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Blackstone Cubs, Secondaries Sizzle & Hines of Arabia · The Promote Podcast

• Hiten Samtani (00:03) You watch the Blackstone holiday videos of the Reels on LinkedIn. Jon Gray he comes across as this nerdy, brilliant, likeable guy, running your trillions as he runs across world capitals. Will Krasne (00:13) We at the Promote have long believed you don't get to THAT level without the ability to be a stone cold killer when you need to. Hiten Samtani (00:20) So there's a reason black zone off-sites never include fly fishing. Welcome back to the Promote Podcast, your insider guide to the money and mania of the CRE markets. I'm Hiten Samtani ⁓ Will Krasne (00:34) Toddie. And I'm Will Krasne. Hiten Samtani (00:38) We're potting on this gorgeous New York City marathon day. Will Krasne (00:41) Congrats to my friend Nicholas Fulford at a PR today. Excellent work. Hiten Samtani (00:45) Well done, Nick. Does he listen to the pod? Okay, excellent. So we're potting on this gorgeous New York City Marathon day, which is apt, since we're going to discuss those who run huge sums of money, is. Former Blackstone Alpha Cub, Chad Pike, is finalizing an industrial mega deal. This is in a world awash with capital, but it's the same names who are gobbling up increasing shares of it. The Middle East used to be where you go to get your money, but it's quickly becoming where you go to build. Will Krasne (00:47) He does. Hiten Samtani (01:13) and buying leftovers has never been sexier. CRE Secondaries are the hottest game in town. Will Krasne (01:18) the cold pizza of the allocator game. It's great docket, yet again, I'm very excited to dig in here. Hiten Samtani (01:24) As am I. So couple of things. Go check out the Promote Insider. That is our premium subscription tier. We dropped this piece on these Chinese firms that are still active in the US market. And it was super timing because hours later, one of them did their first major condo deal in New York. So we've got some sauce. Hit it at thepromote.com slash upgrade. Will Krasne (01:42) I just can't believe JD Capital wanted a more American name and what they went with was Pond Mo- Hiten Samtani (01:48) Boom, so good. Something got lost in translation for sure. Also, brands, to reach CRE's insider community, reach out to partnerships at thepromote.com. Will Krasne (01:57) And it's not just CRE insiders. We're entertaining to folks of all persuasions and all jobs. Partnerships at ThePromote.com. Hiten Samtani (02:04) That's right. All right, well, was it the Chad? Will Krasne (02:07) Chad was ⁓ Hiten Samtani (02:16) So there's a couple of guys who, a couple of Blackstone Cubs that the market's been tracking very closely to see what they get up to because their moves kind of set the tone for the entire market. So one of them is our boy Chad Pike, who's just struck an industrial mega deal. Will Krasne (02:31) I just apologize in advance. Macarora, I'm gonna just butcher. Hiten Samtani (02:35) Yeah, I thought it was some Maori fishing term given the guy that we're talking about, but I'm not sure. Will Krasne (02:39) I don't know, just give me some grace on it. I apologize in advance. No disrespect intended. So he has inked a really big take private, which is right out of the Blackstone playbook. They are known for wanting to buy public companies when they're trading below NAV. It's a playbook they've done over and over and over again. And it's how John Gray sort of got his stripes. Hiten Samtani (03:00) So we're talking about Hilton LBO, the most recent one with AirCommunity, QTS, all of that. That's their book. Will Krasne (03:05) These equity office properties. Yeah, yeah, they've definitely done this and they are the best at it. And they just inked a deal to buy Plymouth, which is an industrial REIT, 32 million square feet, two plus billion dollar deal. And what's interesting is that they pipped one of the other groups that's been AOM gobbling. Sixth Street. Yeah. So Marco Salvarado had done great hair, great hair, had done a large JV with them for their Chicago assets. and they tried to the company in August, so just a couple of months ago, and this is at a massive premium to that number. Hiten Samtani (03:39) talking about like a 50 % premium to the share price right before Sixth Street's offer came out. Will Krasne (03:45) Right, mean that's like open AI evaluation numbers. Hiten Samtani (03:48) Is that just a function of the market just being awash in capital and so much capital number go up? It's not like the market conditions could have changed in industrial that dramatically. Will Krasne (03:58) Not really. It's a function, I think, too, of how people's perception of what's going on with rates can really impact forward capital allocation decisions. I don't have