seen over the past couple years. Hiten Samtani (04:04) One point three billion plus that traded hand since June of last year, which is more than twenty two, twenty three, and twenty four combined, which is crazy. Some pretty big players that are coming back to the city by the bay. Stockbridge, Tidewater, Farallon, and of course Brookfield. Will Krasne (04:19) no, it's BGRE. Hiten Samtani (04:22) What are some of the reasons for this? The AI boom is obviously one of them, right? There's a tremendous wealth unlock that has already happened and is expected to keep going for a while. And then you've also got leadership in place that CRE just seems to love. Will Krasne (04:35) Look, for these big cities, the job is almost too big to sort of actually effectuate a change on an in managerial level. It's really about being a cheerleader for the city and making the vibes better. And Daniel Lurie has done that in spades. He's a pretty centrist guy, liberal, but he's pro business. He's just not just being pro business, it's not being actively antagonistic to business is almost what it is. Hiten Samtani (04:55) Is he shows up to groundbreakings, he meets developers, he talks to lenders, he announces some of the biggest projects, and then the if I may, secular tailwinds of AI and everything else are doing most of the heavy lifting. Will Krasne (05:08) We talk a lot about the permission structure in dissertation NASA classes or geographies in San Francisco. The permission structure is back. Hiten Samtani (05:13) Okay, next one. Dove Hertz, remember him? Will Krasne (05:18) I do. Hiten Samtani (05:18) Barnett's right hand for a long time, assemblage expert. Will Krasne (05:22) You gotta go read the closing with him where he talks about how they had a building and he hired a bunch of actors. Hiten Samtani (05:29) Fucking amazing. He wanted to put the perception out there that the Japanese are really interested in it. So he hired a bunch of Japanese actors to go up and down the elevators and kind of yell. And it worked. my god. Anyway, that's all in aside to say that he has made a pretty substantial transaction in New York City. Will Krasne (05:50) He was one of the first guys to really build out, along with I think Andrew Chung, New York City Last Hiten Samtani (05:56) Last miles. Will Krasne (05:56) Mile Industrial. And so famously did the Amazon Red Hook, which sold for eleven bajillion dollars. It's something to see. If you're ever in Red Hook, after you go have a burger in Red Hook Tavern, go check this thing out. That's a great good. Hiten Samtani (06:09) Burger by the way it's still very Will Krasne (06:11) It is. He sold a fifty-three acre parcel in Staten Island to JD and Capital. I think he bought it for fifty odd million. Yeah. And in 21. Huge return. It's the largest iOS sale in New York City history, according to Cushman. Hiten Samtani (06:27) Tell us about iOS. Will Krasne (06:29) Industrial outdoor stores. It's one of these things where everything sort of gets classified in it. It's a lot like small bay industrial. Exactly. IOS can range from everything from crappy parking lot to mission critical, highly fenced in, amenitized. Hiten Samtani (06:46) Freight trucking depots or whatever. Will Krasne (06:48) Exactly. It really runs the gamut. Hiten Samtani (06:50) It's anything that's not a fully built out warehouse style. Will Krasne (06:53) Space. Exactly. In another life this would have been an industrial facility, but it's just iOS. And the great thing about iOS is that you don't have to build a lot of stuff. Hiten Samtani (07:04) Okay, next one. These are the kind of groups that make New York real estate friggin' epic. Ninety-nine cent is back. Who are 99 cent is the question to ask. Will Krasne (07:15) Who aren't ninety nine cents is the real question. Hiten Samtani (07:18) They're backed by not one but two billionaire families, the Bellinis, the biotech billionaires, and a much more interesting family. It's the Dart family, Ken Dart. Will Krasne (07:28) The solo cup magnates. Hiten Samtani (07:33) And way they go about stuff is amazing. Even their employees will often just have private investment on their LinkedIn affiliation. They are, as the promoter understands it, making a play right now for 110 Wall Street, which is the Rudin management office building that was hit pretty hard by Hurricane Sandy. Will Krasne (07:50) I thought you gonna say hit really hard by WeWork. Hiten Samtani (07:53) Also true. So we were came in here, took the whole building, which is about three hundred thousand odd square feet, and this was actually the first we live. Adam Newman's Grand Co living experiment was here. You gotta be able to f Will Krasne (08:06) Indeed it was. And so they bought a bunch of stuff sort of in