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Mass Alt-luence & There's Something About Rabsky · The Promote Podcast

• Hiten Samtani (00:03) So I got a problem. They barely smoke in the movies anymore. It's probably better for public health, but I'm a little wistful for those iconic hazy shots of a Cary Grant. Or even a Don Draper. Look. Will Krasne (00:14) It's toasted. But thankfully, we still have Simon Dushinsky Hiten Samtani (00:30) Welcome back to the Promote Podcast, your insider guide to the money and mania of the CRE markets. I'm Hiten Samtani. Will Krasne (00:35) and I'm Will Krasne Hiten Samtani (00:40) A shout out to our sponsors, Bravo Capital, a leading HUD and bridge lender. Will Krasne (00:44) and Loan Boss, the best in class CRE debt management software. Hiten Samtani (00:48) This week we chop it up on how God is smiling upon us alts. I didn't come up with that, that's a will thing. Well done. Will Krasne (00:53) I stole it from the article in the FT where the head of the distressed lender, I forget the guy's name, he's like, I can't believe God would smile upon me like this. Hiten Samtani (01:03) The federal government has put forward much-anticipated regulation that creates a smorgasbord of investment options for retirees. The implications for CRE, as co-host Krasne likes to say, are t- Next, we discuss how Manhattan office has broken the $300 a foot sound barrier twice in a month by the- Will Krasne (01:14) Sonic. Also the $310 and $320 a foot sound barriers. Hiten Samtani (01:26) And finally, we bust out our Marley Slims and head to Brooklyn, where an orthodox dealmaker's unorthodox playbook is dominating the development landscape. Will Krasne (01:34) Rabsky is such a legend, I'm really excited to dig in here. Let's kick things off with the punch list, our signature rundown of the newsiest news in CRE. However, before we do that... Hiten Samtani (01:45) Ta-da! Will Krasne (01:48) I want to remind those of you who suffer from FOMO to sign up for the Promote Insider. It's our premium tier filled with exclusive content and behind-the-scenes analysis. Hiten Samtani (01:57) We just dropped an important piece from an exec at a major apartment landlord. Honestly, I think it's one of the best blueprints for the institutional business going forward that I've read. Will Krasne (02:06) It's really as you said in the newsletter. Hiten Samtani (02:08) The thing about the old days? They're the old days. And on April 23rd, we're going to be joined by Lightstone Group founder David Lichtenstein for a conversation talking all things deal making. Now David's a titan of the business and he's seen it all. That virtual event is only going to be for insiders. Will Krasne (02:23) So go ahead and sign up at thepromote.com slash upgrade. That's thepromote.com slash upgrade and we will drop a 10 % discount code in the show notes. Hiten Samtani (02:35) All right, punch list, let's go. First one, amazing. The reaction was very, how do I say this? But what am I talking about? Andrew Chung of Innovo Property Group, former Carlisle guy, has been appointed co-CEO of Extell Development, Gary Barnett's firm. I tried to crunch the rationale for this in 10 different ways and I couldn't get there. Will Krasne (02:43) burning. Well, before we even get to that, the chunk of it all, this really, the first thing that came to mind for me was the Tobias Jukka meme where it's- I mean, these people somehow delude themselves into thinking it might, but- But it might work for us. Because I think we've seen this before. Hiten Samtani (03:16) Gary Barnett, who we've waxed eloquent about on this podcast multiple times. Will Krasne (03:20) Well deserved. I don't think we talk about them enough. Hiten Samtani (03:23) The whole podcast could just be called the Barnett podcast. And I think people would be fine with it, by the way. Oh, yeah. Yeah. So Gary Barnett in 2019 had brought in Westbrook alum Sush Thorgalkar to be CEO of Xtel. That move didn't even last two years. It's tricky, right? A founder like Gary Barnett, who has such a way about him and such a chutzpah when he does his deals and is able to take on, as we've talked about, this unbelievable amount of risk. Will Krasne (03:27) Yeah, absolutely. Hiten Samtani (03:49) How are you going to get a pro-CEO to kind of adopt that and be respected in the same way? I don't know. Will Krasne (03:53) I think so either. You got to figure out what game you're playing. And if you're coming from Westbrook or you're coming from Carlisle, you're not really playing the same game as the guy who's like, I'm going to go ahead and start this construction project without a construction loan. I'll figure. Hiten Samtani (04:08) Yes. get to a point where you can take $1.2 billion in prep across several projects. Will Krasne (04:15) It just doesn't compute. the risk, we talk a lot about how guys in the 80s and 90s, you had to really risk your personal balance sheet, balls to the wall, max leverage. And Gary's sort of a throwback to that era. And guys coming out of the institutional ecosystem really aren't that. I will say this about Chong. He has put real money in the line. He's been an entrepreneur. I kind of like view him as like the real estate version of Mugatu being like, Hiten Samtani (04:45) NETTLE! Will Krasne (04:47) He's like, I invented the two story warehouse. Hiten Samtani (04:49) We're