the chart in front of me, but rates are down since August. And more importantly, like we've seen two cuts, except our guy JP did say he wasn't sure we're going to cut in December, but it looks like the market's pricing in more in 26. People are calling the bottom more and more and Blackstone themselves are calling the bottom. saying we're in. Hiten Samtani (04:26) talking about re-acceleration, this is the time to get going, all of that. Will Krasne (04:30) Brookfield said the same thing. it's just, again, like vibes drive price. Hiten Samtani (04:36) We should talk about industrial as an asset class and why it's become a target for so many of these mega deals. Will Krasne (04:41) I think it's important to just say that like industrial is not a monolith. Hiten Samtani (04:44) Did you see the Promotes new Shallow Bay Shallow May feature? Will Krasne (04:47) I did you know and I'm surprised you didn't call me shallow bay shallow may because I do shallow bay I'd like to think I'm a little you know bulkier than an old Timmy. Well Yeah, so when you think industrial I think when you hear how many from prologist talking about it or what black stones buying you think these sort of hulking million square foot distribution centers Hiten Samtani (04:56) After the food poisoning, I'm not sure. Will Krasne (05:08) They're right next to highway exits. They're near ports, those types of things. We can reach 37 % of the US population in one truck drive. Yeah, that's part of it. But what Plymouth is, is smaller suites, shorter leases. What is it? Just over three years. And you may say, well, gosh, like I would prefer a 10 year lease to Amazon. Well, there's no upside there. That's baked in. Hiten Samtani (05:21) That's a wall tear, like three years or something? basically buying cash flows in that case. Will Krasne (05:32) Right. like risk is the stability of your cash flows. And so those cash flows are generally pretty stable. Some Whole Foods landlords may disagree. But if you have these shallow bay things, what you can do is you can reset them to market. if you look at the spectrum of real estate asset classes, hotels, you can release every day. You can jack the price of the market move. Hiten Samtani (05:50) And we talked about this with Dreamforce and how that week in SF basically makes your entire nut for the year. Will Krasne (05:56) Apartments once a year office was longer. But in this case what you're able to do is you're able to go get market rent So if you have a lease that's 10 years long and your rent escalations are two and half percent But the market moves five percent a year you are Way under market, but you don't have a method to go get that mark to market increase Okay with this portfolio where you have shorter wall You're able to take advantage of the market actually growing rent because you can release a third year portfolio every year essentially with three or wall Hiten Samtani (06:24) This would be more, fair to say, a more actively managed portfolio, more resources for asset management, lease. Will Krasne (06:30) This is not the industrial where you you sign the lease. yeah. You don't talk to the tenant for nine years. This is way more active management. But whenever there's more active management, there's the potential to drive out performance with good active management. Yeah. So that's sort of the play here. Hiten Samtani (06:33) set and forget. And what do the debt markets look like for this kind of asset? Will Krasne (06:49) That markets right now are as good as they've been in last two, three years, period, full stop. For this, generally, its scale begets tighter debt. So if you had two assets, it's going be really hard for you to find a good debt quote because they're going to rightfully look at it say, well, if I'm going to give you a five-year loan, you got three-year wall, that doesn't sort of jive. But if you're able to spread it across 32 million square feet, you can... Hiten Samtani (07:00) Please, three year old. Will Krasne (07:14) rightly say, we have a very broadly diversified portfolio. We have this diversity of cash flow streams and it's going to grow because it's not locked in. We're able to go get market rent growth. also think that because these assets were infilled, they're smaller, it's harder to build. There's not going to be as much supply as there is in the big box area. So we're going to have above trend rent growth. It's pretty saleable story. I've said that exact story myself. Hiten Samtani (07:36) You certainly have. And there's so many options here, right? Like you can go the CNBS route. You can also increasingly for these bigger and bigger deals, you can also get life insurance money more and more now, right? We've seen New York Life step up for a bunch of these. Typically life insurance companies used to