Latest / The Promote Podcast / Starchitects, Swedish Whales & an SF Hotel Heist

Transcript

Starchitects, Swedish Whales & an SF Hotel Heist · The Promote Podcast

• Hiten Samtani (00:03) When you wish upon a starachitect sometimes you get the pro forma busting limestone Jesus of Robert AM Stern Will Krasne (00:08) ⁓ Sometimes you get the, this actually the ugliest building in the world? Or is it a masterpiece? Working your butt off to make a 1.2x over a decade of Frank Gehry. Hiten Samtani (00:18) And sometimes you get a trashcan. Welcome back to the Promote Podcast, your insider guide to the money and mania of the CRE markets. I'm Hiten Samtani Great, great job with the mailbag episode, dude. I really enjoyed it. It got terrific. Will Krasne (00:37) and I'm Will Krasne Thank you. I appreciate you letting me do it. The danger makes you feel alive. Hiten Samtani (00:46) It was risky, but it was a risk worth taking. One listener wrote in with a dagger to my heart. said the following, Will Krasne (00:55) Yeah, the guy's name was KillRasney. Hiten Samtani (01:00) This week we look back at the skyline shaping impact of two star architects, Bob Stern and Frank Gehry, who've just left us for the great beyond. We dive into the industrial deal of the year, EQT's 9 million square foot sale to AUM gobbler Artemis. And we have a TikTok of an Ocean's Eleven of a hotel mega deal in SF. I've been wanting to talk about the latter for a long time, so I'm so glad it came together. Will Krasne (01:21) If you haven't already, check out the Promote Insider, our premium tier with exclusive Intel at thepromote.com slash upgrade. Annual memberships are $275 or you can do month to month for 30 bucks. That is more for those who aren't good at math. Hiten Samtani (01:36) A prominent lender reached out, big promote guy, after the Starwood mid-market piece came out, the one we're talking about them floundering in the mid-market, and I thought he wanted more intel. Turns out he just wanted a discount. Will Krasne (01:47) He actually bought someone else's sub in the market at 90 cents a dollar. Hiten Samtani (01:52) He's a good steward at Capital, give him that. I gave him a discount. I also created one for podcast listeners as well for good measure. So you can find it in the show notes. All right, let's get started. EQT, EQT Real Estate, what's going on there? Will Krasne (02:03) It was Exeter Property Group founded by the luminary Ward Fitzgerald. Ward founded Exeter. had a series of funds, very well known for industrial. And then before succession stole the plot line, the Swedes came and bought them. So EQT, the Swedish private equity firm, Hiten Samtani (02:23) It's like a giant asset manager in Sweden, Will Krasne (02:26) Backed by the Wallenberg family, when you see ⁓ Tenet at that first opera where all the people are, like the Wallenbergs were there. Pretty much. They gobbled up Exeter in one of the earlier AOM gobbling themes and they've become probably the most prominent industrial buyer in the country. Hiten Samtani (02:34) That level, huh? Yeah. In 2024, they did about $7 billion worth of buys. So that's got tens of millions of square feet of industrial. That arm is led by a guy called Henry Steinberg. Will Krasne (02:54) Full disclosure, I have sold the building to EQT. They overpaid. I did great. But they did all major food groups, but really were known for industrial. And recently, they actually got rid of their entire multifamily group. Hiten Samtani (03:06) Yeah, they basically pruned down. We've been talking a lot about how multifamily is kind of dead in the middle. If you're small and nimble, you might be able to do something. If you're one of the giant, giant, the courtlands of the world, the EQRs of the world, you can make something happen. But all the funds that are kind of stuck in the middle have had a lot of trouble and they've either kind of been out of the promote, as you said, or try to sell themselves to other people. So EQT with multifamily, that's what happened here, right? They just said, no, ma'am. Will Krasne (03:32) Yeah, we're not going to do it. We've had a lot of success with industrial and industrial really has become the replacement office. And by that, I mean, it's where you could buy a bond like yield with good credit with long duration, and you could write a huge equity check into it. So that used to be the Alabama teachers buys an office building. Now it's Alabama teachers buys a 8 million square foot. Hiten Samtani (03:57) FedEx leased portfolio somewhere or the other. Exactly. I think it's important to talk about the financing environment for industrial writing. There's been richer and richer sources of financing available for these mega deals. The CNBS market, obviously, but EQTs also tapped the Lifeco market, Lifeco lending. New York Life did one of their big