Latest / The Promote Podcast / Stern Ambition, Nuveen's Belly Flop & Private Credit's Gypsy King

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Stern Ambition, Nuveen's Belly Flop & Private Credit's Gypsy King · The Promote Podcast

• Hiten Samtani (00:04) Flippin 'eck. Will Krasne (00:05) We've got chandeliers, that's posh. Hiten Samtani (00:09) Exclusively for us over forty-five. Will Krasne (00:13) Now more than Hiten Samtani (00:19) We know life's not a rehearsal. Welcome back to the Promote Podcast, your insider guide to the money and mania of the CRE markets. I'm Hiten Samtani. Will Krasne (00:36) And I'm Will Krasne Hiten Samtani (00:40) Let's start out by shouting out our lovely sponsors who make this all possible. Bravo Capital, they are a leading HUD and Bridge lender that lives and breathes cap stacks. Will Krasne (00:48) And Loan Boss, the best class CRE debt management software. Hiten Samtani (00:52) This week we load up on our chips and vinegar and take you with us on an extraordinary journey into British caravan country. It's a yarn that brings together gypsies, we're not kidding, Norwegian beauty queens, we're not kidding, and New York financiers. Dags. Hi Kazier. ⁓ And yes, it is very much a CRE story. Next, we slip into Dolce and Gabbana and ride to the branded condo epicenter of Miami, where JDS's Michael Stern is prepping a rescue recap of his latest development. Will Krasne (01:07) What if my conscience for the horses? Hiten Samtani (01:20) Stern is a first draft pick for real estate pirate, and we get into the backstory. And finally, a strong example of returns not mattering in institutional CRE, Naveen has disclosed a string of meaty losses on its investing bets. Will Krasne (01:33) But before we get into all that, let's get started with the punch list, our signature rundown of the newsiest news and C R E. Hiten Samtani (01:42) This week's punch list is brought to you by Real Property Captive, the first group captive insurance for mid-market owners. You can check them out at rpcaptive.com to tap it in the same playbook used by the biggest institutional players. That's rpcaptive.com. Okay, let's go. We gotta start with Monty Bennett, because look, we've seen a lot of enrichment schemes in real estate. This is up. Will Krasne (02:01) This is one of the greatest and frankly I'm kind of on Monty's side here because you know what? If contracts matter, if you don't like it, don't buy the stock. And if you thought it was so egregious, why just sign the external management agreement? Hiten Samtani (02:15) Braemar Hotels and Resorts. It's a REIT that owns a collection of luxury hotels. It was spun off from Bennett's other company, Ashford. And together these companies have had an absolutely torrid time, but they have paid Monty Bennett $1.9 billion in asset management fees, which is astonishing. Now they've decided, hey, this is probably not tenable. So they are going their own way. Will Krasne (02:37) It's in. It's in. But surely there are hundreds of billions of assets here. One point nine billion. I mean, my gosh. If you have two hundred billion of assets, I think that's a that's a bar. Hiten Samtani (02:46) That's a no brainer, right? We're talking of a market cap here slightly, slightly lower than that. We're talking about a market cap of a hundred and seventy million dollars. And to go their own way, Braemar has to pay a breakup fee of four hundred and eighty million dollars. So they're gonna have to sell a bunch of hotels to actually just pay this guy to go away. Will Krasne (03:04) Is he gonna get seller financing on the asset management fees? Like this is the craziest thing I've ever seen. Hiten Samtani (03:09) How do we get to a point where the breakup fee can be multiples of the market cap of the company? Now, the market cap of the company has dropped 90 or odd percent. Maybe that's part of it. Yeah. Will Krasne (03:19) As part of it. The kings of this are the port noise of the RMR complex fame. It used to be more prevalent. It's something shareholders really get mad about. You have an external management contract with a company that's generally affiliated with the guy who runs the REIT. So for instance, Starwood Property Trust has an external manager, it is Starwood Capital Group. Sure. So Monty Bennett has an entity that is the external manager of his REITs, which, okay, sure. That doesn't seem egregious, right? You make a point or two, it's the same as private equity. They're managing someone else's assets. It's all the same. Incorrect. Those fees don't create alignment at all. A lot