tap out maybe in the two, $300 million range, but now they're going bigger and bigger and bigger. And there's always our boys from a theme. Will Krasne (07:57) It's a great number. It's like mid to high six cap rates or your knowledge may vary on how you calculate that. But that's pretty tight. Tight, tight. Pretty good validation that this space, the small bay industrial space is here to stay, not just the big box super tankers that Amazon's going to run with a bunch of robots. Hiten Samtani (08:14) regular listeners might be thinking, this is all very interesting, but this doesn't sound very promotey, very technical, industrial assets. We're not just talking about it because of the deal. We also like the person behind the deal. So let's talk a little bit about Chad Pike and who Chad Pike is. your lines, Sorry, this is going to be full of crappy fishing puns. I've only fished twice in my life. Will Krasne (08:30) Yeah. So Chad, ran European real estate at Blackstone back in the day. So he is pretty much the same age as John Gray. Hiten Samtani (08:42) I looked at his New York Times wedding announcement. was 25 and 96, so yeah, he's about mid-50s. He's a Blackstone lifer. He's been there from like his whole career. And he was co-head of real estate when a young wizard called John Gray was running the Americas, this guy was running Europe. So they were peers. For a time. For a- Will Krasne (09:01) ol' John Sharp-elbowed back in the day, noticed that, well, the US real estate group is a lot larger than this European real estate group, yet we have the same title. Hiten Samtani (09:10) Not only was it a different level of scale, John Gray's like, I'm answering emails all day, all night. I'm working all weekends. I'm working Blackstone hours here. This guy is a fly fishing, has the time somehow. And one of the broader things I'm always fascinated with these captains of the universe type is time management. I remember I interviewed John Gray back in the day and I was given 15 minute increments. Like you can do 715 to 730 or 745 to eight. These guys are maniacally. The way they use their time is completely different from the rest of us. They have, in fact, manipulated time. What I've done now is I have changed the manipulated time. I now get 21 days a week. These guys are working crazy hours. However, Chad Pike has the ability somehow to run a company on the side while running a major division at Blackstone. And John Gray didn't take too kindly to that. Will Krasne (09:58) He walked so David Blitzer could have Harris Blitzer Sports Entertainment could run. No one seems to look too scans at that, but everything's about seasons in life, right? When you're late thirties, early forties, a grinding through the corporate up at a company like Blackstone, that's the thing. Hiten Samtani (10:14) Just for some context, so Chad Pike, avid fly fisherman, great outdoorsman, ⁓ also found time to start an experiential travel adventure company while at Blackstone. Will Krasne (10:24) Had he been like doing something more economic on the side, I think it probably goes off a little bit better. Like if you bought Arsenal, like it's fine. So anyway, the story is, so Business Insider did this profile of John Gray. And again, Business Insider, they really, massive pinch of salt, but from 2021, which it talks about how John Gray played a little bit of politics here to get the global head of real estate title. Let's just say these are all allegations like people have commented. Hiten Samtani (10:38) massive pinch of salt. Well, James did not dispute the turn of events, but go on. Will Krasne (10:54) He went to Tony James and just said, hey, I don't think this is working. Our relationship is frayed. The crucial point, I think, is that he didn't just say that because that's like sour grapes. He intimated that Chad was ready to step back from the firm. Hiten Samtani (11:09) Yeah, what he said was like, I think there may be room for an exit here that's graceful. Not for himself. Will Krasne (11:14) Right, something like that. And so Tony James goes to London, brings it up, and apparently Chad Pike is blindsided and ends up getting shunted off to TacOps. ⁓ Hiten Samtani (11:28) Attack Ops, which is their tactical opportunities group, which is now a bigger deal because now it's involved in QTS and a bunch of important bets for Blackstone. But at the time it was kind of a lateral demotion is the best way to think about Will Krasne (11:39) Yeah, and then John Gray took all of real estate and then now is what President Trump. Hiten Samtani (11:43) John Gray took all of the firms since then. Chad Pike retired, quietly retired from Blackstone in 2020 at the age of barely 50, which was unusual. Anymore, so it'll just work itself out. Will Krasne (11:54) So he won't be receiving a