Fideye Seaport. What's the deal on Water Street with the Water Street Associated Hiten Samtani (08:13) One seventy five water, which is the most perplexing building 'cause I don't think it's designed to make money. Will Krasne (08:18) That's definitely the point. Hiten Samtani (08:20) To not make money, you're saying. Yeah. There's a tenant that's paying eleven dollars a foot there and they've decked the hell out of it with amenities. I think they had like vogue parties there and stuff. So pretty interesting play. Will Krasne (08:30) They also have SAA over in East Williamsburg. Hiten Samtani (08:34) Has our mutual friend taken you to SAA? Will Krasne (08:36) So I have to make a disclosure about this. I have applied to SAA and I was denied. So I don't mind. Hiten Samtani (08:41) no. There's no bitterness whatsoever. Will Krasne (08:46) None. None none at all. Hiten Samtani (08:47) Ninety-nine cent bought a building on Maiden Lane as well. And with 110 Wall Street, they'll have quite a little campus in the financial district. And how they use it is what everyone's asking. There are operators in the market who are pretty pissed because they're like, they're not trying to compete on rent or anything. By the way, very interesting side characters in this business. The day-to-day guy is a guy called Dawson Stelberger. Have you ever been to a happier grocery? It's like an Air One Light. Will Krasne (09:12) I haven't been, but I know what you're talking about. Hiten Samtani (09:14) Ninety nine cent is involved in that too. One of those nebulous entities that every so often manifests in New York real estate. Will Krasne (09:21) It's only in New York. That's what makes it great. Hiten Samtani (09:27) All right, next one. Prop tech has almost become a bad word for good reason. There's been just too many meltdowns, too much investor capital incinerated, and a lot of startups are either out of business or essentially DOA. There are some exceptions though. So built raised a huge round recently at a, I believe, a $10 billion valuation. And now Elise AI, which does AI agents for property management, is reportedly raising $300 million at a $3.7 billion valuation. Kinda numbers we're seeing a lot in the Zerpia era, but not recently. Will Krasne (10:01) Well we're seeing it in AI. Yes. I think that's really the key here is that it's at least AI. Hiten Samtani (10:05) I think they attacked the AL the name later, which is smart. Will Krasne (10:09) Yeah, it's the opposite of Facebook. Drop the the just Facebook. It's clear. There's a variety of different products in this space. I will say what's very interesting is that payroll has gone up twenty five percent roughly in the last four or five years, despite all of these AI leasing agents. And supposedly it's supposed to help you have lower payroll. So interesting how that works. Hiten Samtani (10:33) They're being used by more than two thirds of the NMH C fifty, which is all the biggest landlords in the space are using them. Will Krasne (10:38) I think there's definitely a use case. They're gonna get a lot better than they are right now. And this isn't a comment specific to Elise AI. It's to all of the AI agents. They're not great and they are gonna get better. It is gonna be a big part of what leasing looks like over the next five, ten years. It's a heady number. It's thirty seven times ARR, which is not something you really have seen in Prop Tech for quite some time. Whether it goes into that or not, who knows? Hiten Samtani (11:03) last raised about this time last year out of two and a half billion dollar valuation. So quite a jump since then. Will Krasne (11:08) This is a space where there's gonna be a lot of growth. And as people are looking for operational edges, you're not gonna see the cap rate compression. You're not gonna see lower rates that drove a lot of the value increases from twenty to twenty four. You gotta find the last couple of points of margin anywhere can find it. Hiten Samtani (11:26) That's it for the punch list. When we come back, it's limit up kamikaze time. Okay, let's go inside the cap stack with Gibson Dunn's Eric Meer Eric Meer of Gibson Dunn, thank you so much for being with the promote. When we Eric Meer (11:44) Pleasure. Hiten Samtani (11:45) were catching up for lunch a few weeks ago, you had put on my radar this interesting trend about the changing nature of the title insurance game, historically one of the sleepiest parts of C R E. Eric Meer (11:54) Sponsors are now asking themselves, how do we get in on the economics and the upside? Increasingly they are coming to the conclusion that it will be worth their while to create effectively a captive title joint venture by partnering up with an experienced title agent. Hiten Samtani (12:09) And