of them are calculated just on NAV, not on shareholder return. Hiten Samtani (03:58) Anything could happen to the stock and you gotta pay the piper first. Will Krasne (04:02) Long as your NAV goes up, does not matter. And what do you think people are gonna do if they're only graded on NAV? They're gonna issue a ton of stock and they're trying to buy a bunch of garbage and just grow. And that leads to then owning a bunch of garbage assets and poor performance and egregious fees. Hiten Samtani (04:23) Monty Bennett's me is basically saying let the me cake. He said, Shareholders who acquired shares did so with full knowledge of their structure and the terms. Will Krasne (04:31) That's what I'm saying. It's gross. You shouldn't do it. But at the end of the day, he's not going to jail. One of the guiding principles of this podcast is that in real estate, you can do an Hiten Samtani (04:41) Anything. As long as the other guy agrees to it. Braemar's largest shareholder, Wafik Saeed, he described the breakup fee as quote, one of the most brazen acts of self-dealing we have ever witnessed in a public company, adding, We believe Mr. Bennett engineered this outcome himself. This is not governance, this is theft dressed in a suit. Will Krasne (05:01) Квот Кікі Польмер, сорі то з ман. Hiten Samtani (05:04) Okay, next one. Florida man Ken Griffin, this seems inevitable that he is turning Miami into his power center. Will Krasne (05:11) I will say this. How many NBA titles has Miami won ⁓ since Ken Griffin has decided to go there? Hiten Samtani (05:18) Damn. So Citadel and Citadel securities are taking about a third of that one point seven million square foot tower in brickle. They've also bought out the units in stealth they've done one of those condo buyouts with yeah. Will Krasne (05:28) at the Solaris Condo. This is his whole little campus. I expect if you were considered all securities, you gotta worry about getting paid in like Confederate scrim. This is what 'cause Ken's just trying to keep you right there. Hiten Samtani (05:41) I would argue that Jamie Diamond doesn't have the kind of influence in Midtown, even with his five million square feet, that Ken Griffin's gonna have in a town like Miami, which is so much smaller, where he has direct access to everyone in charge, and they're basically rolling out the red carpet for him. Did you see that video of him with reliving his maybe his college days that he missed out on? Fine. Money can't erase shlubbiness. Will Krasne (06:00) It's horrifying. Gwen Deliceps from Real Housewives New York really had it right when she said, Money can't buy a class. The owner-user bid in office has gotten really big. And this is a little bit different because Ken has more money than God. And people th think, it's the hedge fund. It's really not. It's Citadel Security. So Citadel Security Yeah, it's as close to a money printing machine as has ever existed. It's indicative of what you're seeing with JP Morgan in New York and some of these other folks throughout. Hiten Samtani (06:19) The market making firm. Will Krasne (06:29) New York, San Francisco, who are buying their own office buildings because prices got depressed. They could buy land a good basis or occupy or the delta between rents and value was so out of whack that it just made sense. For Ken, I'm sure there's a huge tax ARP here that's driving all Hiten Samtani (06:44) I think there's a little more than that though. A lot of these titans of finance just want to do a little empire building Will Krasne (06:51) Yeah. Hiten Samtani (06:52) Really is nothing like building your own building, building your own campus. A stamp on the skyline that really does matter. I told you last time I went to the JP Morgan building. Overimprovement doesn't begin to describe what it looks like. It really is like a hey, I am a new deity of this market, and this is what I've built. Okay, next one. I'm actually a little sick of talking about schemes and scabs. Hard to believe, but it's true. We couldn't pass this one on. Will Krasne (06:56) That's a very fair point. Hiten Samtani (07:19) What is going on here? This is a made for HBO special happening. And listen, let me just say, I'm s from the same community as this guy we're gonna talk about. You gotta hit the gym if you're planning these mega scams, because those perp walks do not look good in those tight outfits. Will Krasne (07:32) So an arbitrator, this is the largest award I think I've ever seen since like the taking of Getty Oil. Or JoJ Mail, by the way. Hiten Samtani (07:46) I like that. Okay, we'll do