paycheck. Naturally. Right. He founded MacAurora a couple of years later. And this is sort of the first big bet. interesting to see him running the Blackstone playbook. It's a asset class and more specifically a product type within that asset class. That's very much of the moment. Hiten Samtani (12:14) In general, both you and I are quite obsessed with the PayPal mafia type of storyline, right? Like are there companies that can birth other great companies? You think of PayPal and how the alumna basically dominate all of tech right now. I think in real estate, Starwood is one of the great examples. Will Krasne (12:30) Certain horses have great lineage too and great blow lines. They may not even have been the best steeplechase horse or the best thoroughbred themselves, but they have the characteristics. Like Stormcat, know, John Shepherd made a fortune off of the breeding from that more so than he ever made off of Stormcat run. Hiten Samtani (12:46) think JMB is the other alum. Basically run a lot of real estate right now too, right? The Chicago Company. Will Krasne (12:51) Right, yeah, you've got Wall Street, you've got Barry from Starwood, Jambi, their DNA's everywhere. The funny thing is you can go look at somebody's model and be like, yeah, that guy worked for someone who worked at Jambi. Hiten Samtani (13:02) Yeah. So Blackstone is an unusual one because it's such a massive firm. They've minted a handful of billionaires and also several centi millionaires. It's one of those companies that people stay for a very, very long time. Will Krasne (13:14) talk about, I'm gobbling, because the problem is that your payroll gets so huge. These people need to make lot of money because you go somewhere else or start your own thing, you can get hugely compensated. at Blackstone, they have the public stock, so they can just like... Juice it with that. Yeah. that gets paid dividends. So if you're making a 4 % dividend on 10 million of Blackstone stock, that's an extra 400k a year that's taxed half of what ordinary income is. And most of these people live in New York, San Francisco. It makes sense that they'll just pay you to stay because it's so big, they have so much money coming in, and the fundraising is only going in one direction. Hiten Samtani (13:49) You see a lot of these executives who are head of acquisitions or something senior at Blackstone and they're absolute stone cold G's in their own right. So when they leave, people throw money at them. The other example that comes to mind is Tyler Henritse, who used to run acquisitions in the Americas, was involved in a lot of the big deals. QTS, I think he ran point on as well. He has a company called Town Lane. I believe we have a listener from that company. I think they raised $1.25 billion in nine months. Nine months. Will Krasne (14:17) Incredibly impressive. I mean, of course, like if you were to drop somebody in a lab to like raise private equity, real estate funds, like it would be Tyler Henrietti. Not just the the resume, the deals, the expertise, the jawline in a lab. I think also about the nine months, it's not just that they raised it so quickly, it's that they had what no real IR team and then no placement agents. Hiten Samtani (14:41) This was like a friggin' this doesn't bode very well for the middlemen if these guys can go just based on the track record can go and raise that kind of money without much help. It's tough. Will Krasne (14:52) It's really tough and that's again, we've talked previously how Blackstone has the most baller thing where they do one fun close. Hiten Samtani (14:57) 30 billion Brex Will Krasne (15:00) done. ⁓ It's not this simple here, not using, like, you're not having a full in-place IR team or placement agents to raise that much money that fast. It's just like, Hiten Samtani (15:08) The jury's still out on whether if you stayed at Blackstone at a very senior position, like if you're a Nadim or Kathleen McCarthy, et cetera, I think over time your comp would probably be higher than you go run one of these things. However, you still have to tow the gray line. You're part of that machine. Do you want to go and build your own army or do you want to be one of John Gray's guys? Will Krasne (15:27) There are not a lot of firms in any industry, not just Alternative Asset Management, where non-C-suite people own sports teams. Hiten Samtani (15:46) One thing I gotta mention before we go on to our next segment. It's almost too perfect. Did you see the Yieldstreet thing? The Etch A Sketch? Will Krasne (15:54) God, yeah, I did. But here's what gets me is like when Bill Ackman blows up and does it to start a new track record, it's like considered very savvy. Hiten Samtani (16:02) So what we're talking about after many of its deals went to absolute zero, crowdfunding firm Yieldstreet, which