financing deals recently. So there's a flood of capital that is willing to fund these kind of bets. Will Krasne (04:19) for the type of deals that EQT is buying predominantly, Class A, new construction, like this portfolio they sold to Artemis is super clean, really high quality stuff. Those are stuff you can pay up for and then get really low leverage paper that actually makes your deal work even at a tighter spread. So the Lifeco or the lender can say, we're super protected here. And then you can of jerry-rig a low teens IRR without a ton of squinting. You buy at a five and a half cap. finance at 50 % LTV at five and a half. So you're making a little bit of cash flow. So call it like a six cash on cash. You get annual escalations in that lease. You sell the market market story to somebody else. You sell it at a five cap and they go take the upside and you jerry-rig yourself an 11 IRR with low risk. Hiten Samtani (05:07) When we talk about EQT, we talk about this mega acquisition here, this mega acquisition there. But in this case, which is turning out to be the largest industrial deal of 2025, they're selling. They're selling something massive. Close to 9 million square foot portfolio, 25 assets to our boys at Artemis. Or I should say our girls at Artemis, Debbie Harmon. Will Krasne (05:28) The artist formerly known as Artemis who are Hiten Samtani (05:31) Shout out to Doug Harmon, who's getting honored tonight at the New York Film something. So good shout, Doug. Will Krasne (05:36) Good job, IU. This is really interesting too because Artemis has sort of been in no man's land. They've got an opportunity fund, they've got a core fund founded by Penny Pritzker, and this is a big swing for them. I think their core fund's like a billion, billion two, something like that. This is a massive transaction for them, so good on them. But now that they've got the backing of bearings, Hiten Samtani (05:56) There's some new firepower here, right? Will Krasne (05:58) Right, for sure. I think what's also interesting too is we talk about AOM gobbling, but what happens the next day after you have a couple coffees? Where does that AOM go? It's got to go somewhere. Hiten Samtani (06:10) What happened with Artemis is kind of the broader trend that we've been obsessed with, maybe call it the last six, eight months, is something I think Fortress' co-CEO Drew McKnight, he put it probably best, he said the following, for us to compete with larger firms like Aries, Apollo and Sixth Street, we need to continue to grow assets, because if we don't, we'll be less relevant. I just find a funny world in which Fortress feels insignificant or irrelevant. Will Krasne (06:31) 100%. You've got to be the Sandy Wild dream of the supermarket of the financial services industry. You need to be that or you need to be like, we do this one thing, we're the best in the world at it. We make a ton of promote and all of our principals have houses on the water in Naples. The dream is always the same. What happens is that all these firms end up having to play hot potato. You buy this huge portfolio, you collect over a couple of years, you sell it to another private equity firm that then sells it to another private equity firm. This is the same thing that's been happening with continuation funds. it's the end result of all the AUM gobbling. And folks at the smaller end were like, we're going to consolidate and put this thing together. We're going to sell it to the mid-market firm. The mid-market firm is going to consolidate at that scale, sell it to the mega fund. The mega fund is going to consolidate, sell it to get it financed by a theme. and we're all in. Hiten Samtani (07:28) really about the assets or the operation or anything at this point, right? It's just a thing that's big enough to pass on to the next thing. Will Krasne (07:31) It's Nile. Create it and make it big enough to gobble and then put together to get to the next guy. You may say EQT, wow, they must have a view in the industrial market. They don't. They just bought a 2 million square foot portfolio from Hillwood. Literally within three weeks of announcing this, they bought a quarter of it back. I mean, not the same portfolio, but like the same amount. Hiten Samtani (07:57) Hell what is my guys from, is it the Perot? Will Krasne (07:59) Hillwood is pro, correct. And one of the deals like I know in my backyard of where I look for stuff in York, Pennsylvania, Hillwood bought it from Core 5 in January of last year for a buck 31 a foot. And then these guys paid like high one fifties a foot. And wow, guess what changed in that intervening period. Hiten Samtani (08:18) Not too much Will Krasne (08:19) Not a lot. As we said, Artemis making a big swing here. Some of these firms may get turbocharged. These are the firms that may end up really growing because if you can find