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Mana From Hedgie Heaven & Blue Owl Force Majeured · The Promote Podcast

• Hiten Samtani (00:13) Member remember the fifth of November. Will Krasne (00:16) Gunpowder, treason, and plot. Hiten Samtani (00:20) I see no reason. Will Krasne (00:21) By gunpowder treason. Hiten Samtani (00:23) should ever be forgotten. Will Krasne (00:32) Which is why on the fifth of November, Guy Fawkes Day, we're doing our first live show in New York City. And me up in the lights, cocktails, Celsius for me, tons of CRE banter. And I know given our ages and the age of a lot of people who are listening, it's you know, V for Vendetta. Maybe I'll wear the mask. Hiten Samtani (00:53) Gunpowder optional. Our first round of invites is going out shortly. Promote insider subscribers get preferred access. If you haven't got on that yet, go to the promote dot com slash upgrade and sign up, because this is gonna be a lot of fun. I am nervous. I feel very grateful for the audience we've built, but the first one's always, you know, a little nerve wracking. Will Krasne (01:13) Mrs. and I are watching Widows Bay and there's the episode where Patricia tries to throw a party and they say you can overcome anything except not enough people showing up because that is the validation of social currency, so yeah, we gotta figure that out. As for today's show, it's also extra juicy. yeah. A shout out to our sponsors. You guys are fantastic, the best. Thank you very much. H Equities, your mid market go to partner on both sides of the cap stack, get you a man who can do everything. Hiten Samtani (01:45) Bravo Capital, a leading HUD and bridge lender. We've got a HUD market rate webinar coming up on October 14th. More detail on that in the show notes. Will Krasne (01:52) And Pensford, the only interest rate advisory focused exclusively on CRE. Man, they are inundated right now. So JP, we love you and setting our best because this is like tax season for accountants for you. Hiten Samtani (02:07) This week we need to dive into the real estate deal of the year, probably the deal of any year really. Edgy Hedgy Ken Griffin is bringing Carnegie Mellon to Miami. This is a transformative gift for the 305 in so many ways, but we're gonna focus primarily on two things. The guy responsible for making it happen from Griffin's camp, and the guy who's just pulled off the most spectacular assemblage in the history of that town, Moishimana. Next, we travel to another port city. Bane is in talks to do a rescue recap of a Hong Kong development dynasty. And finally, we consult the French dictionary as Force Major surfaces its ugly head in the capital intensive world of data centers. Oracle is telling Blue Owl that it doesn't really feel like making rent. Will Krasne (02:48) Blue owls definitely not draw rule because they ain't always on time. But before we get into all that, let's start off with the punch list, our signature rundown of the newsiest news and CRE. Hiten Samtani (03:06) I guess we gotta start at rates. Will Krasne (03:08) Always it is the alpha and the omega of the real estate game, and it's really something right now. The moves that we've seen in the last 30, 45 days are unbelievable. And not just the increase, it's the rate of increase. The five year, the 10 year, the 30 year. They're up 50, 60, 70 basis points in a month, and then they're moving 20 plus basis points in a day. That is very unnerving. Close friends know that I think the bond market is the all-seeing, all-encompassing thing. And I think it means we're headed for some sort of calamity. People who are waiting, trying to wait for rates to go down or wait for things to get better, they are not. Hiten Samtani (03:52) How do you refinance when when rates are moving this dramatically? How do you sell? How do you even purchase a rate cap? Like how do you do the basic blocking and tackling of keeping a deal going at this point? Will Krasne (04:02) It's really hard to underwrite. I've talked brokers where they had deals with call for offers in the last you know week, 10 days, fully marketed institutional deals. You'll generally see a pretty tight band. Everyone kind of underwrites the same. First of all, it was 10% below the guidance price. Okay. And then underneath that, the bid range was called $75 million asset, plus or minus, just to protect the innocent. The bid range was like $12 million, which is crazy. Mm-hmm. Very, very hard to underwrite anything right now. I know Warren Buffett says, you know, don't watch C N B C financial news or whatever. Like if you're in real estate trying to do a transaction right now and do not have the screen up live, what are you doing? Hiten Samtani (04:42) Okay, next one. We knew this was coming. Manhattan is now creeping ever closer to the $400 a foot era. Castlehook, which is a hedge fund, is reportedly taking a space at 625 Madison, the amazing tower that SL Green wrested from Ben Ashkenazi and then sold to