talking about the Bronx last mile plays that he made. To give him his flowers, I think it was pretty early to the last mile game. Pandemic onwards, Will Krasne (04:56) Yeah, he was early and he successful. He raised a ton of capital. Unfortunately, he didn't quite raise enough capital because famously, Hiten Samtani (05:02) I knew you were gonna go there. I knew you were gonna- Will Krasne (05:04) The largest deposit I have ever seen of the $30 million hard deposit on HSBC Tower because he couldn't raise the money. Hiten Samtani (05:13) He had a deal in place to buy this tower. It's a hulking office tower in Midtown for about $850 million. This is one of those kind of deals that puts you on the map that can make or break you. And unfortunately, it broke him a little bit here. Will Krasne (05:27) It's a lot of money. It's a gargantuan amount of money, but it's not the money itself. It's what it symbolizes, because once you do that, there's always a black mark there. And so to me, the biggest question is what happens to Inovo? They didn't have a fun series, I don't think, but they had a programmatic JV partner, I think, out of out of Asia. What happens to those deals? What happens to that staff? Do they get subsumed in XTEL? Hiten Samtani (05:46) And by the time this podcast drops, we will probably hear about more departures from Inovo to Extell. Will Krasne (05:52) that would probably make sense. And also this comes down to succession. Gary has lived nine lives, but he's not yet even 70. And succession is really hard in real estate. You've got a bunch of examples that you cite about this has not been done well. Hiten Samtani (06:07) Yeah, it really hasn't worked out if you think about the major players in New York real estate. Related, I think, stands out as an exception where Steve Ross picked Jeff Blouse as guy way back in the 2000s and was CEO since 2012 and as seamless a transition as could be. However, for the most part, Vornado with Mike Facitelli leaving and Steve Roth, who's in his mid 80s and has had heart issues, is still running that shop. Will Krasne (06:31) He's also had stock price issues. Hiten Samtani (06:33) And then you look at Silverstein properties, is when they brought in Marty Berger from related to institutionalize the shop. But look, he had two major constraints. He wasn't a Silverstein and he wasn't married to Silverstein. So that was kind of a ceiling at Silverstein property. Will Krasne (06:50) There's a difference between whether you're setting something up to be an institution or it's a family business and a lot of it is simply like whose name's on the door and Steve Ross's name is not on the door. It is at related Ross. Hiten Samtani (07:01) Well, not at this company. Yes, absolutely. He's going absolutely bananas in West Palm Beach. Listeners who are new to the promote definitely go into the archives. There's an episode called Ross Takes His Talents to West Palm Beach. Absolutely worth listening to. Anyway, succession has been really hard. What can Chung do here? Xtel is probably the most interesting company in New York real estate right now, given all the stuff they're doing. Will Krasne (07:24) I wouldn't disagree. think they've done this stuff without a fund structure, I guess without a balance sheet, but Barnett backs it personally. You could tell me Gary Barnett's worth $50 million. You could tell me he's worth like $6 billion. And I'd be like, yeah, that sounds right. Yeah. One of the things that makes it tough is that you're used to coming from a shop that has a real balance sheet. Any of these big funds, you look at the filings and they have billions of dollars in the balance sheet. There's no risk of liquidity. There are real risks at these shops. Hiten Samtani (07:38) Both things are true. Will Krasne (07:52) and you need to keep the machine going. It's really hard. You're playing with live ammo and it's your ammo. Hiten Samtani (07:59) The big question that the industry is going to be asking of Chung is, okay, sure, he had a 20-year career or whatever at Carlisle and started this Innovo Property Group, but can he do it on a cold rainy night in Stokes? All right, next one. Doge, remember that old chestnut? Will Krasne (08:15) haven't heard that one in a while. So the federal government just released a bunch of data. And I think it's the first time this has been put out there. It shows how much of the government footprint, office footprints being used. The 23 largest federal agencies looked at the utilization rate of their real estate footprints. So both stuff that they lease and then stuff that they own. And what did it show? Hiten Samtani (08:38) So we see that close to 10,000 government spaces, including offices, other properties and such, fell below a utilization rate of 60%. That's pretty staggering. And then some federal agencies were using just 12 % of their space in their HQs. That's not very dogey of that. Will Krasne (08:56) No, it's not. But the important thing here is the ripple effects, because we've talked about a lot that education maybe isn't expanding as much. Meds and Eds, yes. In fact, perhaps shrinking in some of these major cities. We talked about meds and Eds, but there's also gems. Government, Eds and Meds. And what happens if the G goes away and gets smaller? And it's not just the office buildings. I'm not talking about like specific stuff, though, to