that financial sponsor behind you to bring that backstop and help you with distribution, help you to get to retail clients and really grow your AM there, that's really interesting. Artemis, don't think does this deal a year ago, for sure. The equity check is basically the size of their fund. This is what bearings bought Artemis to do, buy this type of stuff. and good on them for stepping up, because I can guarantee you, this was really hotly contested. Like they were bidding, I'm sure, against everybody you can think of. And for them to come out on top, because these processes at the end, one of our listeners in DC will tell you, you have to really sell yourself to buy one of these portfolios. It's a dance, it's a whole show, not the type of thing I think that Artemis would have done had they not had the Brits behind them. Hiten Samtani (09:12) have a very hit end question for you. Given the rise in industrial and the of the primacy of industrial now in the real estate asset class wars, have the vibes of the brokers in that class changed? Because office brokers, investment sales office brokers were kind of a cock of the walk for the longest time. And now I feel like these industrial guys are cleaning up. Are they now the alphas of the broker? Will Krasne (09:33) How many Villanova baseball players does it take to sell an industrial portfolio? Hiten Samtani (09:46) All right, baby. We're talking hotels. This is my baby. I love this one. I really enjoyed putting this together. So we've talked earlier a few, few months ago about New Bond stepping into what is going to be to me, the defining hotel deal of the cycle. ⁓ They are buying along with Mike Siminovsky's Conversion Capital, full disclosure, Will and Mike have worked together on a deal. they're buying nearly 3000 keys in the heart of SF and downtown SF. And so in one fell swoop. Will Krasne (09:52) Alright, let's go ahead and cook. Hiten Samtani (10:16) They're basically gonna take control of, mas o menos, 10 % of the city's hotel stock at a time when SF is kinda coming back. And fascinating deal, it just closed for 408 million. And I thought it'd be really fun to kinda do a little bit of a post-mortem because it says so much about how to navigate distress, how to work the buyers, how to work the brokers, how to work things like receivers and stuff. I'm excited to get into it. Will Krasne (10:39) I think this is going to be one of the defining transactions of this cycle because you say it's hard to bottom tick and it is hard to bottom tick. But one way to make sure you bottom tick is tie it up and then have it be out there for like 10 months. Hiten Samtani (10:51) float for a year? Yeah, pretty much a year. Will Krasne (10:54) That's a good way to help you bottom-tick it. Hiten Samtani (10:56) some incredible reasons why this kind of dragged out for a bit and we'll get into all of them. June, 2023, our guy Thomas J. Baltimore, Jr., CEO of Park Hotels, which is a Hilton Reed spinoff, basically says he's done paying the CNBS. Will Krasne (11:11) If you're looking for action, he'll furnish a spot. That is a Nathan Detroit joke, because I contain multitudes. It's sort of like when Griffin Dunn shows up in succession and he's like trying to mediate. He's like, all the kids are afraid of you Logan. He's like, everything I've done, I've done for my children. And then he does a front flip and like breaks his face. Like that's kind of what happens. Hiten Samtani (11:49) I love that one insider in The Steel basically told me that Russo had a bit of a God complex. You ask me if I have a God complex? Will Krasne (11:57) I some. Hiten Samtani (11:59) Damn, God. It's interesting. Bondholders who are suffering already and like just want this drama and nightmare to be over want to get paid back as soon as possible. However, the way that receivers are compensated, the incentives kind of don't mesh because they get paid a monthly fee. Will Krasne (12:15) ⁓ 32k a month. Pretty good gig. It's like Dickens getting paid by the word, which is why everything was so fucking long. Hiten Samtani (12:23) It's not like it's daily action, right? Something happens and then it's like a three months out, you're collecting 96K there. A year after Baltimore's announcement, East Hill comes in and a guy called Louis Stervino is running point on the steal. We've talked in a previous episode about New Bond, they're alum of the Highgate Hotels brand, the Kimji brothers and really kind of deep hotel shops. And they see this thing and they say, all right, this is the one for us. We're gonna make a move. They set up shop in 2021. They've bought a bunch of hotels already. They manage a bunch more, but this was like, this was the move. I think Park 55 they had owned. then Blackstone came in, took majority control of this when it fell into distress. And then they went and sold