related. And they're building this tippy top single mole tower there. Castlehook is apparently agreeing to pay between $350 and $400 a foot, which is about $21 million in rent. Will Krasne (05:10) And I've heard the build out is nuts. Yeah. On top of the rent. And Castle Hook, which I'm assuming that most people listening to this podcast have never heard of. I had not. Fifteen billion ish Sora spin out. Office rents in New York right now are like when Roger Bannister broke the four minute mile and we th all realized it was possible. And like this is sort of what's happening here. The tape is broken, and so record athletes have long been dreaming about. Hiten Samtani (05:34) put companies like this and Jane Street into this category. The revenue per employee is so staggering that the Will Krasne (05:41) We're almost like looking at health ratios for retail centers here, 'cause like what percentage of your fee income are you spending on rent here? Hiten Samtani (05:47) Next one. So we probably deservedly so get a bit of steak for giving Brookfield a lot of steak, but this one's a rare win. Will Krasne (05:56) damming with paint freeze there, man. Credit where credit's due. GGP, which Brookfield took private what late 2010s. Yeah. They executed about one point three billion dollars of financing and have actually taken cash out. The Natick Mall in Massachusetts, and I know I pronounced that correctly, so thank you, Massachusetts. And then the Oak Brook Center in Illinois outside of Chicago. Well that Hiten Samtani (06:18) That one's a little bit of a cash in, right? But it's still still good out. Will Krasne (06:21) A tiny bit, but they released space. I think it was eighty-two percent occupied. The their anchor blew out, they backfilled, it's back up to ninety-seven percent. And again, given where rates are, like this would have been cash out two months ago. But Oakbrook Mall, which again, when you think of the really rich retail guys in the seventies, eighties, nineties, the Oak Brook Mall is what they owned, these sort of regional category killer malls in Oakbrook, this area I think is a very affluent suburb of Chicago. I looked at buying a hotel there once for Starwood. Okay. And The refinancing is gonna return about seventy million dollars to the home team. One point three billion dollars in a sector that's had some trouble in a tough interest rate environment to return capital is a great story. Hiten Samtani (07:02) All right, next one. Meritocracy is alive and well at Heinz. Jeffrey Hines, who's the co CEO, is gonna step back and become chairman. He's being replaced by Adam Hines, who's the grandson of Jerry. Will Krasne (07:16) Adam will be stepping in as co CEO alongside his sister, Laura Heinz Pierce. Hiten Samtani (07:21) In most institutional real estate co CEOs don't quite work, but obviously with family firms the rules are a little bit different. Will Krasne (07:26) I know Rudin's doing the same thing right now. Yep. Yep. And Heinz, they've done a great job of one man, name on the door. They are 90 odd billion dollars. They're in 20 something countries. It's not a family business. It is an institution, just happens to be run by a family. Heinz also notoriously, I think, is a place where you really eat what you kill. So your comp is tied into your deals. And so every time that there's a tough cycle, a huge chunk of their senior management like self selects out because they're like, I don't make making any money. Hiten Samtani (07:55) Okay. Will Krasne (07:57) real estate wants to be cool like equities. And so we are creating our own situational awareness report, except it's done by Bain and not a 24-year-old. And this report is stark. Hiten Samtani (08:09) They say that the AI industry is gonna need to generate six trillion, that's trillion with a T in annual revenue by twenty thirty-one to justify this unprecedented wave of capex. So existing AI services could generate up to one point eight trillion of that total, but that leaves a four trillion plus gap in annual revenue that we're gonna have to find in the next five years. Will Krasne (08:31) It's not just the percentage you need. You need nominal dollars here that have never been seen before. And even looking, I think Anthropics S1 got leaked last week, their revenue is up, whatever, 12X or something. Okay. But it's only to like tens of billions of dollars. Like that's what's crazy. I mean, it's it's still like a fraction of Google's cash flow, you know, not even revenue. The amount of growth we still need to see. Hiten Samtani (08:56) This line captures it pretty well from the authors of the report. They said, entirely new markets must emerge to close the funding gap. Will Krasne (09:04) I am really glad I'm not Sam Altman at this point, I guess. If Andrew Garfield played me in the movie, I mean I I don't know, I've gotten that before, maybe. Maybe you think a little too broad. Not British enough. Hiten Samtani (09:15) All right, that's it for the punch