was also sued by investors, by the way, has now rebranded. Henceforth, Yieldstreet shall be known as Willow Wealth. Will Krasne (16:14) wealth will bend in the wind like the agile willow. you Hiten Samtani (16:27) Yalla, you wanted to talk about the Middle East? Let's do it. I might put on my high school Shoaifati accent for this segment, so forgive me, it's gonna be natural. Will Krasne (16:29) Yeah, I'm Oh, fantastic. I love it. Like, let's go. So there's a fascinating shift happening in the Middle East. used to be the Gulf is where you'd go to rub noses and raise cash for your American investment. Hiten Samtani (16:45) Literally rub noses. I wasn't kidding when I wrote that in. That's how you meet people important. You do a little nose kiss. Will Krasne (16:51) That's still true to some extent, the Saudi Arabia is... Hiten Samtani (16:53) You notice when I make ethnic jokes, Will gets really uncomfortable, so I do it a lot, because I'm ethnic and he's not, I can get away with it. Will Krasne (17:00) ⁓ So that's still true to some extent. Saudi Arabia's Future Investment Initiative, Davos in the Desert, as it's otherwise known, was very lit this year. Nothing will ever beat Michael Milken with the giant headdress from like five years ago, if you remember that. Hiten Samtani (17:15) Yeah, I remember that. boy Ray Dalio has basically been stationed out in the Gulf for a long time. he's, the thing is when you're, when you're at that level of name recognition broadly in American business, when you go to the Middle East, you don't start from step one, like you're directly in the room with the Royal family at their board meetings. That's, that's kind of the way you can leapfrog it. So it makes complete sense that you would go there to raise money. But I think the shift that's so interesting is now they're going there to build out these skylines for these. royal families. We should be clear when we're talking about the Middle East, we're talking specifically about a handful of Gulf countries, Khilijic countries, so the United Arab Emirates, Saudi Arabia, Kuwait, Bahrain, and Qatar. That's about it. This is where the money's at. Will Krasne (17:56) Right. This was in the news this week because Heinz, sort of like one of the most American of country, yeah, one of the most American companies is opening an office in Riyadh. They had an office in Dubai. I think they opened it in 2020, but they're opening this one specifically to build projects in the kingdom. Hiten Samtani (18:01) Kinds of Arabia, baby. Dubai one, my assumption is it would be basically a conduit to move money into their broader Heinz operation because Dubai is such a commercial hub in that region. But yeah, I think the Saudis have a massive mandate to build out their cities, right? They have this major project 2030, which realistically is going to be project 2075 or something. But the whole idea is to diversify the kingdom away from being so dependent on oil, which is why we have mega projects like Neom, and we're going to see much smaller but also still incredibly significant projects in the next decade or so. Will Krasne (18:45) This is basically saying, give us $500 million in commitments to build a bunch of like Dallas office. You're going be building a lot of Riyadh office, and we know how to build. So why don't we just come over here and do it maybe on a fee basis, maybe with some upside. Hiten Samtani (19:00) I think the JV structures are going to be fascinatingly good for them. Will Krasne (19:03) Yeah, but just think about the quantum of dollars that they want to put out like neom is supposed to be how much like even it's all nonsense Obviously, but it's what? Hiten Samtani (19:11) want to know how much it's going to be? All right. In its end state, it's going to be estimated to be at 8.8 trillion dollars, which is more than 25x the annual Saudi budget. And just the first phase, which is supposed to be by in 10 years from now, you know, God bless, is supposed to be 370 billion dollars. So that's 12 Hudson yards. Will Krasne (19:31) think of it this way, if Heinz is like, all right, in that little pro forma we're putting together, there's, you know, 3 % debt fee. You know, $12 billion. Hiten Samtani (19:38) Yeah. When we think about American real estate projects, cetera, there's a pretty, I mean, people fudge with these bars and push it as far as you can go. And we saw this in Sunbelt Multifamily, for example, but there's a generally accepted boundary for fees and how things are comped and how things are structured, right? If in the Middle East, you get to start from scratch, you can get pretty creative. Will Krasne (20:02) my gosh, yeah. mean, wasn't this like Adnan Khashoggi's entire business model? Yeah, he was just like taking a little piece all the time. And you know, there's