it to Hilton. And that's how it kind of ended up in Park's hands. Will Krasne (12:54) They'd owned this before. Sorry, you're correct. Dave also got juice with Hilton. They co-ombed the Hilton time square with Apollo. Hiten Samtani (13:12) Why does this matter? mean, it's good to kind of know everyone in the room because in the hotel industry it's quite small. It's kind of the same rotating cast of characters happening year after year, right? It's... And I guess Luthorah and Van kind of knew everyone in this space. They know the right people at Hilton. They have a good relationship there. They can position themselves as kind of the smoothest process here. Will Krasne (13:32) More importantly, these are massive hotels. These are huge companies. You're buying like a big company because a hotel is an operating business with real estate tangentially involved. And you can't just hire some guy who's like, I plugged it into a Sprint. Hiten Samtani (13:36) 3000 keys. You gotta speak hotels. You gotta really speak hotels. Will Krasne (13:48) You got to know how to run them. You got to know how to deal with the brand because there's gonna be massive pips here. You have to know how to handle the renovations, which is a huge problem. Three thousand keys. Hiten Samtani (13:58) These are hotels that need a lot of love, right? This is downtown SF. It's been, it's like a woe-begone situation for the last few years. It's going to be quite a job. Will Krasne (14:06) It's going to be a massive job. And this is also a huge thing for the city of San Francisco. And you don't want to be seen as selling this to somebody who's going to come in and make it even worse. Hiten Samtani (14:15) Create a rat trap or anything like that, exactly. Financially, these hotels were in bad shape. So just to put some numbers on this, in 2016, when they got the aforementioned 700 million plus CNBS, the hotels were collectively appraised at $1.6 billion. When this kind of went into play sometime last year, they were appraised at just over a half billion dollars. So that's a one billion plus dollar drop in appraised value. Will Krasne (14:40) that signals opportunity, but again, this is not something that comes for free. Even at this haircut, you're really stepping into like quite a lot of liability. You've got to bring quite a bit of capital and it's not even a problem you can just solve with capital. So there's only a handful of groups that could have done this and man, their timing couldn't have been better. Hiten Samtani (14:57) The timing has worked out great or let's see how it goes. So typically new bond structures, are things as like they're minority partners. They have between five and 10 % of a deal. They need to bring in a pretty deep pocketed partner to make this happen. In this case, they found your boy, Mike Simonofsky. Will Krasne (15:13) I think they went back to like high gate days. Yeah, and Senator and you know, Mike not speaking out of school here. He is very, very good at structure and any transaction with hair where you can structure a solution like that's right in his wheelhouse. And that's what they did here. Very, very, very well. Hiten Samtani (15:15) Senator, Senator Days, And I'd spoken to some insiders and they basically said the thesis was twofold. One, it's a contrarian bet on San Francisco. Everyone's still running away from SF at the time. And they're like, if we come in now, we can come in at bottom dollar and maybe make something happen. Plus, and I think this is the hotel thesis that was interesting, which was they don't make them like this anymore. They don't have these kind of once lavish hotels, but really, really massive hotels like this. You can kind of get them at the below replacement cost as we've talked about. but you can step in here and actually make something happen. You have to really believe in the asset, but the point is that if you had all the money in the world, you could not rebuild these two hotels. They'd be too expensive. Will Krasne (16:12) This is like what a lot of hotel companies are built on. People talk about like, oh, I look at this like fancy boutique, the, you know, the Royal 10 or Cheval Blanc or whatever. They don't make money. What makes money are these like massive super tanker, Bob, the sales guy at a conference hotels. And that's the, that's the old secret from Starwood hotels. Everyone thought it was the W, everyone thought it was the heavenly bed or whatever Barry's Juju was. It was not. It was like the Sheraton Cincinnati. Hiten Samtani (16:21) They don't make money. Will Krasne (16:41) that did like 40 million of EBITDA a year. That's what made the whole company. And these are the types of hotels that can just absolutely shit cash if you do them right. And this is like an unfathomable price from when I got into the hotel business. Hiten Samtani (16:57) Let's put some numbers on it. We're talking about 408 million dollars, which is roughly 135 thousand dollars a key. Will Krasne (17:04) You could spend that run of Amy's Hiten Samtani (17:07) So was a 408 million is what they agreed to pay, it wasn't exactly, it wasn't like they had to hand that over. Basically they were able to assume that debt, the $725 million debt was smushed down to 408, which they took over on a five year term at a sub 4 % debt. Pretty good, pretty good deal. How the hell they convinced them to do that? I don't know. Rob Verone was involved, so that helps. Will Krasne (17:26) Very, very good deal. Rob Rowe and the legend, good for him. One of these things is like, first of all, how are these financeable? Because if you're in the market for like money losing hotels right now, like the debt's not amazing. Yeah. So when we talked about structure as alpha, the operations, the renovation plan, the business plan, like that's all new bond. This structure, that's all conversant. And really it's like what backstops the deal because it gives you enough time and enough runway to go out there and execute. Because this is not something that's going to turn around tomorrow. Hiten Samtani (18:02) It's a three-year renovation plan that they have in place. Will Krasne (18:04) ends up taking longer but you basically have the runway to do that because you've got you've chopped the debt in half and it's a four percent this is probably 300 basis points wider you have Hiten Samtani (18:14) quite a bit of leverage over the bondholders, right? It's like, there's not too many buyers for this kind of thing. They're gonna take on what could be a suicide mission for a lot of buyers. They're like, you know what? If you want all this to happen and you wanna get paid at least something, you gotta work with us. Will Krasne (18:28) Totally. There's like six people who would do this, really, if they got something like this. And it's really hard to do as part of a fund because it's a pretty big check. It's a pretty big bet. And if you have a $2 billion fund, are you going put 10 % into this, cross that promote? And if it doesn't work, the whole fund's fucked? Probably not. Hiten Samtani (18:44) The equity check needed here was 225 million, let's call it. So 408 million is a debt assumption, and then they're putting in an additional 225 to clean this thing up. Will Krasne (18:53) Well, and from a timing perspective, though, that comes in over however long, so it's really creative to the IRR. Hiten Samtani (18:59) And you could go and further lever that too, right? ⁓ Will Krasne (19:02) For sure. Like, that all doesn't have to be equity either because your last dollar basis here is so good. I mean, you bought these for $130 a key. Yeah. That I'm sure you can go find. Even if you go get like 15, it blends your average debt to like $5.7. Hiten Samtani (19:12) High octane mes is right. There's a potential of really good return. Let's talk a little bit about the characters in the room here, because I think that is what sets a distressed mega deal apart from a standard acquisition, right? So you had the hotel buyer, New Bond. You had the equity partner, Converse and Capital. You had the kind of the Mr. Wolf of the cap stack, Rob Verone. I'm Winston Wolf. I solve problems. You had his lieutenant, who's also super interesting, Joe Borsha, who was the head of special servicing at L &R. And so he's got that side of the table covered as well. Will Krasne (19:50) I bought a hotel from L &R when I was at Starwood. Totally arm's length. Hiten Samtani (19:56) So you've got all those people, you've got the receiver, you've got Isto, and then you've got the bondholders. And I think that's a really important relationship that not too many people think about. So check this out. Initial special servicer was Wells Fargo. Wells Fargo and AAA bondholder Pymco had some beef on another deal, unrelated deal. Wells Fargo is basically Trimont, interchangeable, right? Pymco took issue with Wells Fargo being in the mix here and successfully lobbied to have them kicked out for keyback. True story. Will Krasne (20:31) Big win for the boys from Ohio. Hiten Samtani (20:34) The boys from Kansas City. These guys came in from Kansas City. So that's just another dynamic to the whole thing. Wells was in there, New Bond and Converse and had a deal going. Once the special servicer was replaced, you kind of lose a bunch of months again and Michelle Russo gets paid for another few months. Will Krasne (20:35) Can't see anything. Next big hotel, I will do it for 28k a month. Save you some money. Hiten Samtani (20:58) I was quite stunned by the fee structure here. You wanna talk through it? Will Krasne (21:02) There's saying that when a deal closes everybody eats and everybody ate so Russo got you know a year and half of receivership