list. When we come back Will Krasne (09:18) Moisha, he's the man. Hiten Samtani (09:21) Ha ha let's go. Well, you know this pain all too well. You're a mid-market GP. The deal's basically there, but you're short. Where's that gap usually sitting? Will Krasne (09:41) Boy do I it's it's two places, honestly. Either you need a bridge loan, which is really tough because these things generally only happen a week or two before closing and there's not a lot of time, or you're staring down the barrel of that last 10 to 20% of the equity with LPs that are either tapped out or upset that you missed on the raise. Hiten Samtani (09:59) stuff. But that's the thing with H equities. Elliot Horwitz's team can partner with you on either side of the cap stack depending on what the deal needs. They can do bridge loans of up to $50 million to get you to stabilization or the perm takeout. Will Krasne (10:11) And on the equity side, they can step in as co GP for that final piece, which again is the hardest capital to raise. Don't ask me how I know. Hiten Samtani (10:18) And it's not a cold check either way. They're underwriting side by side. So when something's time sensitive, you're not starting from scratch with a new partner who doesn't know your business. Will Krasne (10:25) It's not about which lane you're in, it's whichever one gets the deal close. Hiten Samtani (10:29) Find them at hities.com. That's equities.com. We've talked a lot on the show about things going wrong. But I think today is a time to talk about when something went just unbelievably epically right. You are correct sir, yes. Ken Griffin is bringing Carnegie Mellon to Miami, and he's putting about $3 billion of his own fortune into making that happen. A billion goes to Pittsburgh, the main campus, and then $2 billion or so. Is essentially being invested in bringing CMU to Miami. And this is something that Miami has been craving for a long time. I don't know if you read this yet, but there's this engineer who who was on the Mercedes-Benz team. He won seven constructors championships. And he's a Miami local. And he said the following. He said, The one thing that Miami lacks is smart people. Burned. So bringing a nice top-tier university and getting intelligent people to study important things, I think it's only gonna help us. I agree with him. I have spent a lot of time in Miami and it has a lot of wonderful things going on, but Brains is typically not one of them. Will Krasne (11:44) will say is that if your top two plastic surgeons are Christian Troy and Sean McNamara and they both went to the University of Miami, that really says something about the education in your schools. Hiten Samtani (11:57) You may stretch. Will Krasne (11:58) We've really given the billionaire class in a lot of cases a bunch of stick for not doing what the noblesse oblige Hiten Samtani (12:06) Yeah. Will Krasne (12:07) like Rockefeller, Carnegie, all these guys, Stanford did. And Ken Gurfin, this is what it is. Yes. This is what those types of folks would do. This is a legacy defining thing that's gonna have his name be remembered for hundreds of years more than just the super rich guy. Cause does anyone really remember what Andrew Carnegie did? that well. Do people know that Leland Stanford was a guy? These Hiten Samtani (12:32) Good point. Will Krasne (12:33) names are forever. He's worth pick a number, sixty billion yeah ish. This is not an insignificant amount of his net worth to go into this. Hiten Samtani (12:40) There's no other way to slice it. This is transformative for Miami. This is transformative for really the way that we think about an individual's ability to shape a city. Will Krasne (12:50) Ken is treading on dangerous ground because of course we all know who this Carnegie Bellon School of Business is named after. It's David Tepper, who famously bought his boss's house in the Hamptons and raised it to the ground. So is Tepper gonna go try to get Harvard to go to Pittsburgh now? Hiten Samtani (13:07) Enough said about Ken. I think where we want to go with this. The $2 billion gift, the part that goes to Miami, a lot of that is the value of the land that Ken Griffin has already put together for this campus. 1.1 billion of that goes to one single guy. Moishimano, what an incredible. This is the best exit I've ever seen. This is a guy who spent about between 50 and 70 million dollars, depending on the reports, assembling this. parcel in Wynwood, a formerly industrial district that became this artsy hub. So fifty to seventy million bucks, he's exiting for one point one billion in cash, and he gets to keep, I think, fifteen of his acres still. Astonishing. Will Krasne (13:48) There are some other ones that are are bigger and nominal dollars or even return over a longer period of time, the one that's this family. Had they punched out of Dumbo, they would have done better than this. But still, it's epic. And Moshe Manu, let's just get into the man a little bit. He's a guy who