I take it that you're flagging this trend because this is not a Mickey Mouse thing. Eric Meer (12:13) Most sophisticated institutional investors are all getting comfortable with forming these joint ventures as part of their core real estate business. In deals that are hundred million plus, it's not uncommon to see title bills that can reach a million dollars in premium, if not more. If you have a 50-50 joint venture, obviously that means half of the title premium upside is now going to the sponsor of the deal, whereas previously that would just be a sunk cost. Hiten Samtani (12:39) And where does Gibson step into this brave new world Eric Meer (12:42) World we help negotiate the terms of the joint venture agreement. Typically there are several hot button issues, governance and liquidity rights and exit rights. One thing that title agents are very focused on when entering into these partnerships is making sure they are not getting burned. What they don't want is for the partner to learn the industry through this marriage and then as soon as they figure out how to navigate the title world, they pull the plug. Take all the employees and just do it themselves. So you're seeing a lot of negotiations around things like non-solicitations, non-competes, for sale exit rights. Hiten Samtani (13:19) Zooming out, one of the things we talk so much about on the promote is this trend towards the AUM gobblers, the biggest players in the space getting bigger. And something like this is really a reflection of that. If you are doing transactions in the hundreds of millions of dollars every year, it makes sense for you to find all these cost centers and turn them into savings. Eric Meer (13:38) Agreed, title insurance is probably the most fundamental part of the industry and historically has been the least understood and untapped market because no one really thought about title insurance as a profit center. Hiten Samtani (13:53) Eric Meer Gibson Dunn, thank you so much for being with the promote. I've previously visited the tales of Anbang and HA, giant Chinese conglomerates that made big bets in US real estate and then very abruptly fell into a lot of trouble. Those were almost Mickey Mouse stories compared to the one we're gonna get into. What an incredible saga. Everground. Wow. Will Krasne (14:29) It really is a saga. Hiten Samtani (14:30) What is the perfect story in general in CRE? It's when individual ambition collides with some sort of broader macroeconomic or political shift, right? And in this case, Evergrande's ambitions were perfectly synced with the rise of China. Kui Kayan, our central character here, timed that really well. Will Krasne (14:52) It's the Cinderella story coming out of nowhere. Hiten Samtani (14:54) Until the glass slipper was smashed on the pavement. Will Krasne (14:57) So in China, obviously there's a ton of politics and business and they're intertwined. If you have party support polled, we've seen what happens. When Hiten Samtani (15:06) These guys in the US joke about one true landlord. It's Will Krasne (15:09) Yeah, there's one through Hiten Samtani (15:11) not a joke in China. Will Krasne (15:12) So Hui he was born in rural Hanan. He worked in an iron and steel factory. Not the background you would pick to be one of the richest men in the world. And not in like a tech thing either. That's what's so crazy about this. He did this in real estate. And he moves to Guangzhou in the early nineties, founds Evergrand at he's thirty eight. Hiten Samtani (15:33) So we have hope. Will Krasne (15:34) there's always hope. You talk about the macro coalescing and creating the opportunity for someone and that really happened here. China underwent a big tax reform in nineteen ninety-four. And the result was a lot of the local governments basically had no revenue. Hiten Samtani (15:47) They were castrated. They were left with a bunch of land but no revenue. Other analogy I was thinking of was the breakup of the Soviet Union and the oligarchs that it created. It reminded me a little bit of that. Exactly. Will Krasne (15:56) Right. The government ended up privatizing housing in 1998. And so what you had was a generation of as China was becoming more industrialized and the economy was growing, the same thing that drove the commodity bull market, which was China becoming more of an industrialized country. Those people wanted houses. And the local governments couldn't do it, but they had a lot of land and they needed a lot of revenue. And so Hui ends up taking advantage of this and creates this model, which is really not unlike Miami condo development. Yeah. Hiten Samtani (16:25) Yes, yes, absolutely. Will Krasne (16:27) You buy the land with debt, you pre-sell the apartments before construction, and then