be fair, I can think of one building in particular on Livingston Street that Clipper has that signed at least with the Department of Prisons or something. For like crazy high rent that is worth nothing. It's more like the ancillary services. So if these buildings get cut or go away, what happens to like the retail around there? What happens to the hospitality around there? Other office buildings that serve with the government, law firms, lobbying firms, all those pop up around government buildings. Hiten Samtani (09:25) Yeah certain regions, the CBDs are dominated by these hulking government agencies and let's say Nova, et cetera. Will Krasne (09:49) Yeah, the DC office market, for instance, is already one of the worst in the country. What happens if there's a lot more vacancy all of a sudden? Hiten Samtani (09:57) Next one. Scott Reckler is coming into a major office to Rezzi conversion. This is one of the OG office to Rezzi conversions, 55 Broad Street. Will Krasne (10:06) It is one of the first with Metroloft and the Rudens and that deal got recut I think when Nathan Berman bought it. Rudens stayed in, partially. ⁓ Hiten Samtani (10:13) was told the reason they stayed in is a ringside seat to watch the process, the master at work, the alchemist Nathan Berman, and see how he does things because obviously Rudin has a lot of buildings that they need to figure out over the next couple decades. Will Krasne (10:26) They do indeed and you want to see how someone does it and then the answer is ⁓ bring in pref at stabilization. Hooray! Question mark! Hiten Samtani (10:30) It's a mixed bag. He has a reputation as being the foremost practitioner of office to Rezzi along with maybe Van Barton, but Nathan Berman's had quite a few defaults. 20 Broad Street went underwater and this is the one where 60 Gilders stepped in with Sentry. And is it a sale? Is it a recap? Who knows? But I think he just got hope noted out there. Will Krasne (10:55) The laws of gravity still apply. You can be in the zeitgeist. You can have the asset class that people want. You can have the expertise that people want. But supply and demand matters. Rates matter. And you got to make your debt payments. I think he said at 20 Broad, we had a great project. We had a bad cap stack. But sir, who put on the cap stack? Hiten Samtani (11:14) Worrying about Reckler here, he's come back with this renewed vigor. Been getting massive deals done. We spent a whole episode talking about Gemini Office Ventures, which is his three and a half billion dollar vehicle with Liberty and a couple big other institutional investors. And then he got 500 million from Apollo for one of his buildings, 61 Broadway. So he's very much in the thick of stuff right now. Will Krasne (11:34) question is is he writing more white papers or less? They've been very successful on the prep side of things so they provided a huge slug of to go partners. Hiten Samtani (11:43) did great with the Go residential. it was Will Krasne (11:45) just gonna nominally what they had a big minimum multiple and that was part of why go had to go public was to raise the capital to pay them off and for a prep investment they did really well there and i think this is probably a great place to play for them the guys who made the most money in the gold rush weren't the ones actually like doing gold it was the people selling the picks and shovels maybe you don't want to be doing the office to resi conversions maybe you want to be giving them the breath Hiten Samtani (12:06) Next one. Department of Homeland Security wanted to spend up to $38 billion buying up industrial and repurposing it as detention centers for Trump immigration. That is now on pause. Will Krasne (12:21) The DHS, the funding for that has been in limbo for a long time. It's been shut down. So it's hard for them to get any money, nevermind 38 billion to buy warehouses from people who overpaid for warehouses. It just shows that what the government giveth, the government can also take it away. So this was a beautiful time to make hay while the sun shined. ⁓ Hiten Samtani (12:42) Looks very small, small window. Will Krasne (12:44) Small window indeed. Hiten Samtani (12:46) That's it for the punch list. When we come back, we'll be talking about alts. I'm here with Aaron Krowitz of Bravo Capital. Aaron, $2 billion in deals, 100 % HUD approval rate, five years since launching. How do you keep that streak going? Will Krasne (13:06) to our team. Our underwriters know what HUD wants. A HUD lender meaning everything we do is HUD and bridge to HUD. No taking shots and just hoping. When we go we Hiten Samtani (13:09) for a pure play. really go. ⁓ Will Krasne (13:21) four days from submission to HUD's approval and it goes back to knowing the ins and outs of the program so that there is no guesswork. Hiten Samtani (13:28) Sniff's assisted living, feels like such an arcane world full of very complicated regulations and such a specific cast of characters that you really need to know Cole to make this work. Exactly. Will Krasne (13:38) We're steeped in state-by-state regulations and distinctions, but we're not just about HUD. We also have a very strong balance sheet bridge affiliate, Bravo Property Trust, and we just financed over $170 million out in Miami and $125 million in Dumbo, Brooklyn. Hiten Samtani (13:57) We have convinced best. Thanks, Aaron. And where can