ends up in real estate, but he doesn't start there. Born in Tel Aviv in the fifties, never had the pleasure. Hiten Samtani (14:08) Have you met him, by the way? Very eccentric figure, mugsy bogesian type of guy. Small, compact, intense man. I can never forget. We had him on stage at the Real Deals forum many years ago, and he had a moderator with him. And at some point he just went completely off piste. He stood up and he left the he left the moderating stage. And he was just like walking around the stage going on this rant about Trump. It was one of the craziest things I've seen. And our poor moderator was just sitting on stage waiting for him to show his. Will Krasne (14:37) What do you expect from a guy who moves to the US with no money, sleeps on park benches, washes dishes? Hiten Samtani (14:43) See this is cinema this is one of those tales where you you tell someone, Hey, I have a character I've written like this the Will Krasne (14:49) Yeah, immigrated to the US in 1983, slept on a park bench, yeah, more like washes dishes, then buys a van. I do this sometimes where if one person gets it, this is for my guys who watched John Benjamin Has a Van. There are tens of us out there. Hiten Samtani (15:06) Excuse me, you got burned. Will Krasne (15:09) Anyway, he ends up becoming the largest mover in the tri-state area, which is saying something because the moving business in New York, especially famously unionized, famously mafia adjacent, he ends up taking business by undercutting on price, not, you know, the safest thing to do necessarily. Yeah. Hiten Samtani (15:27) He got some heat from the wrong crowd and he said the following He said, I live at 201 West 21st Street. If you want to kill me, come over now and we'll get it over with. So good. This is the kind of buccaneer that we talk about a lot when Will and I get jazzed up because there are a few cowboys out there, and Moi Shimana is definitely one of them. So he builds up this giant business. Will Krasne (15:48) He owned a bunch of warehouse space for his moving business. So warehouse and storage, spun that into a separate business. I think his first project was in meat packing. So right around the time I think Samantha Jones moved there in Sex in the City. Hiten Samtani (16:02) That's what we need in the middle. Will Krasne (16:12) And again is very successful. And then in the two thousands, having had, you know, several million square feet and a couple successful of these conversions under his belt, focuses on Miami. Hiten Samtani (16:21) So Mana goes to Miami as so many dreamers do. And he's preceded by this investor who's somewhat of a legendary figure down there called Tony Goldman. Tony Goldman had started assembling properties in this formerly industrial area known as Winwood. And he had bought up a bunch of land. And then he wanted to create a bit of a little bit of buzz around this. So he created something called Winwood Walls. If you went to Miami in the 2010s, the cool thing to do was go to Winwood Walls. so he did this and Moishimana followed in his footsteps, I wanna say in the late two thousands and started buying. His first purchase was eight acres for five million dollars, and then he just really went ahead. Will Krasne (17:01) I think he had one broker who represented him on most of these purchases and the guy was saying he would look at a building for twenty minutes and just buy it and it was out of control. And so he puts together about forty five, fifty acres, something like that. Hiten Samtani (17:12) And he says at the time there were people who were comparing him to Henry Flagler. Mann is amazing because he he he says these things that if it had gone wrong, like he'd be pillory if he said, Miami is still in its early stages and it needs people like me. But fuck, man, he was right. Will Krasne (17:29) Lest you think though this is all up and to the right, it's really not, because the thing about owning all this is that you're not getting any return on it in cash. Probably burn cash to carry them. The buildings are in really bad shape. A couple of them I think were condemned during his ownership. But Hiten Samtani (17:44) By way, to that point he's getting a lot of heat as well. Like, hey, you're leaving these buildings, do something with them. Will Krasne (17:48) Yeah, all the other developers who wanna do their own projects in that area are like, we can't because there's this giant hole of this guy who can't do it. This is amazing in Miami. They call him Mana Manana because his projects are perpetually delayed. And he's constantly looking for capital. He's got, you know, debt at the wazoo. There's an article in the real deal, I think, from twenty nineteen, where he's like, Well, they're never gonna let me if I raise capital from BlackRock, they're never gonna let me do what I want to do. And it's like, Yes, of course. Hiten Samtani (18:16) Of course. By the way, we should say it it's not just Winwood he's got. He became one of the