some real people coming here. So Dennis Hickey, former CEO of the massive Australian construction conglomerate Lendlease, now chief development officer. Hiten Samtani (20:06) The Arms Dealer? little piece, little slice. Not only that, he was also a contemporary of Shane Warren and a very, very quick pace bowler. A cricket reference, by the way. So for the five people who get it. Will Krasne (20:30) Shane Warren in the 90s was quite the thing. Hiten Samtani (20:34) But yeah, Dennis Hickey used to be a chief operating officer at Lendlease is now chief development officer at Neom. So they're getting pretty serious executives out there. And then you see big companies. So Brookfield is building its first real project in Dubai. It makes sense. Property values in Dubai have surged 70 % in the last four years. I'm going to push back on that a bit. think Dubai has historically, yes, been a boom and bust down. I mean, there's been so much of that, but since the pandemic, Will Krasne (20:52) That's a lot of the crypto bro. Hiten Samtani (21:02) pretty amazing how much wealth has moved to Dubai, Abu Dhabi, and Middle East and Will Krasne (21:06) No, it's true. mean they have a real housewives franchise now. Like can I say that? Not really in jest. Like that's actually like me. they got Caroline Stanberry to go from London. Hiten Samtani (21:12) say it with full admiration. The policy of those countries has always been a laissez faire thing. Like we're not going to ask questions as long as you come here, spend money and don't fuck with our politics. You're free to have whatever provenance of funds you've had. When you have head of states whose mandates are to just basically transform their skylines in record time, they're not going to risk that kind of reputation on a local builder who's probably built a couple of projects, right? They're going to do these tie-ups. They're going to bring in the Heinz of the world, the Brookfields of the world, all these other mega developers. are going to have a lot of business in these countries for the next, we'll call it decade, two decades. Will Krasne (21:51) Right, you have to bring in the infrastructure because as we talked about last week, building any one of these huge towers is really difficult. And that expertise is not diffused throughout the world. There's only a number of people who can do this, a number of firms that can do this. And so it makes sense if someone's got a market to spend this much money doing it that they're going to come to them. Hiten Samtani (22:11) And also a lot of these companies that used to historically fund or be mega LPs for American bets are now saying, you know, we prefer to spend our money domestically. They're not saying you can't be part of it. They're saying you just got to come here and join the party. Will Krasne (22:24) Absolutely. you know, it doesn't mean that doesn't preclude them from investing in a bunch of Dallas office developments either. Hiten Samtani (22:30) gonna get you a kandura for Christmas. I think you'll really enjoy the garment. It's from Hanukkah. Let's do it. Will Krasne (22:38) I was like a 28 year old at Heinz, I'd be like, volunteering to go to Rea- That's the way. Hiten Samtani (22:42) ⁓ Send me there. Will Krasne (22:54) How's J-Man? Hiten Samtani (22:55) He's doing good. He's not sleeping very well through the night at the moment. He is waking up very angry. But then in the daytime, he's a fucking Casanova smiling people in the street. He's been pulling hair in the subway, which is adorable and not so adorable at the same time. I'm glad we're talking about this today, because every other day we're seeing new record hauls for secondaries funds. And I'm not sure everyone quite gets how it works. I certainly could use a little bit of a primer, so let's break it down. What is going on in the real estate secondaries market? Will Krasne (23:33) It's really heating up. so secondaries more broadly have been a way for folks to get liquidity over time. So essentially, if you invest in a private equity fund, you're locked in for however long it is. you can't get, if you don't get distributions, like you don't get any liquidity. But those economic stakes of the businesses that the fund holds are worth something. And they're generally kind of hard to diligence because there's a diaspora of different companies. You don't really get primary research if you're trying to do diligence. Like they're not going to open the books to you necessarily. It's an opaque market, so you've got to go find the people who have the stakes. And it's hard to price. And how do you value the illiquidity? How do you value where certain assets are? Because you might have some killer ones, some not. Hiten Samtani (24:12) know if the LPs generally are as clued in to the specifics of each