people find you? Will Krasne (14:01) We're at bravocapital.com. Hiten Samtani (14:09) This one's big, Will. This is tectonic. truly is tectonic. There was talk for many months now that the Trump administration was going to look at opening up 401ks to a broader range of investments. They've typically been your cookie cutter, very safe investments. And there's been talk about expanding them into alts, which includes crypto, includes private credit, a whole host of things. One of the recurring themes of this podcast is retail money is the Holy Grail, much cheaper. better terms that you can secure for yourself as opposed to these giant LPs who can squeeze you a little bit and just a giant pool of capital. We're talking I think $12 trillion of capital in the 401k, something like that. Will Krasne (14:47) This is like when we discovered fracking or horizontal drilling. It's the fracking of the alternative space is getting into retail like this. And yeah, this regulation is essentially for 90 million Americans, it's going to allow them to invest in a broader array of assets. Because, of course, if you were only limited to the 60 40 portfolio or the mutual funds of your then you didn't have enough freedom. And so now you can invest in BDC. Hiten Samtani (15:14) You couldn't participate in the upside, which is the American way, well come on. Will Krasne (15:18) I was gonna say, don't at me, Josh Clarkson, I like you a lot, but yeah, I don't know if retirees, people in their 401Ks need BDC exposure. To be clear, this has been proposed and lobbied for a long, long time. The Department of Labor came out and proposed a new rule which would, quote, democratize access to alternative investments and 401K plans. And it explains the steps that managers of 401K plans need to take when considering alternative assets as a component in their investment lineups. This is what you have to do to get into BlackRock. This is what you have to do to get into BX. And this follows the executive order, basically setting the stage for this. And this is, again, what everyone has been loving. Hiten Samtani (15:55) The major players Blackstone, Brookfield, Blue Isle, etc. were setting up this infrastructure behind the scenes tying up with the vanguards of the world to create the platform that would then once the floodgates open they're ready. They're ready to feast, right? That was the whole idea. Will Krasne (16:09) Remember, there's a difference between the investment managers themselves and who custodian these assets. So if you are at a job, you're in a Vanguard 401k, you're in State Street, Fidelity, all these different groups. They don't actually have those options. So they have to partner with somebody else. And also kind of what you're seeing too, which is a little bit different, but kind of the same is outsourced CIO. Hiten Samtani (16:31) My friend Liana at Allocator has been writing about this. Will Krasne (16:35) endowments, pension funds, family offices, they couldn't compete on comp. And so now all of these things are getting outsourced. So instead of having a direct team that does real estate, you hire Blackstone to do it for you. That's also retirement money for the most part. Like all of this is getting shifted over into alts. And what's so interesting about this is that the way the argument is framed, deputy secretary of labor, Keith Sonderling, he goes, This proposal is decidedly neutral and refrains from saying that any asset class is any better or worse than any other investment types as the law requires, which is just like gobbledygook. Hiten Samtani (17:10) The decidedly neutral thing is like the very stable genius thing. It's the same DNA. Will Krasne (17:15) Investments are all the same, so who's to say what's better? Hiten Samtani (17:17) we've talked a bunch before about if you're a registered investment advisor, if you're an RIA, you're getting courted hard. Will Krasne (17:23) Not just the RIA, it's also the folks who manage these 401k plans. Hiten Samtani (17:26) You know what we should track, Will? We should go and find the trade magazine for whatever that industry is called and start reading it and see what the advertising looks like. I think that'll be a fascinating ⁓ way to track all of it. Will Krasne (17:38) Absolutely, because these are very low margin businesses. So if you're managing a mutual fund and you're taking 1%, these guys, if you're managing a 401k plan, you're taking much less to custodian these assets. So it's very thin margins. And I wonder if you're going to see private equity try to roll up those providers as well as they've done with RIAs and other investment groups. Yeah, I mean, it's happening. It's going to happen for sure. Hiten Samtani (18:01) When you say wonder, you mean you know. And this is also happening at a time when if you are an institutional investor, private credit's getting a lot of heat right now. We just saw Blue Owl, I think was hit with close to five and a half billion dollars of redemption requests. People are gating their funds. There's all kinds of mayhem happening in the private markets. It's not been a pretty set of headlines for the last few. Will Krasne (18:24) weeks. No, it is not. Private credit has a place in the portfolio. It is a real asset class. It has benefits. But what the wise man does early, the fool does at the end. And some of these docs that got written, some