it. Yeah, it's I haven't seen that though. So $1.3 billion in arbitration award made to a guy called Mohammed Honarkar He was a telecom mogul who then parlayed that fortune into a real estate portfolio. Along came a guy called Mahinder Makhijani and he convinced Honarkar to JV his portfolio, like basically roll the properties into this JV that they had. And then Makhijani, he was arrested last week. This is now a federal complaint, but he allegedly Will Krasne (07:49) my god, it's incredible. Hiten Samtani (08:16) went and took loans from banks and promised them first positions, but they were actually they were subordinate to some other debt that was issued by his own company. So it got really messy here. Will Krasne (08:25) I honestly almost don't under understand how this scheme was set up. It's more complicated than if you just tried to make the money illegally. So they got Honarkar to do this joint venture by saying, We're gonna bring thirty million of equity. Yes. And they never did that. They brought twenty million of equity and that equity came from a loan against Honarkar's own properties, which he somehow didn't realize got taken out. Hiten Samtani (08:49) The contribution agreement was structured thusly. They permit the conversion of the loans made by Canner, which is a Makhijani entity, into equity in the JV entities at the option of the members, if the JV entities that borrow the money perform well. But if the JV entities do not perform well, then the parties can maintain the transaction as a loan and require the entities to repay Canner in full. Will Krasne (09:12) Read the fucking docs, man. Like this is ludicrous. Hiten Samtani (09:16) My guys don't fuck around. In fact, when Honarkar was booted out as manager, a group of armed individuals seized the hotel Laguna with Maki Johnny saying, I'll put thirty two fucking guards here. So things got heavy. Will Krasne (09:28) Real estate's moved into the digital world. Sometimes you just gotta have an old fashioned billboard. And that's the most effective form of media. Hiten Samtani (09:37) man, it's it's really bad. So apparently Maki Jani's crew ran corruption billboards around Laguna Beach, featuring Hanarker, a cop, and the city manager just torching his reputation. The reason this is interesting beyond just this crazy case is that two regional banks that are very active CRE lenders were deeply involved here. So Zion's Bank and Western when Zion's disclosed this fraud, a billion dollars of market cap was wiped right then. Will Krasne (10:02) Yeah, it was thirteen something percent. It's like a little bit of the Wild West here. And you've seen ⁓ banks pull back. That flow of capital is really important to the development world. If that spigot gets turned off, it just means there's gonna be less development, sort of large. And right now, despite being at war and all of the other things going on in the world, spreads have been tight, markets have been liquid. But the thing I think is important to note is that you never know what the lit match that's gonna start the fire. Is gonna be Hiten Samtani (10:33) That's it for the punch list. When we come back, we'll be talking Mercedes Benz and Brandon Condos. Okay, I'm here with Aaron Crowitz from Bravo Capital. What are some of the elements of the business that you'd like to see come in or evolve in the next, let's call it twelve, eighteen months? Will Krasne (10:56) More optimizing for quality. And if that's what your goal is, your first question has to be, how can I attract more quality borrowers? And of course, higher leverage, lower rate, speed of execution, scalability, those all matter. But if you ask a borrower today, what do you want from your lender? They'll tell you, We want off-market deals, equity, and I want to bring in teams that can do that to not have a shoulder shrug. When your borrower needs something, right? And to not say, sorry, like I can't do that, but to say, I will run through a wall for you and I'm gonna find a solution. Hiten Samtani (11:35) Thank you, Aaron, and where can people find you? We're both fascinated by the branded condo boom in Miami. It's like an imprimatur of quality and status and class. I would say fair, fair, fair, fair, fair. But basically, when you have so much development in a market like Miami or Dubai, which is where this brand condo thing is the most prevalent, you need to distinguish yourself in some way. You need to stand out. Everyone's doing waterfront projects. Everyone can get pit bull to perform at their things. Will Krasne (11:55) Say not quality. Explicitly