fees. She got like 400 plus K pretty good He still got a million one point two five million for selling this that seems a little low to me if anything Hiten Samtani (21:18) I feel like that was a little tiny for a $500 million deal, basically. Someone explained it to me. It's like, you're not coming here from a position of, it's not a party, right? It's like, the bondholders are bleeding money, so the fees aren't gonna be celebratory as such. Will Krasne (21:32) Yeah, and this is one where it's definitely like, yeah, for some reason have to get yelled at a lot. Hiten Samtani (21:35) And then Verone's team at Ironhound, I think they got a sign-on fee and then a success fee. Will Krasne (21:41) sure they did they did well also. Hiten Samtani (21:43) One of the things that was really interesting here is that we got some details on the structure of the equity and the payouts and stuff. Let's talk about that because I think that's a rare thing that you're normally only going to find on the Promote Insider. Will Krasne (21:54) How can you get the bondholders to get crammed down like that? Yeah, part of it is like they got a hope note here and basically instead of just like giving the keys back and going away they give the keys back and if these guys are able to execute which they if they do it's a no small part to this very advantageous debt that they have assumed ⁓ The bondholders get a portion of the upside. So I think it was 25 % of the profits over Some sort of hurdle. I don't know if we you had the exact numbers Hiten Samtani (22:22) 15 or 20 % hurdle rate, let's just assume. So anything above that, the profits are split 75-25 for the buyers and 25 for the bondholders. You're not going to get recouped all the way. Will Krasne (22:33) No, not getting recouped all the way, but you'll get more than... more than nothing. They don't give away 20 RRs, but like if this thing works, it could work really Hiten Samtani (22:41) Just to talk about the kind of the gravity of this deal, these are Union Ash hotels, big stakes involved for everyone. Mayor Lurie, who we've talked about a bit here, who kind of understands that real estate wins are overall wins and very visible wins for the city. He was in the mix here for a second. I think he met with the buyer group as well. Will Krasne (22:59) This is a massive thing for San Francisco. And if this goes to the wrong guy, look at what happened in Baltimore. Ashkenazi, he bought on the inner harbor, he bought Harbor Place and completely ruined that. And it can just be a huge black eye for the entire city. So yeah, of course this is going to be civic-minded. Because this is also going to impact your ability to get conventions. These hotels are dog shit. Those aren't going to come. And that hurts everyone because that's just tons of economic activity. As we've talked about in San Francisco before, There are hotels that make their nut in Dreamforce. So if Dreamforce goes to Vegas because Mark Benioff says mahalo, then that's not great. Hiten Samtani (23:34) Think about one of the other massive tailwinds for SF, which is the AI boom, right? I can imagine Anthropic throwing their conference here or OpenAI or something like that, right? You have Dreamforce, but you're also gonna have a whole new ecosystem of companies and the resulting conferences and all the activity from that. Will Krasne (23:51) Speaking of AI, I remember the first time I ever saw a robot was at the Shashi Hotel, guys. They had a room service robot. It was very cool. in. Hiten Samtani (24:04) Newbot and Simonovsky, you're listening, please put in some robots for us. Final takeaways? Will Krasne (24:09) Everyone wants to be a contrarian until it's time to do contrarian shit. This is what it takes. The world of commercial real estate development got a little uglier last week. RIP to two of the greats, Robert A.M. Stern and Frank Gehry. Hiten Samtani (24:29) It's sad, but it's also a pretty glorious life and career. 86 for Bob Stern, 96 for Frank Gehry. And these guys, they were working till the very end. What impresses me about people like this is they just fucking keep going. Frank Gehry, till the very, very end, was designing LVMH Overlord's Louis Vuitton store, Beverly Hills Rodeo Drive. We wanted to talk about these guys for a couple of reasons. I mean, their impact on the, on the skyline and the business is immeasurable, but also Will Krasne (24:41) It's in your blood. What a way to go. Hiten Samtani (24:57) I think it's a good time and a good excuse to kind of talk about the concept of Starquatex, what they do for a building, what they don't do for a building, and what developer might hope they do for a building. let's maybe start with Bob Stern, designer of 15 Central Park West. I think it's the quintessential luxury condo of the 21st century. Will Krasne (25:14) It's one of those