of these loans that got done in 2022, 2023, you could drive trucks through them. These asset classes go in because you'd say, oh, we want 60, 40 stocks, bonds. We need yield. We need access to these types of investments. You couldn't get that elsewhere in your normal portfolio. so. Yeah. These loans are made to private companies in a lot of cases. And you're like, well, that's my way to get exposure to this burgeoning AI ecosystem. it's really not. It's just really an enrichment scheme. They're coming after you because they can get better economics and you're not necessarily going to be calling them. If they underperform on a sleeve for audio, they're getting some angry phone calls. They got to go fly places. Hiten Samtani (19:16) Yeah. Steve from Wisconsin can't really do much if real estate fund goes south. Will Krasne (19:21) The other thing that I always wonder about with these 401k's for commercial real estate is that real estate kind of is shitty business. Low return on capital, hugely capital intensive. Hiten Samtani (19:31) It's like my business. It's like media. It's a horrible business. Don't get into it. But if you do get into it you do well, it can be Will Krasne (19:36) Great. Yeah, but the number one thing that's great about real estate is like the tax advantages. Only the little people pay taxes, Yes. So if you're doing it in a 401k, you get this UBTI issue and you can't take advantage of the losses. So it's sort of like, what's the point? You can make good returns, have good assets, all those things. But it's one of the most important things, especially with the changes in the tax bill. Hiten Samtani (19:58) I think you're even underselling it. Taxes the be-all end-all of real estate investing. Period. Full stop. Will Krasne (20:03) Yeah, because again, the yield's like not great, right? It's only good on a tax adjusted basis. like for private credit, they're like, I tried to raise capital for this thing and my investor said, well, my financial advisor can put me in this blue owl BTC making 12%. Why would I go to your real estate deal for six? Well, depending on where you live, that 12 is really like a seven post tax. It's also not paying cash. It's picked. There are ways around it. But again, for 401k, that kind of doesn't matter. The other thing which is interesting though, is that in the operating agreements, You can allocate depreciation in certain ways. So I wonder if let's say, pick a sponsor is like, you know what? We, the company, are going to take all the depreciation for this 401k LP. So we're actually effectively putting in 5 % of the capital as a co-investment. We're getting 100 % of the depreciation. That's going to be a thing. I guarantee you that's going to happen. you Hiten Samtani (20:58) So, Will, you violate any dead covenants recently? Will Krasne (21:01) So funny you should ask. I have been in technical default recently. I mean, who among us? Right. But not since Q4. Ooh. And that's not because I paid off the loan. It's because that's when I started using Loan Boss. Hiten Samtani (21:14) I can't believe how old school some of our listeners are. They're still crunching DSCRs in Excel and all that. Will Krasne (21:20) Total waste of time, risky business to boot. Loan Boss runs the entire process for me. One click covenant testing, incredible. Instant cashflow forecasting, impeccable. And my favorite nerdy delight, the live forward curve. So I hate having to go download the forward curve and then it's always vertical and you gotta alt HVT to have it go horizontal. Make sure the index match works, like ridiculous. Hiten Samtani (21:43) It just got it sorted here for- Will Krasne (21:45) Much better. So thank you, lone boss. Hiten Samtani (21:48) Listeners, check them out at loneboss.com. That's loneboss.com. And tell them the promo sent you. Will Krasne (21:54) you Hiten Samtani (22:05) Let's take it back to 2020 when you were walking the streets of Manhattan and there's nary a soul in sight and everyone's writing off this market. The Manhattan office, which for decades has been the safest, most institutional grade asset class in real estate. And baby, we're back. Will Krasne (22:20) you Where's James Altucher? I want to go see his face when he saw this lease signed. Was he crying? What we're talking about is we saw a record breaking price per foot lease signed in New York. Not just once, but twice in the first quarter. Let's talk about the first one. If we were to say what was the highest per square foot rent in New York, you'd probably say one van or both. You're correct. And who's the ten? Hiten Samtani (22:48) One van de A, absolutely. It's called Nscale, which is some kind of Nvidia backed AI infrastructure company. Yes. They agreed to pay 320 a foot, but let's caveat this. It's only a 7,000 square foot space. It's not the biggest in the world. Will Krasne (22:58) Those are words. $2.2 million a year for what would be like a very spacious five bedroom. Hiten Samtani (23:12) ⁓ So obviously I saw green feels great about the. Will Krasne (23:15) Before we even talk about that, were a hundred percent least. So did they kick somebody out? Hiten Samtani (23:20) SL Green in general, Steve Durrell's is their leasing guy. think he is a master of reimagining space. I'm assuming if they had to, if SL Green had an office in there, they'd probably move some people around, do whatever