you just keep using the deposits to buy more land. Now, that's really risky if the cycle changes, but of course, he was on maybe the greatest consumptive wave in the history of modern economy. And so just rode this thing for the better part of twenty five years. Hiten Samtani (16:49) When we think of ambition in the US and someone proclaims that they're gonna build 10,000 units, 20,000 units over the next five, ten years, we're like, wow, that's a real player there. Hui, our man here, planned to build one and a half million apartments. And he got over forty five billion dollars in loans to make that happen. Will Krasne (17:07) This isn't also straight up into the right, which I think is almost the best part. So he almost collapses in the GFC, ends up getting bailed out by a couple of Hong Kong tycoons. Nothing better than the Hong Kong Tycoon. Hiten Samtani (17:18) We actually gotta do a live pod there at some point. It has everything we've got. Will Krasne (17:21) But I would love to. Can we do it at a Jardine house? Hiten Samtani (17:24) When I was six months old, my parents went there with my elder brother and left me with my uncle and aunt and they went for a week holiday, which so it still stings. Will Krasne (17:33) Let's definitely go. Let's go to the races. I wanna go to the peak. I wanna drive a fancy sports car really, really fast, like on the Taipan. Hiten Samtani (17:43) In the GFC, as we were saying, he was bailed out by these Hong Kong tycoons, figures it all out, goes public what, end of two thousand nine? Yes. Will Krasne (17:51) So it gets through and goes public for the liquidity and then the stock just goes Hiten Samtani (17:55) Vertical bananas. If you come from lineage, if you come from wealth, you live like a rich man, but you don't necessarily go ham. If you come from nothing and you're suddenly endowed with an incredible amount of wealth, you might end up going ham and that's what our man does. Will Krasne (18:11) He is the man. He's awesome. This is just a list of things that he does. He buys Guangzhou FC, I think he turns it into Guangzhou Evergrand FC, wins the Asians Champions League twice, commissions a $1.7 billion Lotus-shaped stadium, but doesn't finish it, of course. He starts various bottled water, dairy, and pig farming ventures. Starts adding in healthcare and plastic surgery to his apartments. So he creates health value wellness cities where you can go get your upper blef. I know procedures. Hiten Samtani (18:46) Okay. Will Krasne (18:50) Commits twenty four billion dollars to build a man made archipelago in Hanana. It takes a stake in Faraday future the Hiten Samtani (18:55) That electric car company, the crazy- Will Krasne (18:57) electric car company, and at one point it was valued more than Ford and had sold no cars. Amazing stuff. Riding the high life, one of the richest men in China, one of the richest men in the world. What goes up must come down. Hiten Samtani (19:11) Yes, it must. So in September twenty twenty, there's a leap. Will Krasne (19:15) Not the leak you're thinking of. Hiten Samtani (19:18) Not that kind of leak. There's a a letter to the Guangdong government that is revealed. Will Krasne (19:25) And it basically says that Evergrande faces a cash crunch if certain deadline isn't waived on their debt maturity. Also, Beijing shifts their perspective on the debt fuel mania of this company. Hiten Samtani (19:38) Correct, the Chinese government started cracking down pretty heavily on what were known as the gray rhinos, these debt-fueled machines. HA, Anbang, Evergrande falls into that category for sure, because they saw these companies as potentially embarrassing to the nation building exercise. Will Krasne (19:53) size. And that yes. And so they created three red lines. So you had to have liabilities divided by assets under seventy percent. So basically it had to be seventy percent LTV or lower. You had to have like what net borrowings under a hundred percent? Hiten Samtani (20:06) Phrase they used it was net gearing, had to be under a hundred percent. Will Krasne (20:09) Yeah, and then you also had to have cash covering your short-term debt by 1.0 or greater. And unfortunately, Evergrande failed all three and they collapsed and they had $300 billion of total liabilities. All of this was leveraged. It wasn't just they took out a bunch of loans. The deposits are essentially a form of leverage too that they'd taken in. These apartments aren't getting built. These people are losing their deposits. It's a horrible, horrible thing that's happened to a lot of people who've lost a lot of money. Hiten Samtani (20:34) The reason real estate is so beloved by governments is that it's very visible putting people to work on productive things, right? Will Krasne (20:41) Right. Totally. I mean, think about it in the US. When we talk about data center growth, the data center doesn't give you a lot of jobs. It's the building of them that does. Yeah. Same sort of thing here. And unfortunately, the liquidators now have found about two hundred fifty million of assets, which is a little bit less than three hundred billion. Hiten Samtani (20:57) But there's a Monet in there. Will Krasne (20:58) there you go. The reason we are talking about this, so Hui is was sentenced by the Sheng Zhen Intermediate People's Court, along with a bunch of other senior executives, employees, about fifty people. including his sons, and they were sentenced to prison terms between twenty two months and eighteen years and then he I think got life. Hiten Samtani (21:16) He got life. And the allegations are pretty damn serious. They said that Mr. Hui and Evergrand engaged in large-scale financial fraud and committed crimes including misuse of funds, fundraising fraud, and illegally taking public deposits. When it comes to this scale, the Chinese government is also looking to make an example of the person. If you remember, Anbang's chairman got 18 years as well. So when you mess around in the US, non-recourse is a beautiful thing, but i there's no such thing as non-recourse in China if you mess around. Will Krasne (21:47) Yeah, the hardened pathway that currently exists here is non existent in Beijing, so caveat MTOR. Hiten Samtani (21:56) When there are these sprawling conglomerates that go under, a lot of the middlemen get dinged as well. So with Enron, if you remember Arthur Anderson, R. I. P., right? In this case it was PWC that got a pretty severe penalty in China. Will Krasne (22:09) You're existing as a human body shield. Hiten Samtani (22:12) This whole thing was predicated on them being able to borrow from everywhere, right? Debt was the fuel for all of this expansion. So they borrowed from local governments, banks, other creditors, and they just kept building and building and growing and growing. Though in 2020, when this whole gray rhino crackdown happened, Beijing said that, hey, there's going to be some pretty strong restrictions on how much you can borrow. And that just choked off the air and that was it. Will Krasne (22:35) There's no margin for safety. Hiten Samtani (22:42) Aaron Krawitz from Bravo Capital, welcome back to the promo. Ask Aaron Krawitz (22:45) Hi Hiten, good to be here. Hiten Samtani (22:47) you a simple question. How do you think about SNFs as a category? Broadly, one-on-one. Aaron Krawitz (22:52) They're more similar to hotels than they are to multifamily. Both for an owner and for a lender, what should be top of mind is you're in a life safety category. If a hotel changes hands in a bankruptcy and all the lights go off and people might not get room service on time, that might be slightly unfortunate. In skilled nursing, You're entrusted with the lives of the elderly who are reliant on specialized equipment. If there's any bump in the road, a bankruptcy or receivership or otherwise, you really have to make sure these people are prioritized and that it's more than an asset. Hiten Samtani (23:32) Distress in a capital stack can actually translate quite directly into distress in a person's life. And that's a pretty big responsibility as both an operator and I'd imagine as a lender. Aaron Krawitz (23:42) A hundred percent. That's why reputational risk is so important in general, but especially in the healthcare space where you want to be aligned with people who have been trusted fiduciaries for decades. Hiten Samtani (23:56) Aaron Krawitz from Bravo Capital, thanks for being with the promote. Will Krasne (24:10) The story's about another unraveling of a giant real estate portfolio, but while the scope and scale are much less, it's honestly much more tragic on a human level. Hiten Samtani (24:21) It really is. But there are some caveats to that, so we'll get into them. The Shitreet group, the brothers Meyer and Joseph Shit, have been in all sorts of financial mess over the past year and a half. We've talked about them on the pod multiple times before. It was Will Krasne (24:35) I think it was our second episode Hiten Samtani (24:36) our second episode. The Big Bang Battle of Shitreetstan, because this giant multifamily portfolio that they had bought had set off a war between JP Morgan and Wells Fargo over some. Will Krasne (24:46) There's a scrivener's error where they took out Hiten Samtani (24:49) They've essentially Will Krasne (24:52) Some collateral from the pool, yeah. Hiten Samtani (24:55) been fighting foreclosures, creditors, PGs, etc., for the last year and change. And now there was an extraordinary deposition that was revealed in court a couple of weeks