things where you can say everything is like before or after. It's a real line of demarcation. The thing about Bob Stern, I've been in these meetings and developers like, I've never met an architect that a developer likes, really. Or I should say that a GC likes. Hiten Samtani (25:29) it's a necessary evil that they have to tolerate and work around and cram down their vision to as much as they can. Will Krasne (25:35) But I got to say, Bob Stern was known for being one of those guys. It's like betting against James Cameron in Avatar, Fire and Ash. You can't do it because they're going to sell out. It's going to beat pro forma. You're going to knock sales per foot out of the park. Hiten Samtani (25:49) What I like is he reveals something about human nature. People think they want daring. People think they want experimental. But what they really want is familiar. And that's what he did. mean, look at 220 Central Park South, cleared a billion dollars in profits. I think the most profitable condo by just raw dollar volume of all time. Right after that he did 520 and the buildings are so fucking similar that I remember that PR people would have to tell us, hey, look at this view of the park as opposed to this view of the park because they're basically the same building. Will Krasne (26:21) Yeah, and he did a bunch of the same for Mickey Naftali on the Upper East Side, and they all sold. Hiten Samtani (26:25) Yeah, they all sold and I think Ramza is doing Naftali's latest bet as well, right? 800.5th that we've talked about. Will Krasne (26:31) They are. But yeah, it's exactly right. I feel like I'm to get into Don Draper. This device. Hiten Samtani (26:37) isn't a spaceship. Will Krasne (26:39) time machine. How do they work out though? It's not always sunshine, rainbows, and three X's. Hiten Samtani (26:47) It's often very cost overrunny, it's often pretty controversial. Some of these Starquetecs, because they have a bigger name than the actual developer, can come with a lot of drama, can come with lot of demands, say. Jean Nouvel, I mean, the guy was, the guy's been tough. Will Krasne (27:03) One of the things that some of these architects forget is that people actually have to live in the building. Yeah. So that can be a problem when you have this like very cantilevered, beautiful thing that like the toilet's not near the bedroom. That's a problem. You're not developing for people looking for the outside. You're developing for the guy whose nanny is, well really the nanny who's like raising the kids. But you know, the guy with the kids running around is like, oh my God, they threw applesauce on the wall again. Hiten Samtani (27:31) And Bob Stern understood that. He's one of the rarest architects who both was able to write, you know, publish as Yale School of Architecture retrospectives or whatever, but also understood that you got to sell. You got to sell product at the end of the day. Will Krasne (27:43) We're in the moving business, not the storage business. yeah, he got that. like, know, Rafael Vanuilla, the aforementioned trash can from the top, one of my favorite things of all time. Hiten Samtani (27:52) 432 Park Avenue. I think we're being a little unfair to our Uruguayan maestro here. I think over here, Harry Mackle has to take at least a little bit of the blame because that pure building that he wanted turned into like the scene of some pretty dirty and fighting. Will Krasne (28:11) People use, it's not just residential, it was also an office. People use the architects to really draw rents. mean, that was Abe Rose. Hiten Samtani (28:20) Jesus Christ, I'm gonna kick you off the spot. Will Krasne (28:23) That was A.B. Rosen's real insight on office buildings is that people will pay up for well-designed office space and putting in artwork. Skidmore, Owings, and Merrill, David Childs, like these are knowable guys. Norman Foster at JPMorgan with their headquarters as well. Hiten Samtani (28:39) Mies van der Rohe at Seagram, there's all like these names mean something, right? Will Krasne (28:43) All those names mean something and they can mean more or less depending on where they are. My favorite example of this is like Fallingwater, Frank Lloyd Wright, maybe the most famous house in America is unlivable. Like literally uninhabitable. I think it's kind of like emblematic of the entire thing. Hiten Samtani (28:54) Yeah Why I'm so fascinated with Starquatec's, even though I'm not really a design junkie, it kind of jives with my kind of unified theory of the ultra luxury market where I've always believed that the ultra luxury market is kind of independent of the local market right below it. So 15 Central Park West, 220 Central Park South, et cetera, are competing with other IT buildings in Miami, in Dubai, in London, et cetera. And you kind of need some sort of binding element for all of