they needed to do, do a little buyout here and there. Cause you want this leasing Will Krasne (23:36) No, you absolutely want this lease and it's great headlines and it's you always want to break records It's really unfortunate though and the record lasts for two weeks. I Don't even think they had time to like schedule the closing dinner or the record breaking dinner for this Hiten Samtani (23:44) You So happened next? Soloviev, one of your favorite characters, one of your picks for your reality show that we will do someday. Will Krasne (23:56) Indeed, they got it done. They broke the record by seven and a half bucks. Hiten Samtani (24:00) So 327.5 per square foot at, and now this is what I find fascinating. We're talking about two record breaking leases on two opposite ends of the class A plus spectrum, let's call it. Will Krasne (24:14) Yeah, you've got one Vanderbilt, which is the new... Hiten Samtani (24:17) State of the art, state of the art, super super prime blah blah. Will Krasne (24:19) You've got the Centurion Club, you've right on top of transit, all these things. And then you've got sort of the Grand Dome of New York office, which is where this other lease was signed at Nine West. Slightly smaller space, so maybe S.L. Green can be like, we got more rent per year. But 5,000 square feet on the 50th floor of Nine West. Hiten Samtani (24:39) I have a fun spoiler for you because you didn't know who signed this. have since learned who it is. Will Krasne (24:43) I just knew it was a private international family. Hiten Samtani (24:46) It's a Mexican billionaire called Gonzalo Evia Balleres. Okay. But I think to the world he would be better known as Mr. Emma Watson. Yeah, he's dating Hermione. Huh. Will Krasne (24:50) Alright? It's Levi-O-Sar, not Levi-O-Sar. Did he make the money or is that? ⁓ Hiten Samtani (25:03) Excellent question, Will, this is why I love you. His grandfather was known as Mexico's King of Silver. ⁓ I think that is a fucking gangster nickname. ⁓ Will Krasne (25:13) would be for like anything. Was he trading silver? Did he make things out of silver? Hiten Samtani (25:16) no idea. He was of means for sure. And then his grandson, who's I think 28 years old, has a cute little AI company called LOK Lock. And it's the parent company of this AI company that did this deal at Nine West. What? King of Silver makes the money. Grandson starts an AI company because that's the vibe thing to do right now. And Grandson signs a lease in a building that is owned by another Scion. So it's perfect poetry. Will Krasne (25:45) I do love it though. What's interesting I think too about this as well is that it's what it says about the New York office market So we've talked about office is a four-letter word. I literally was talking to a bank today It was like we don't do office period period and office has been Quite successful in New York good friend of the prod opera has been talking about banging this net absorption drum for four years almost And we've seen like really high valuations for class a office one Vandy they aforementioned Hiten Samtani (26:07) Highest in 25 years, yeah, yeah. Will Krasne (26:14) $3 billion project. sold the stake to Mori Building Company last year for what, four, seven? Hiten Samtani (26:19) $4.7 billion after that stake sale that made it the most valuable office tower in America by a distance and then they sold more and more to Mori. So Nine West is obviously assembled and built by the great Sheldon Solo, the late father of Soloviev. Do you want to say what Sheldon Solo paid to assemble this prime problem? Will Krasne (26:38) Basically what, like a West Chelsea four bedroom costs? Hiten Samtani (26:41) 12 million dollars, 8 dollars a billable foot. Will Krasne (26:47) And what's crazy is that Stefan took over. think there was really high vacancy because they had super high rates. The building was dated and he has since reinvested in the building quite a bit. The move, if you were pruning the portfolio to sell these first aid taxes like he was doing, would have been to keep the multi, sell the office. He sold the multi to go and kept the office and reinvested in the office and now is printing these huge numbers. The occupancy rate at Nine West, don't have it off the of my head, but it's I think in the 80s or 90s, up from the 50s or 60s. So that building is just dumping cash right now. Hiten Samtani (27:17) He's on pretty well. I love what he said about this lease. said, the price speaks for itself. Until what next? Will Krasne (27:27) It really does. Yeah, well, in putting the 12 million in context, we're now at a point where the family office for 5,000 square feet in this million plus square foot tower, over their 10 year lease term, they're going to pay almost twice as much in rent as it costs to assemble the site. Hiten Samtani (27:45) Manhattan, baby, you gotta love. Will Krasne (27:46) Also, this net absorption number really speaks to the lack of A plus space. It's really kind of game of musical chairs because this is not something you can fake if you are mid block, if you are not state of the art amenities. You have to actually be creme de la creme and you have to be new. And there's not a lot of that space and a lot of it's getting spoken for before it even goes up. Hiten Samtani (28:04) Or you've got to be super name brand like Seagram building, think has done very