biggest owners in downtown Miami. Will Krasne (18:22) Yeah, he owns like eighty properties on Flagler Street. I think he's the largest private landowner in downtown Miami. he's got entitlements for up to ten million square feet. So all this stuff could be upzoned. It's kinda like in Atlanta, what's his name? The crazy guy. Hiten Samtani (18:36) my god, of course, Dewberry. Will Krasne (18:37) Yeah, Dewberry. He's got the massive plot in downtown Atlanta that's like the best development site in the city. Hiten Samtani (18:42) The progenitor of the greatest voicemail I think the industry has ever seen. Will Krasne (18:46) Now everybody else may play patty cake with your friend, but I got a home project building Hiten Samtani (18:50) Got a hundred million dollars. Will Krasne (18:52) there that you're now holding up. I don't want to own low country business, Hiten Samtani (18:56) Yes, I am. Will Krasne (18:57) but I will. That's why I I wanna reference again the Wallensis family, because David Wallentis had this and in hindsight it looks so obvious. Mm but it it wasn't. Winwood was not obvious. The weather's really difficult. Like it's hard to have a clean T twelve if you're in a hotel whenever there's a mild hurricane season because you never know when you might have a giant event. Insurance is crazy, property taxes are creeping up. These buildings are expensive to carry if you don't have income. And he had leverage on all of it. You have to have so much patience. And I'm sure he got offers for this all the time. People are Hiten Samtani (19:29) dangling bigger and bigger gobs of money at him. So it is probably hard to resist. But he said that he never saw this as a real estate play. He always saw it as a city shaping exercise. Will Krasne (19:44) Let's just have Moisha tell in his own words. They came and knocked on my door. I didn't solicit it. It was not for sale. I said no, and they left. I needed to digest it. It was very big for me to digest. It was a shock. Where do you find thirty acres in the coolest neighborhood in America? If not the world. It's priceless. The price, once we sat in the room, I said, you know what? Let's do it. It's gonna change the future of South Florida. Ken Griffin is a medicine. Hiten Samtani (20:08) It's one point one billion dollars all cash. It's about thirty-seven million dollars an acre. He's gonna have to find a hell of a ten thirty-one on this. Will Krasne (20:17) He's gonna be just fine, even if he has to pay the taxes. But there's another angle here which is interesting, is because we've talked a lot about Ken Griffin's activities. We talked about his realtor who's doing all his condo buyouts, but he's got another guy who's helping with this because this is a whole other thing altogether. Hiten Samtani (20:31) This is the part that really got me going. When you are a captain of the universe like that, you assign this kind of legacy-shaping thing to a team. And this team, for him, is led by a guy called Paul Dara. He's head of workplace services, but that title just captures a slice of what he does. He's basically KG's real estate guy. And he came here from Google, and he was the guy in charge for Google's New York real estate portfolio in the mid 2010s when they went absolutely bananas and bought. Chelsea Market and St. John's Terminal and all that. This is a guy who had worked Bloomberg LP. He got that tower built, Bloomberg's HQ on Lexington. He worked for Ray Dalio at some point as Bridgewater's head of real estate. He worked for Lehman. They were gonna anchor Tishman Spiers' run at Hudson Yards. Lehman was gonna be the anchor tenant, obviously. Will Krasne (21:18) Obviously it don't be Hiten Samtani (21:19) Exactly. So far, the way that I read his mandate was like go and secure the best real estate for these. Generational company so that you can get the best talent. That's part of his mandate here. Citadel is building two giant buildings, one in Miami and Brickle. They're also building one in New York, 350 Park, in partnership with Vornado and Rudin. And this was the building that they it was like a little back and forth with Zoran Mamdani over. but I think it's more than that. Griffin sees himself probably as the next generation Rockefeller Carnegie. And to do that, you really have to shape the built environment. It is the most visible symbol of your success and influence. Like nothing else you do can really hold a candle to that. And so Dara's in charge of making that happen, which is a big responsibility. It's Will Krasne (22:05) The biggest. And this is the thing that Ken's going to be remembered for more so than the business success. I don't even know how to really think about it because you have an unlimited checkbook. Hiten Samtani (22:16) Value slash price is kind of not the most important thing here, I'd imagine. Will Krasne (22:20) No, but you have an unlimited checkbook, but you don't want to do what Ed Bennett Williams said about his GM when he said I gave