not quality. Hiten Samtani (12:14) And you need to have some sort of way in. So the way that Miami developers and Dubai developers have done it is they've done these brand partnerships with Bugatti, Kavali, Porsche Design with Gil Desert, kind of being the pioneer of this. Yeah, Aston Martin. There's a lot of these. And one of the guys that is our guy, Michael Stern, JDS Development Group. People from New York are probably gonna know him best for a couple of projects. One is the Walker Tower, which is a smashing success, which we're gonna talk about. And 111 West 57th Street, the skinny skyscraper, which is less of a success, which we'll also talk about. So how do you want to get into this? The reason I guess we're talking about this, Will, is that Mercedes-Benz Tower was heading to the foreclosure deck. Will Krasne (12:54) So Florida again is a little bit unique because you can launch sales well before the project is completed and you can use people's deposits as part of the capital stack. Hiten Samtani (13:04) Pre-sales is the engine for building. In fact, you will often just launch a project and sales are kind of lackluster and you'll be like, ⁓ forget it. Someone described it to us. I think it was David Hockfelder from Naftali. It's like an option on the land almost. Will Krasne (13:17) Exactly. And so this one was launched with a lot of fanfare. It is almost 800 units, supposed to be a two billion dollar sell, which again, kind of interesting because these are bite-sized prices relatively. This is not the MyBach. Yeah, it's little C class, little C class. You get your high school junior. And this has sort of been screwed since Drum Street. So Cottonwood management, pretty big debt player. They bought one of the initial construction loans. I think it might have even been the land loan. Hiten Samtani (13:30) This is the C class. Yeah, I think Maxim was the initial lender. Yeah. Will Krasne (13:46) On the land. They refinanced the property. And the other thing about all these is they all get refinanced like nine times throughout construction, because given the sort of length of presales and everything. And so Cottonwood bought this, I think it was 86 million bucks. And then Cottonwood sued JDS saying they were in maturity default. Also, during that period, this was a featured property on owning Manhattan, even though it is neither owned Manhattan. So the other thing that happens with these things as well, to get the density in a lot of cases, it's not just Hiten Samtani (14:07) No, right here. Will Krasne (14:14) A rezoning, it's a push and pull. You gotta do something for the city, you gotta do something for the neighborhood. And there were real obligations that JDS took on to get the 791 units. They had to build a firehouse that I think they were supposed to contribute eight million. And they had to put in five million dollars for quote unquote public benefits for parks or what have you. Now, those are not huge numbers in a billion dollar project, but it's real cash you got to spend. Yeah. And it's cash you got to spend early in that you can't really recoup. JDS has this lawsuit from Cottonwood saying they're maturity default. That foreclosure caused the city to notify JDS saying, hey, you're in default on this public works agreement. And if you're in foreclosure, can't get more money from your lender, can't refinance, can't spend that money. Hiten Samtani (14:58) Condo development is specifically high-end condo development is such a momentum game. Once you're going, you've got to go. If you have any hiccups, any delays on the way, it could be death. And that can happen in cases like. Will Krasne (15:09) like this. You can't restart this. It's really, really difficult outside of somebody else coming in. Hiten Samtani (15:13) So we thought this was going to go for foreclosure. However, apparently there's some movement now with JDS and talks to bring in Jeff Sofer of Fontainebleau, one of the the dynasties of Miami. In fact, he's the son of our guy Don Sofer, who passed recently. We had a really fun episode, I thought, on monkey business. And Don Sofer there. But Jeff Sopher runs his development company. He might be coming in here and then recapping the project in partnership with JDS. Will Krasne (15:40) I would bet Sofer is not putting in much, if any, cash equity. I think what he is doing is he's bringing in a name, expertise, and a balance sheet to help JDS get a refinance done here. Right around one billion. And it's sort of the mad libs of commercial finance right now. You've got everything. So you go from the