well. They got Blue Owl in there, expanded incredibly high 200s. think they're, they're. Yeah. Will Krasne (28:12) for now. But you have to be at that level. And if you are like that markets being really driven, there's always like the hot sector is dripping. It was Tammy for a long time, and now it's really AI. So of that 11.8 million square feet, I think 600,000 was just these random AI farms. Hiten Samtani (28:29) And this is in a city which has no real AI ecosystem the way that SF does. If you permit me to be little catty. Will Krasne (28:37) Always. Hiten Samtani (28:39) N-Scale is a real shop and I think they probably have some go-to-market reason to be in New York. Locke is probably there just because this guy wants to be there and Emma Watson probably shoots there and he's like, might as well get space. Will Krasne (28:52) Doesn't he know that New York doesn't have a monopoly on talent? So there's been a rush of development in downtown Brooklyn, Gowanus for 421A. We've seen a lot of these buildings go up and now we are seeing some of the biggest refinances as these buildings are getting constructed and getting leased up that have happened for single assets across the entire city. And it's not a family. It's not a private equity firm, all of whom are building in this area. It's Simon Dushinsky of the Rabsky Group. Hiten Samtani (29:34) So I first heard about Rabsky, I want to say in 2014, the real deal was doing this biggest developer annual countdown. We ran the numbers and you see the usual suspects related, TF, Cornerstone, et cetera. And laughably high up on this list, really high podium finish type of thing, was the Rabsky Group. And everyone in the newsroom said, huh, what? And we thought it was a mistake. We thought there was some kind of error in the data, but no, the Rabsky Group, which is a portmanteau of... Simon Dushinsky and Isaac Rabinowitz. They're real builders. They're one of the most important and active and rapid builders in New York City. They're multifamily tycoons. There's barely a photo of them out there. There's one now, I think. Will Krasne (30:17) There've been a lot of big loans, but the lender here isn't Madison. I was sort of stunned when I saw this. It is JP Morgan Balance Sheet. Hiten Samtani (30:26) It's super interesting that JP Morgan's doing this. Let's say more about why the balance sheet part of it is interesting too. Will Krasne (30:32) This isn't in some sort of securitization. It's just the bank being like, here's some money. I will tell you that is a higher bar to clear as a sponsor than some sort of securitized product where it's going out to a million different people. None of whom can actually do anything, but they have to get in into your shorts financially. Personally, there's a warm body at the end of this thing. It is not like, we'll have some like blocker entity. Here's a screenshot of a, of an account with some money in it. This is like a real full proctological exam. Hiten Samtani (31:00) Rabsky famously doesn't have the thickest books. I've actually spoken to some lenders who've been through his finances and they said, it's not like the record keeping is pristine. It's just that this guy's track record is outstanding. He knows how to build. He knows how to make money. Lenders will give someone like that a lot of leeway. Will Krasne (31:18) This is Jamie Dimon sitting across the table being like, so when are you gonna pay me back? You gotta have liquidity, you gotta have net worth. There needs to be an entity or something with net worth like equal to the amount of the loan. And liquidity, I would guess a hundred million of liquidity to qualify for this loan would be my guess. And they've got it, you know, or someone has it who's backing them because this is like a big boy, serious, serious thing. Hiten Samtani (31:30) Pretty astonishing. Rabsky is a big boy serious group. As I said, very little is known about this guy. The myth around him is you're basically either going to find Simon Deschinsky outside the Wyshnitz Shul in Williamsburg crushing Marley Slims, or you're going to find him on a development site. That's pretty much it. They've never defaulted on a major project, as far as I know. A lot of these Brooklyn, the class of acidic orthodox deal makers in Brooklyn that we've talked about, Joel Goldman, Abe Lesser, et cetera, et cetera. They've had a lot of defaults, a lot of troubles, a lot of lawsuits. Dushinsky-Rapski does not fall into that category. Will Krasne (32:19) Part of it too is they're always taking these super expensive loans, super high leverage. Hiten Samtani (32:22) This is, they took two loans from Madison on this project? Will Krasne (32:25) It's Madison on the land loan, it's Madison in the construction loan, and then it's like JP Morgan for the mid construction loan. So it's like, how much has this guy paid in origination fees over the last four years? It's staggering. But again, this is indicative of how New York development works. It's so capital intensive, so balance sheet intensive. Hiten Samtani (32:40) What I love about this kind of deal is the other side characters in it. So the deal was brokered by a guy called Henry Bodick. And if you haven't met Henry Bodick, let me tell you, this guy would get carted going into a bouncy castle. Will Krasne (32:52) She goes, she goes, yeah, there you go. Hiten Samtani (32:54) Very young