them an unlimited budget and they exceeded it. But you have a pretty harsh taskmaster behind you, but it's so complicated because the scale of what you need to do involves so many parties. But also you can't just get it built. You've got to do it in a architecturally and artistically significant way. Yes. Not exceeding your unlimited budget. Hiten Samtani (22:44) There's buyouts, there's ground up development, there's standard acquisitions, there's getting the city on board, the state on board, Carnegie Mellon on board. It's probably a very fascinating risk adjusted seat. Will Krasne (22:55) This is gonna last for much longer than the merchant built podium job that's getting put up outside downtown. Hiten Samtani (23:03) We've also talked previously about Amancio Ortega's real estate guy and what an amazing mandate he has, which is just like figure out how I'd pay as little in taxes as possible by amassing this giant international portfolio. Will Krasne (23:15) portfolio. And to be fair, this is also part of that for Ken Griffin, certainly. But again, if you're gonna get a tax break, what a great thing to donate. Hiten Samtani (23:25) This is the way to do it. JP Conklin, welcome back to the promote. Tell me about the conversations you've been having post-Rate Hike. I would imagine there's been a deluge of inquiry, concern, existential doubt since then. speaker-3 (23:46) The most pressing question is how many more hikes will there be? A lot of the discussion is around, I can probably live with two or three. Anything above that starts becoming pretty painful. And so a lot of the discussion that we're having with customers is how likely is it that we'll see more than 75 basis points of total tightening? And I've been punting on things like selling or refinancing or even hedging decisions because I kept expecting rates to come back down and now I don't know what to do. Hiten Samtani (24:15) But Penceford, you've been a hand on the shoulder for these investors for about twenty years now. What are some of the evergreen reflections you can apply? Because a lot of these people this is their first dance, this is their first brush with this kind of pressure. speaker-3 (24:27) First thing I tell them is the lender requirement shouldn't be their hedging strategy, that they should decide what is best for them and their business independent of what the lender is requiring. From there, let's have a discussion around what are your disposition plans and what is your risk tolerance. If something might cause you to not be able to sleep at night, let's try to eliminate that risk. Hiten Samtani (24:47) JP Conklin, thank you so much for being with the promote. I like when our segments have a some sort of transition. There was a nugget in the in the previous one we didn't mention, which was Moishimana wanted Miami to become the new Hong Kong. I told you I have a fascination with Hong Kong, which is a little bit personal. Will Krasne (25:09) Th your family didn't take you. Hiten Samtani (25:10) That's right. When I was six months old, my my parents ditched me and they left me with my uncles and and they went to Hong Kong for a vacation. Miles to love you guys. Will Krasne (25:20) I have a few things that are on brand, like not trusting the mail. There's a couple others, but my love of Noble House and of Hong Kong, I think, is up there. So this was obviously something we wanted to talk about. Bane Capital is exploring an investment in New World Development, which is one of sort of the grand dames of of Hong Kong. And they've been particularly embattled the last five, six years, even as all of Hong Kong has faced sort of property downturn. Hiten Samtani (25:47) So obviously Hong Kong has changed so dramatically with the much greater influence from the mainland. Hong Kong was this completely unique place before, right? It had a very different culture, very different business environment. And it's also hard to explain to someone like how old world wealth Hong Kong is, waspy Manhattan elements to it almost. Will Krasne (26:06) Well yeah, 'cause was British. Yeah. Imagine all the lords and titles, except they're actually rich. Hiten Samtani (26:11) Yes, men of bearing and pedigree and actual buddy. Will Krasne (26:14) Yeah. So Hong Kong is some of the most valuable real estate in the world. Hiten Samtani (26:18) A good anchor point to think about is Hong Kong's Causeway Bay, which is their retail corridor, is always neck and neck with Upper Fifth Avenue is the most expensive retail corridor in the world. Will Krasne (26:27) Right. So New World Development is one of the massive real estate developments, development companies in Hong Kong. It's the Cheng family. Hiten Samtani (26:35) Which is one of those blue blood families we just alluded to. Will Krasne (26:38) They're founded 60, 70 years ago. The son of the founder really expanded the business. They became, you know, decadablionaires, unbelievably wealthy. And then in 2020, Henry