ago. It's from the spring. It really brings this all home. So what did Meyer Chetrit say? Will Krasne (25:10) He said doesn't have a dollar of cash to his name. They asked the valuation of the Triots portfolio. He said negative eighty million dollars. Hiten Samtani (25:17) And this was a multi billion portfolio at one point, which had some of the name brand properties in America. The Sony building, the Sears Tower, just an insane amount of multifamily all across the country. The Chatreets were big boys, literally and figuratively. Will Krasne (25:31) Indeed, they asked how did you come up with this valuation? He said, I did the calculation on a small piece of paper to myself and I didn't show it to my wife because I don't want her crying all day, essentially. And both Mayer and his brother Joseph, who've run this, are having health issues. I think both of them have had strokes. They have hundreds of millions of dollars in judgments against them. Mac, Maverick, Wells, it's all Hiten Samtani (25:55) They've tripped up a lot of their bad boy guarantees, which has made them liable on through PGs for a lot of this money. And that's kind of where you have to take some of these comments with a pinch of salt, no? Because if you're broke, it's hard for lenders to go after you. Will Krasne (26:10) True. I just read about AJ Delorio from Deadspen and he talked about how after he they lost at the Hulk Hogan trial, where someone put a bank hold on his account which had less than a thousand dollars in it for like fifty-eight million dollars. So he had a negative fifty-eight million dollar balance for like six months. Hiten Samtani (26:29) This is like Kent Swig. Kent Swig, if you remember from New Kings of New York, one of his creditors, here's a credit card, go to Whole Foods or Trader Joe's, buy yourself some groceries. Things can get really bad on paper. Will Krasne (26:40) On paper in reality as well. Hiten Samtani (26:43) The Shatreats are not penniless. Let's be clear about that. If you remember when Jacob Chetrit, who passed, do you remember that extraordinary probate court document? Cash on hand, five hundred thousand dollars. The immortal line was other membership interests, and it was valued at eight hundred million. So yeah, I mean, look, some of this we don't know, like a divorce trial, right? Your aim is to make yourself as impoverished as possible in the eyes of the law. Will Krasne (27:10) I know somebody who lived in a very expensive apartment and prepaid two years of rent before he was going into his divorce to say I have no cash. So yes, some of this is sort of trying to create leverage to work out settlements, but this portfolio and this business, which was one of the dominant forces in the New York City skyline for a really long time, is it's a shell of its former self. Hiten Samtani (27:35) Yeah, the foreclosures are real. Will Krasne (27:37) Hotel Carter, the former Cabrini Medical Center at two twenty seven East Nineteenth Street, sixty-four eleven Queen's Boulevard. I am Queen's Boulevard. And five forty West Thirty Eighth Street. What was Mayor's comment? Hiten Samtani (27:48) After he listed each one of these, he just said, Bye bye. Bye bye. And you can imagine like an older man with a heavy French Moroccan accent doing this and it's some drama there. Will Krasne (27:58) Yeah, so when a balloon like this pops though to your point, what remains? It doesn't seem like the shit treat organization is necessarily totally on top of record keeping at this point. Hiten Samtani (28:10) These are your original men with deep pockets. There's a lot of wealth there. It's not really well documented. They come in and out of rooms with promises to pay. They make deals happen. They pull in partners. They've pulled off a magic trick for the better part of five decades now. Will Krasne (28:25) One of the early articles talks about they wanted to buy a building and they called the broker. The guy goes, I don't know who you guys are. He goes, We'll get you there in 10 minutes or something. And they show up and they pull up an account balance with like 95 million of cash in it. And they're like, We're ready to go. And like went non-refundable like that minute. There's a real chivalry is the wrong word, but there's a real jean to say quoi. Hiten Samtani (28:48) Esprit the court. Will Krasne (28:49) Yeah. And it's a wonderful thing, but at the same time Their competitors used to be guys kinda like that. And the competitors now are Tyler Henrietzi. Hiten Samtani (29:00) That's a great point. These were cowboys competing with each other, but when the suits come into the mix and have institutionalized and have built a platform around themselves, maybe they're a little bit better insulated. Maybe they don't live as