bet as they might want to be? definitely not. Will Krasne (24:20) So you may not even necessarily know what you own in some cases. So it's really hard to price. But their firm like StepStone has been doing this forever. Hiten Samtani (24:29) I think they just raised the close to $4 billion real estate secondaries fund. Will Krasne (24:33) And they've been doing it in corporate private equity as well. There are other firms that are like known for doing this. And then in venture, it happens quite a bit. Hiten Samtani (24:40) think that analogy is a good one, right? Let's talk about tech companies and the VC model. Companies are staying private longer. Generally your path to liquidity was an IPO, right? For a certain company, if it's doing well, companies are staying private longer, longer. Let's take a Stripe, let's take a Revolut. And so people who want to get out need to find a way to get out. And that's why the secondary's market has become such a big thing in tech. I wonder why in real estate, it's suddenly all the rage. I think part of it is that funds are out in the market longer than they used to be. Will Krasne (25:06) It's taking longer to raise money. It's taking longer to make distributions. I heard of a large real estate fund that you all have heard of that has not made a carry distribution in seven years. And that's not unheard of like it happened before. if you just think of it, you missed on one fund and your second fund is early. So if you're LPs, you haven't been getting liquidity and you want out because you have to keep making more commitments, right? Not getting those. You can't reinvest. Hiten Samtani (25:31) I think Brookfield Lowell Barron was just talking about this, right? They made a couple of big sales. What was the one we talked with that they sold to Starwood? Is it called Fundamental? Will Krasne (25:39) Yeah, the NetLease platform. Hiten Samtani (25:40) They've sold a couple of properties, returned money to LPs and then used that. Hey, we've returned money. Let's go raise some more. Right. There's a momentum game there. Will Krasne (25:48) There definitely is. And so it's created this opportunity to do it in real estate. so Warburg-Pencus, which is one of the more eminent names, corporate private equity that's been around forever, and Madison, who have history in the secondaries game, teamed up to raise 300 million bucks to do real estate secondaries. Hiten Samtani (26:04) Doesn't that seem tiny? I'm sorry, I'm not impressed by 300 million anymore. We've been ruined by this vodka. Will Krasne (26:09) Is it a fund for ants? Hiten Samtani (26:11) be expected to teach children to learn how to read. Will Krasne (26:14) if they can't even fit inside the building. You gotta walk before you can run, guess. And this is sort of a newer asset class. And I think also real estate itself, a lot of these bets, if you were buying certain types of properties seven years ago, which are still in these funds, the world may look a lot different for a suburban office portfolio. Hiten Samtani (26:30) There was a good stat from Perry that I thought was very pertinent here. So the average time in market for private real estate fund that closed in 2024 was 22 months. Compare that to just 13 months for 18 era funds. Will Krasne (26:44) or nine months of your Tyler Henritsy. Hiten Samtani (26:47) So what did Dickerman say? had an interesting quote here. Will Krasne (26:52) We get involved in GP-led recapitalizations and end-of-fun life situations when they are in our preferred sectors and being undertaken for the right reasons, i.e. not an AUM grab by the manager. Undertaken for the right reasons as in, we are getting this at a discount. Hiten Samtani (27:06) buying an LP out like what are you paying 20 % less 25 % less Will Krasne (27:10) I'm not sure because I think it's still a pretty opaque market, but there are a lot of people who have not put real marks on things. This has been something that good friend of the pod, Mike Comperato, has been railing about for a long time and he's not the only one. If you don't want to sell an asset, there's a way to get liquidity without having to do that, you know, which is sell the whole pool and you can sort of hide it and be like, hey, we sold this whole pool of assets for, we thought it was 85 % of NAV, but like we wanted to get liquidity for our LPs as we're about to raise this new fund. Hiten Samtani (27:37) The other part is, guess, the while this fund is running its course, some LPs may have a, hey, we don't want to be involved in a New York office anymore, or we don't want to be involved in Sunbelt multifamily anymore. It doesn't fit our investment mandate any longer. And that's where these secondaries can come in. Will Krasne (27:53) You get a new regime at one of these allocators and they're