usual suspects of D T S D to your favorite. C pace, yeah. Hiten Samtani (15:56) Everybody. A sea pace? Yeah, we got a two hundred million dollar C pace apparently in the mix here. JDS has had some troubles in New York before as well. So the Brooklyn Tower, mm-hmm, what I think people call the Tower of Sauron in downtown Brooklyn. Will Krasne (16:18) Yeah, I lived pretty close to it. Hiten Samtani (16:20) Silverstein took that over. So it was the lender on that. They took it over recently. So it hasn't been smooth sailing for him for quite a long time. Michael Stern is such a fascination for both of us. Let's go back and talk about the rise and fall of the what F T call the skyscraper king. Let's talk Michael Stern. Will Krasne (16:37) So Michael's turn is Hiten Samtani (16:39) One of those guys who kinda came out of nowhere. He was not a person and then he was Michael Stern. There was no in between. Will Krasne (16:44) Yeah, there's a great Biz now article, I want to say from eight or nine years ago, about David Durasich, who was one of his early backers in Australia. He was part of JDS's Gowanas deal. It sort of went sideways. And this guy, Michael Stern, the lore, as the youth would say, is that he went and built a bunch of single family homes throughout and so he knows construction. He's the bricks and sticks guy. Hiten Samtani (16:52) Yeah, derivative. When I was at the real deal, we had a shorthand for what this developer is good at, what this developer is good at. So Harry McLaughlin was the guy who could charm the pants off the zoning commission and had an eye for architecture. Michael Stern was always the guy who knew how to get shit built. Will Krasne (17:28) Yeah. And the project that made him famous. And I think is when you think of combination of best timed but best product for that time. Yes. Just Walker Tower I think is about as good as it gets. The story there, the Verizon building in what, in the West Village. So not even like the f most fashionable location in the world. Hiten Samtani (17:45) Eighteenth Street. Very complex construction job, right? Old floor plates, hulking building, et cetera. Yeah. Will Krasne (17:55) there's power things everywhere that that have to be removed. The story here is that he got the equity. They tied up the building, Jurassic put in non-refundable money and somehow got this thing closed. But the equity on this was Star Wars Capital Group, or they were at least a big portion of it. And I guess Barry went up to the roof, looked around for like 10 minutes, and then just said to the guys, get this done. And to be fair, that is what Barry does. I believe that completely. And Hiten Samtani (18:13) Yeah. Let's get this done. That's what he's gonna Will Krasne (18:23) Ended up getting built and just sold like absolute hot. Hiten Samtani (18:26) They were hoping to get 1800 a foot. They ended up north of double that. So they ended up at around 4,000 a foot. So an absolutely incredible outcome. And as you've talked about, Will, in general, one fund can mint you, one deal can mint you to kind of keep you going. And Michael's story, you could argue that this was his only incredible success out of everything he's done. Will Krasne (18:47) That's completely correct. But that deal sort of begat 111 West 57th. I think Property Markets Group was involved in this too. Hiten Samtani (18:54) Kevin Maloney recently he was on stage somewhere and he said, 111, architecturally, it's a marvel. Financially, it was a disaster. Will Krasne (19:03) The org driver one eleven. It's one of the best things I've ever seen on the internet. It's so good. Kevin Maloney's quote reminds me of a quote that I heard from another real estate developer about a project in Brooklyn who we are both friends with this guy and main lameness. Qualitatively, everybody's happy. Quantitatively, nobody is happy. Hiten Samtani (19:21) Shout out to our guy. This happens a lot in condos. Actually happens a lot more than you could think. So Michael Stern. Will Krasne (19:27) But not even just one eleven was fifty seventh. He did the American Copper Building, which is w ⁓ sold for a massive number to our good friends at GoPartners. He built Brooklyn Tower, which is another Florida that he's getting sued left and right and center on. Hiten Samtani (19:38) Fitzroy, the Stella. Michael Stern definitely has a reputation in the market. People have very strong feelings about him one way or the other. I don't think he's a neutral character. Will Krasne (19:49) No, and he famously doesn't use union construction and he self performs on as