well. Maybe they don't have as much fun, that's for sure. But Will Krasne (29:15) I definitely don't have as much fun. Hiten Samtani (29:16) Yeah, can you imagine? But it is a whole different prospect. And some of these things in this deposition, it dents the aura quite a bit, right? Meyer Chatreet talking about sleeping in the office and not having enough money to do basic things is quite a black eye for a family like that. Will Krasne (29:35) These guys, the mystique is a big part of it. It's like we talked about the Reichmans and their ability to borrow. It's the same thing here. If y the Shastreets were coming up to bid on one of your buildings and they're like, we want it, you're good to go. Also, what they did is these guys were traders. That's their background. That's how they made the family made their initial wealth. Hiten Samtani (29:55) They don't have emotional connection to the brick as much as to the deep Will Krasne (29:59) Yeah. And when you trade, there's a lot of friction and they're buying things to buy and sell. They're not buying things to buy and operate for cash flow. You can make a lot of money doing that over time, but when the music stops and you don't have the cash flow coming in, you're sitting on a bunch of really good real estate, but you gotta put a lot of money into it to redevelop it or to execute your value add business plan or what have you, that makes it really, really hard. Hiten Samtani (30:26) You guys know that I'm a romantic and characters like the Shitreats are very close to my heart. Will Krasne (30:30) I hope these guys recover and continue forever because Hiten Samtani (30:34) Need it. Will Krasne (30:35) we need We need characters like this. It's a beautiful thing when these guys are involved. The world is more fun. Hiten Samtani (30:41) It's the opposite of risk adjusted returns, it's just risk and return. Will Krasne (30:44) Yeah. Hiten Samtani (30:50) You ever try to book one in agency floater? Will Krasne (30:54) That's a task I haven't heard in a long time. You sit there, deep in the early hours of the morning, copying the model your associate gave you, because you don't totally know what the plumbing is. You pray that it's right, or that in 18 months, it's the next guy's problem because you've already taken another job. Hiten Samtani (31:09) Which is why Loan Boss reamortizes it every month off the real reset, and it ties out to the penny with the agency. Will Krasne (31:15) That's big. No more adjustments below the line. Hiten Samtani (31:18) The platform also runs real time defeasance and yield maintenance. Every prepay convention baked right into the loan. Will Krasne (31:24) So you can price a prepay two years out and know what it costs today. And the look back conventions are already in there. Listen. Hiten Samtani (31:30) check them out at loneboss.com, that's loneboss.com, and tell them the promote sent you. Mm. Hoy there, matey. Will Krasne (31:53) Here from the SS Minnow. So Blackstone, they own Safe Harbor, which is one of the largest marina operators in the country. They announced a $1.5 billion acquisition of boat retailer and marina operator Marine Max, which is one of the largest marina deals to date. And it really highlights how aggressive institutional capital is in coming into the marina real estate space. fault. So marinas are one of the newest institutional asset classes. It's got limited supply. They're really hard to build. There's only so much waterfront. I think there's eleven thousand marinas odd in the US. Hiten Samtani (32:30) And developing around marinas is even more fraught than your standard real estate development. It's very hard to add any inventory to many of these places. Will Krasne (32:38) Totally, because you're dealing with the Army Corps of Engineers and like all it's just hor horrifying. Yeah. It's really a lot like mobile home parks, you know, twenty years ago, where no one really wants mobile home parks to be built and there's really fragmented ownership. So this stat really stuck with me. Ninety percent of marinas are owned by owners with only a single marina. Hiten Samtani (32:57) You can almost hear the P E guys go to sc Will Krasne (33:00) Yeah. There's also operational upside too. It's not like you can just buy these things and that it is what it is. You can upgrade the docks. You can add adjacent services, additional residential and mixed use assets. So let's put some metrics around this. We talk about narrative a lot, but what's the juice? Hiten Samtani (33:16) The juices here in Miami, for example, rents are up more than a fifth, so twenty three percent up from forty two a foot per month in twenty nineteen to just north of fifty today. Will Krasne (33:26) On the occupancy front, think about this from