these. And that's where Starquatec comes in. A star architect is a binding element for the ultra luxury market. Will Krasne (29:31) Go listen to Hiten's episode of Odd Lots about this. Hiten Samtani (29:34) It's a lot of fun, but Shore Club in Miami Beach, which I believe is a Woodcoff project, it's a Ramza building and they have at least one unit that's in contract for $11,000 a foot. Bonkers. $11,000 a foot. Those are like absolute peak, peak, peak Manhattan prices coincidentally. Naftali is going for that as his like blended sellout at 800 Fifth, which is insane, but you might do it. Will Krasne (29:56) These are buildings that people know who the architect is just from where they like the Guggenheim build about. It's literally a plot point in pluribus recently. That's famously Frank Gehry, Beekman Tower, Eight Spruce. It wasn't even called Eight Spruce for a while. New York by Gehry. Hiten Samtani (30:09) called New York by Gary. Now that we're talking about the great man Frank, I think that's a good contrast to draw with Robert A. Stern. I Frank Gehry also designed the master plan for Pacific Park, which was then severely whittled down, right? And it says like, one of them was a developer's architect and one of them was an artist. And which one do you really want at the end designing your buildings? It's tough. Will Krasne (30:32) I do like low-slung industrial, so I'll just tell you my preference. Hiten Samtani (30:36) I think men like Bob Stern and Frank Gehry, one of the things they did was kind of bring architecture into the forefront in the real estate game. If you want to be a serious developer now of residential product, high-end residential product, or even, you know, top shelf office, you've got to have to appreciate architecture very publicly. You've got to have these like salons in your buildings and talk about architecture and pretend to be a connoisseur. There's a movement now and I think men like these are very responsible for it. Will Krasne (31:04) It's like the pool in the rental apartment. You have to have it for the tour, but like no one ever uses it. Hiten Samtani (31:09) Think about how mobile buyers are now, right? Like Michael Dell is buying in Manhattan, is also buying in Miami, is also buying maybe in Tucson or wherever. You kind of have something that binds all these things together. Will Krasne (31:21) talked about the need for something familiar, but also like people don't want to be sold. They love to shop, but they don't want to be sold, as Ryan Serhan would say. This gives you permission. Like so much of this, whether it's waiting for Brookfield to buy something so you can buy something similar. Yes. Hiten Samtani (31:37) Air cover. Blackstone talked about that with the... Will Krasne (31:39) It's a permission structure. And if you're a residential developer, if you were in maybe not quite the neighborhood you wanted to be, not quite the location. Yeah. If you're doing something a little bit off, the way, one of the ways to give people permission to buy there was this is Ramza. This is Gary. Yes. That was the permission structure. Like that made it an institutional asset. Like Frank Gehry did a rental building. That's all you really needed to know. Hiten Samtani (31:47) is Zeki Zek at Clarkson. That's it for the Promote Podcast this week. Two legends of the skyline head on up. An industrial AUM Goblin giant sells a hefty chunk to a kindred spirit, and a career-defining hospitality deal comes together in SF. We'll be back next week with more CRE Insider goodness. Will Krasne (32:28) Go ahead and start your free trial of the premium tier at thepromote.com slash upgrade. We'll give you a 10 % discount code in the show notes for our Psycho Army. These are a great holiday gift, so get to it. Hiten Samtani (32:40) Yeah, we didn't get the hoodies in time. So this is going to be, you know, have to do for, cause I love you so much. did try to make a psycho discount code, but the tech isn't quite there yet. tech. I swear I'll have it by, by Q1, but for now you can just go to the link in the show notes for 10 % discount to premium and also brands. We're at partnerships at thepromote.com. We have some pretty, pretty exciting things coming up in Q1. So reach out. Will Krasne (33:05) and if I can ever figure out how to actually set up my green screen, we'll have a We'll have another treat for you next week in the form of a guest, our first in a bit. stay tuned for that. That'll be fun. Hiten Samtani (33:09) Yeah, next week we'll be on. He's such a character. I love these guys, like, massive chips on their shoulder and just keep going. I'm drawn to people like that. Will Krasne (33:22) He is a very compelling character. Hopefully they'll say the same about us. Hiten Samtani (33:27) I bet they do. All right, I'll see you next week. Ciao. Will Krasne (33:30) Bye.