like, just out of this. Hiten Samtani (27:56) I'm thinking of our boys at Ivanhoe Cambridge who are now gone from being investor to pure allocator. Will Krasne (28:02) Exactly. You get somebody who's like, we're not doing office anymore. We're not doing certain types of retail anymore. And they're like, well, we have a bunch of it these funds. We're in the get out. Like we're just out. Bunch of the ticket. It's also easier to hide some like bad deals. So if you're like, yeah, you got, you got to take our, you know, suburban office. We lost 60 % of our money to get our like, you know, really good power center that is 96 % least and sales are a thousand a foot. Hiten Samtani (28:22) throwing a dog with all the other I'm so glad you said this because one of the things I think about a lot outside of our fundamental question, which is do returns matter for fundraising? No, they do not. Outside of that question, one of the things I always think about is like, how much of what we see in these broader institutional markets is a function of face saving? I really think it drives more than we think. Will Krasne (28:48) a lot. Yeah, mean like for to say like we don't do a certain asset class or certain geography is sort of like very reductive if you're an investment professional Everything has a price for the most part right what someone is saying if they're like, we don't do office It's I lost money on an office deal. Therefore. No one can make money on office Hiten Samtani (29:08) Yeah, that is true. It's like, we've been burned and this is it. We can never look at our investment committee with this kind of deal again. So we're out. David Rubenstein's family office spinoff, it's called Hope Mountain Capital. It's run by D-Rub's daughter. Will Krasne (29:20) This is the family office squared. It's a spin out of declaration partners, which is also a private equity firm. Hiten Samtani (29:26) of mixed records so far in the market. They took a bath on a couple of prep deals in New York. Will Krasne (29:30) They just raised a bunch of money though, so they've been marketable. Hiten Samtani (29:34) brings us back to the original thesis. Will Krasne (29:36) I could tell you their returns would have been better had they done the deals that I pitched them. Just telling you. Hiten Samtani (29:41) So DRub's daughter, Alexa Racklin, has a new secondaries fund and they're targeting, it's interesting here, they're targeting sub $5 million deals. They're going for these more bite-sized deals. ⁓ Will Krasne (29:52) lot of mid-market private equity firms that aren't going to exist that have raised their last funds both in corporate and in real estate so if you have these guys who are in these funds for a long time and this is a way to get like basically unwind your business. Hiten Samtani (30:04) makes that makes so much sense. you're talking about like these people who call themselves real estate private equity companies, right? It's two guys in a spreadsheet, if that Will Krasne (30:11) I think it's app and then it's also more established funds where it's, yeah, we, you know, we raised five or six funds. They're each, you know, a hundred million bucks. Yeah, it's like performance hasn't been great. So what are we going to do? Hiten Samtani (30:19) And they're moribund, And we've talked in general more in institutional multi about how some of these mid-level guys and weren't mid-level means a couple billion as well are kind of stock. Will Krasne (30:31) yeah, it's really, you know, barbells all the way down. It might not be the right environment to exit an individual deal, but it may actually be the right environment to exit the poo-poo platter of deals. Hiten Samtani (30:49) That's it for the Promote Podcast this week. Blackstone Cubs are building out layers of their own, and the market seems all too happy to shower them with billions. Real estate secondaries are all the rage and are helping break the market's great stalemate. And the Gulf Middle East has become the hot new playground for the biggest American developers. Not just to raise, but also to build. We'll be back next week with more CRE Insider goodness as always. Will Krasne (31:12) Reach us at partnerships at thepromote.com for advertising and podcast at thepromote.com for feedback. And if you haven't written this review on Apple or Spotify, please go do that. Thank you everyone for listening. It's great to see us going up the rankings. We're going to keep pushing. We are going to be coming for invest like the best. We are coming for all these guys ahead of us. So let's go. Let's make it a reality. Hiten Samtani (31:23) We need the validation. I gotta ask though, if the promote pod ever gets torched, if we fuck up in some colossal way, what do think we rebrand as? I'll see you next week Will, thank you. Ciao!