looking guy, but he's in the thick of some of the biggest refis and construction loans in New York City development. He's done a bunch of deals for Chitrete. I love that New York throws up every so often characters like Bodak. It just makes it so much more exciting than, ⁓ Newmark did the deal, right? This guy has like three people working for him. Will Krasne (33:13) It's just kind of epic. And again, that's such a good business. The profitability of Galaxy Capital is just off the charts, I would imagine. And just a little bit more on Dushinsky. You wrote this, you've got the hammer here a little bit. You said you've seen as like a hyper positive guy. And I think it's something to really focus on is that you have to be a psycho to do this. A little mad sometimes. Hiten Samtani (33:35) 100%. We all go. Henry Alvani, the founder of Rockrose Development, one of the biggest developers in the city, he described it as a sickness. He said, it's not just that you have to be positive. You have to have this hyper optimistic view of life. You have to believe that everything is going to go right. Cause if you look at the actual reality of development and the odds of success, they're so low, you would never do a project. So you have to kind of be sick in the head in a way. Will Krasne (34:00) You do, and you have to put your net worth up personally. Even on these loans, Henry Oganian's signing on stuff. Larry Silverstein's signing on stuff. Maybe just Carbouts, but they're signing on stuff. You have to believe it because the effort to build something is so much higher than the effort to even just buy something and operate it. The returns have to be so much higher to justify it. So you have to believe all of this stuff. For project like this, I think they bought the site in 2015. They're just delivering it now. It was 11 years. Hiten Samtani (34:26) So some people like Henry called it a sickness. The Tacitic world that Simon Dushinsky is part of, the word that's used is bitachon. The belief that God has your back and everything's going to be okay. Which is a really nice way to think about it. Will Krasne (34:35) Bitachon, we love it. We all should go through life like this. A little quickly on the site, all these sites tell these stories of New York, like just in one address. So Forest City Ratner owned it. Yeah, right. They were really big on Brooklyn. did. Hiten Samtani (34:52) Remember that? Atlantic Yards, now known as Pacific Park, now known as Atlantic Yards. Again, I forget what the last name Will Krasne (35:01) What's the office building that faces inward because it was such a bad area? anyway, they sold this in 2015. Rabsky bought this site and then they bought an adjacent site to allow for two towers. This is a massive, full, more than a full city block in downtown Brooklyn. And they've really been on fire here. Hiten Samtani (35:19) And it's not just Brooklyn, by the way, they're tearing it up in Tribeca. It was a distressed property that they took over and went from there. Will Krasne (35:25) Yeah, 106 Franklin, think, in Tribeca. took over Gary Barnett's Crown Lease at 356 Fulton. So they've been all systems go. And again, where's the equity coming from? Would love to know. It's so much bloody money. Hiten Samtani (35:37) The Tribeca one is fascinating. The assemblage was owned by Hap Investments. Does that name ring a bell? No. Hap Investments is run by a guy called Eran Pollock, former diamond guy who just completely imploded. His site is offline. All the projects have been defaulted on. But one of those Icaruses that we think about so much here at The Promote, he had this and so many other sites and he lost this and the carcass is now becoming the Rabsky. Will Krasne (36:03) It's the third developer that always makes the money. So Rabsky is putting themselves in position to be that guy on several sites. What's really unique here is that this isn't a typical lender to part of the orthodox community. This is the biggest stamp of approval that you can get really as a commercial development sponsor is getting a balance sheet loan from somebody like JP Morgan. And for the Rabsky to do this, going back to 2014 when you saw them in a podium finish on New York's most active developers. When's last time Gary Barnett got a JPMorgan balance sheet loan? Hiten Samtani (36:44) That's it for the Promote Podcast this week. Landmark 401k regulation promises to open the floodgates of retail money, warts and all. Will Manhattan remain a barbell office market with defaults on one side and $3.20 a foot on the other? And boy, would I love to be a fly on the wall when Jamie Dimon and Simon Dushinsky share a bowl of Kugel. Will Krasne (37:02) at the JP Morgan cafe that no one can get a reservation to. We'll be back next week with more CRE insider goodness. Thanks again to our sponsors Lone Boss and Bravo Capital. Hiten Samtani (37:13) You can find them at LoanBoss.com and BravoCapital.com. And don't forget to check out the Promote Insider, which is at thepromote.com slash upgrade. There's a lot of great content there. Will Krasne (37:22) And we have our April 23rd conversation with David Lichtenstein that I didn't know about until just now. So sign up for that as well. Hiten Samtani (37:28) He's really fun. He's really fun. I'm really looking forward to it. I'll see you next week, dude. Thank you. Ciao. Will Krasne (37:32) Thank you.