multi. Like we saw multi-family growth higher than that in a lot of cases. But what we haven't seen is the occupancy. So I think more than half of marinas have occupancy over 95%, according to a survey by Marina Doc Age, which I am not a subscriber to, but maybe I should be. We got it. Yeah. Hiten Samtani (33:45) I know, that's fun. Will Krasne (33:47) And it's also proven to be a little bit of tariff and administration. Hiten Samtani (33:53) resistant. A lot of the people in that orbit are probably owners of such properties. Will Krasne (33:57) Yeah. We saw with like RVs and like Camping World, there's a huge COVID boom and then it's completely fallen apart. That's not been the case here. Boat sales are up twenty percent almost year over year, and honestly, people are upgrading their boats. And of course, we talk about the wealth creation through SpaceX, the AI boom, all of these things. What do rich people buy, Hen? Hiten Samtani (34:19) Rich people buy boats, baby. Will Krasne (34:20) They do. They buy boats quite a bit. We've had our thing Hiten Samtani (34:23) Heart set on this post Will Krasne (34:24) for Hiten Samtani (34:25) days now, which in our world is a level of focus in which I personally have never experienced. The add on plays are also interesting to real estate people. What else can you do around it? F and B, retail, God, residential even. Will Krasne (34:39) For another 18 hours, I live in Rehobith Beach, Delaware. And if you drive over the Bay Bridge in Stevensville, there's a big marina with quite a lot of boats and a lot of wealth. And they've delivered a bunch of high-end condos that are selling for like three, four million dollars in Stevensville, Maryland, because they're right next to the marina. And literally they're picked as if you don't want to spend the night on your boat, you can just come into Hiten Samtani (35:02) That's amazing. Will Krasne (35:03) your condo. In Sunset Ward, specifically I've looked at the collateral, obviously. And it's like, When your grandkids want to visit you on your boat and you don't have enough room on your boat, you can just have them come to your Hiten Samtani (35:14) Stick in the in the piano terror. Will Krasne (35:15) but there's even some bigger ones. There's Safe Harbor Rybovich in Pompeii, Hiten Samtani (35:19) Yeah. Will Krasne (35:20) which the Huizenga family. So Wayne Huizenga famously founded waste management and Blockbuster, owned the Dolphins, just legendary entrepreneur. His family is doing a two billion dollar mixed use redevelopment, which is gonna have high-end retail, residential. They will be able to handle mega yachts. Hiten Samtani (35:37) This is the future, man. Will Krasne (35:38) There's only so many places the Mega Yacht can go. Hiten Samtani (35:41) This rhymes a lot with the discussion that we had with Ian Ross on airplane hangers as well. Can we talk about the play here for the Blackstones and the Brookfields and the KKRs of the world? Will Krasne (35:49) There's the asset level and there's the operating business. And so you can aggregate the assets and build an operating platform around them. The opco informs the prop co. And so you're able to drive intercommunal returns if you can plug non well-managed assets into your platform. And that's really the whole game. Hiten Samtani (36:06) How far off are we from the John Gray and lay in the boat shoes doing a little trot on the marina video? Will Krasne (36:12) To their credit, I think that th the look of running around a mega yacht is probably not as good as the running videos around a data center. Hiten Samtani (36:33) That's it for the promote podcast this week. A Chinese tycoon's pre-sales falls short, and he's up a creek without a paddle. Two of New York's girthiest lads face a reckoning across their portfolio and leave questions about what remains. And finally, it's the have and have yachts making the next big CRE MA play. Will Krasne (36:50) This was a fun one. Thanks again to our sponsors, Loan Boss. You are mission control for CRE debt management. Hiten Samtani (36:56) Bravo Capital, a leading Huddon Bridge Lender. Their top 10 SNF report can be found at BravoCapital.com. Hey Promote listeners, a heads up. We're going to be taking a couple weeks off the pods. Your next episode will drop September 16th. I'm off Gallimanning on the Italian Riviera and co-host Krasny settling back into life in the Big Apple. When we return, though, expect some top-notch stuff from more guests in the Friday feed to other surprises. We are beyond grateful for your listenership and evangelism of the promote, and are so looking forward to coming back. even stronger in the fall. So we'll see you back here September 16th. Until then, arrived. Ciao. Will Krasne (37:30) Thank you.