Chen, who's the son of the founder, turned it over to his son Adrian, and things went real sideways. So, right as rates were about to rip and Hong Kong entered a really protracted market downturn, yeah, he took on as much debt as humanly possible and started these massive development companies. Almost really was. The stock, which is publicly traded, is down seventy eight percent in the last five years, which is not great. Their total debt load is $150 billion of Hong Kong dollars. Hiten Samtani (27:22) It's about eighteen billion US. Will Krasne (27:24) Yeah. And they had this project called Eleven Skies, which was next to the airport. It was supposed to be a big shopping center, office, retail, residential, and it's just been a complete disaster. And they actually just paid, I think, four hundred and thirty million dollars to the Hong Kong Airport Authority to get out of it. 'Cause they basically said, We're so far out of the money that it's better to just clean this up. And they've been scrambling for capital for a while. If you read the analyst reports, it says they're like Greater systemic importance to the Hong Kong market than Evergrande was. Hiten Samtani (27:56) The now defunct mainland Chinese developer that we broke down a few episodes ago. Will Krasne (28:00) It'd be like the Rudens sort of having to like raise capital from Bain. Yeah. Or like the Dursts or somebody like that almost. But even bigger. Hiten Samtani (28:09) I wouldn't be surprised if that day comes at some point. Will Krasne (28:12) It's gonna have to, ev eventually. But yes, it's really something because these guys if you were to pick wealthiest families on planet earth and who owns the best real estate, these guys are on the short list. Hiten Samtani (28:24) I mean this is like Nick Young of Crazy Rich Asians type of bearing. So you Will Krasne (28:28) Your family is like Hiten Samtani (28:29) rich? Will Krasne (28:31) Quite comfortable. That is exactly what a person would say. Hiten Samtani (28:36) And so Bain is gonna come in. I'd imagine they get a nice discount. Will Krasne (28:39) Issue though again is gonna be control. We talked about with Moisha, you know, are you gonna invest this much capital without control, especially given sort of the track record here with Adrian. So we'll see how goes, but these companies were family businesses for a long time and eventually, you know, the real estate and the business gets so big that one singular family maybe can't control all of it. Hiten Samtani (29:05) Aaron Crowitz from Bravo Capital, thanks for being with the promo. Do speaker-2 (29:08) Great being here. Hiten Samtani (29:09) you think in general HUD is understood well enough by the sponsors out there? speaker-2 (29:13) Definitely not. People call us every day with very outdated misconceptions and ask, is HUD only for affordable properties? The majority of what we finance is market rate. People don't understand how some of the rules work, how MIP works, how stat limit works. So our belief has always been if you're not pure play at HUD and bridge to HUD, you're not going to be good at navigating that particular process. Hiten Samtani (29:39) There's a HUD Healthcare Lane Express deal that you've been talking about quite a bit. speaker-2 (29:43) My mortal enemy is combating timing to close. Anything I could do to shave off hours or days without jeopardizing quality or diligence, we will do. And in this case, HUD made it easy for us. HUD rolled out an express lane on the healthcare side where if you meet certain underwriting criteria, you're eligible to submit within the express lane. Bravo seized the opportunity. And submitted an application that in only four days was approved. Hiten Samtani (30:16) Aaron Crowitz from Bravo Capital, thanks for being with the promote. So in the data center business, with the gobsmacking amount of capital that is needed to get these projects off the ground, one of the most important things we think about a lot is forward momentum. I just listened to a great interview with Grandmaster Flash. If there's any any bit of that, you're kind of in trouble. and this one is this one's big. Some of the biggest names in the space are invoking the dreaded French phrase. Will Krasne (30:54) Mnage toi. Hiten Samtani (30:56) Not that one. Force majeure. So Oracle has sent a notice to development partner stack infrastructure, which I believe is a Blue Owl subsidiary, that they're looking to delay their full rent payments on this 1400 acre project Jupiter in New Mexico because of various delays that have happened with permitting, securing the power, and so forth. Canarian coal mine type of vibes here, maybe? Will Krasne (31:19) So let's just clarify what this isn't. This isn't a cancellation of the project. This isn't Oracle saying we want off the hook entirely. It's a legal term in the document, basically saying we're not gonna have this when we thought we were, therefore we don't wanna pay rent until we actually have it. Hiten Samtani (31:37) Force majeure came up a lot during the pandemic. It was certainly a force majeure event. It can also be things like an act of God, a hurricane, rain, et cetera. When there is something that is outside of your control, you want to absolve yourself of the burden of rent for a time. That's the idea. Will Krasne (31:52) Exactly. And so the project here had faced delays due to difficulties getting power. And the development team they had a certain power strategy and everyone's got a power strategy until they get punched in the face. There was o opposition locally for using gas turbines and diesel generators. I don't know why. Hiten Samtani (32:11) I power is your primary constraint in a data center project. First you get the power, then you get everything going. Will Krasne (32:18) The real constraint too is looking at how much infrastructure is going to be built is how much power can we deliver? Yeah. And the answer is like definitely not enough. And so what this is, they don't ring bells at the top, right? But this is something I think you could start to see more. Our whole economy is based on trust and faith. And if that gets cracked, it's really hard to put it back together. So much depends on a red wheelbarrow. Glazed with rain water beside the white chickens. That's William Carlos Williams. And so much depends on Oracle paying rent on these things. Yes. Nvidia's circular financing for all of their providers. That stuff only works if people believe we're gonna get to that phase where these things are cash flow geysers. And stuff like this doesn't mean that we're not gonna get there. Hiten Samtani (33:12) Well, the spokesperson said the following. This notice does not change the financial commitments to the multi-year project. The parties remain, quote, fully aligned on Project Jupiter. But they have raised what? $18 billion in debt commitments from a consortium of banks. When you have something like this, obviously lenders are going to ask questions. There's like layers and layers of capital stack machinations in these things. Any of those parties in the chain could start raising concerns. Quinn Emmanuel put out something. They said, In AI data center projects, Force Major is no longer a back-end boilerplate provision. It is a core litigation and risk allocation tool that's saying something like, hey, if this is popping up here, it might rear its head on other disputes where there's delays, which are happening everywhere, where there's any complications, which can also happen. Will Krasne (34:01) they're really saying here too is that you need to know your own docs and you need to know where your weaknesses are and this is something you can use so you aren't bearing the brunt financially of some mistake on the other side. Hiten Samtani (34:12) It's very poetically put that part, they say, or cascades through the project's construction, customer power, insurance, and financing documents. Will Krasne (34:19) And we're seeing a cascade too, because Blue Owl put in three billion of equity for this project. They got eighteen billion of debt. And pieces of that debt are trading below ninety cents on the dollar. And that implies a paper loss of almost two billion. Hiten Samtani (34:31) Wow, at some point we gotta bring in someone to talk through the market for this kind of debt. Will Krasne (34:36) This is from Sean McDevitt, who's a partner at Arthur D. Little. The financing side of the AI build-out is starting to ask much harder questions than the demand side. The underlying demand still appears very strong, but investors and lenders are increasingly focused on how risk is allocated. They always say that the credit guys are smarter than equity guys. Yeah. Both Blue Owl and Oracle had 3% plus stock market drops once this got announced. And so did Bloom Energy, which had agreed to power the campus, didn't have anything to do with the force majeure. This whole thing depends on faith and Once that faith cracks, you know, look out below. Hiten Samtani (35:15) That's it for the Promote podcast this week. A bootstrapping wildcatter passes the Windwood Torch to a captain of finance or finance and has a billion dollars burning a hole in his pockets. Oracle wants to cover its ass in a case that could be precedent-setting for data centers, and with the Tai Pan out of the game, it's Bane stepping up in a Hong Kong rescue recap. Will Krasne (35:33) Ian Dun Ross would never. But thank you again to our sponsors, Bravo Capital, who you can find at bravocapital.com and don't miss the webinar on the fourteenth. Hiten Samtani (35:41) be a lot of fun. Pensford at pensford.com Will Krasne (35:44) And agequities at agequities dot com. Hiten Samtani (35:47) And we're gonna have our live show November fifth. You should get more details on that soon if you're one of the lucky ones. Looking for Will Krasne (35:52) Forward to it. Hiten Samtani (35:53) So exciting. Thank you, Will. I'll see you next week. Thank you. Ciao.