a G C which can be very good because it saves a lot of money and also very bad because your G C doesn't get a ton of reps. It's not Lendlease. This project too, I think, is sort of emblematic of a lot of Miami real estate where splashy names, big party, ton of hype, and then not a lot of there. Hiten Samtani (20:13) What happened with the D and G project, his other big brand and condo project that's at I believe at eight eighty eight Brickle? What's going on there? Will Krasne (20:20) Thudbees was the broker on that, and they're suing him for half a million dollars of unpaid commissions and expense reimbursements, marketing fees. One of the craziest factors is there was some site that was talking a lot of garbage about JDS. Yes. He sued to try to we're gonna start calling this the Stern effect and not the Strip Sand effect. Hiten Samtani (20:34) That's right. Walker Tower building, the Verizon building, was designed by an architect called Ralph Walker. To be honest, this guy was like a middle-of-the-pack guy. He wasn't what we would call a Starkitect. However, Starkitects are a creation of the mind. And what Stern did, which was so brilliant, he's like, if we can pump up the legacy of this Ralph Walker guy, we might actually have something. So he actually commissioned a book. He went to an architecture historian and he commissioned a book about Ralph Walker. He had an exhibition in the lobby of the building. And pretty soon people were coming down there to check out Ralph Walker's masterpiece. We talk so much about condo development being smoke and mirrors. This is one of the most explicit and frankly brilliant examples of making that happen. Will Krasne (21:22) As a kid say, you can just do things. And it's brilliant. And it worked out tremendously well. Conda development almost more than anything else, it's really not repeatable or scalable because it's so dependent on timing and just the nature of the beast is that you have to. Hiten Samtani (21:37) Real quick. When you're building this kind of product, right? The tippy top luxury in whichever market you're in, you're also in the center of the whole shady money universe and the buyers, and you don't ask too many questions. Wasn't Walker Tower featured in Billion Dollar Whale? Yeah. Let's talk about that. So Khademul Kobesi, an Emirati businessman who was at the center of the incredible book called Billion Dollar Whale with Jolo, he was the buyer here for the fifty-one million dollar record smashing penthouse unit at Walker Tower. Will Krasne (22:06) Yes, with the great view that Barry Sternlick so admired. But yeah, you're in the macro verse of the nation states, which can be a cloudy place to be. ⁓ Hiten Samtani (22:18) Okay, every origin story like this typically starts with the David Jurcich, someone who just took a bet on a guy that he liked, someone who worked in kind of a quote unquote boring job and wanted to do something a little bit more romantic and just said, All right, have at it. That's something a lot of our listeners have probably seen and experienced. Will Krasne (22:36) You could be back in some guy doing condos on eighteenth street and sometimes it works, sometimes it doesn't, but it is exciting. And this is gonna be interesting to see if he can pull another rabbit out of his hat at these two projects down in Miami. Hiten Samtani (22:56) Well, you've worn many hats in your glorious life so far. Pro baseball player, thespian, tornado remediation specialist. I want to ask, which was your least favorite? Will Krasne (23:05) First two, ugh, they were dreams. The third was a nightmare. Turning into a dream though. However, if you asked me a few months ago, I would have said Excel Monkey was my least favorite. Modeling out the dead tabs was really, really annoying. Maturity dates, extension options, rate caps, ugh. My spreadsheets were beautiful, but at what cost? Hiten Samtani (23:26) Sounds like you had good ROI, but your ROI BD, return on invested brain damage, not so good. So what changed? Will Krasne (23:32) I discovered Loan Boss. All my loans live on one screen. No more let me just pull that up while I jazz hands a capital partner. And the extension option tracking with automatic notice reminders. I used to have a post-it note on my monitor for that. A post-it note, a 10. Don't. I'm not proud of it. But the one-click DSCR testing, every lender adjustment, every unique requirement automated? ⁓ my god. Hiten Samtani (23:46) In this day and age. No more getting surprised by your own cap stack. Listeners, check them out at loneboss.com, that's loneboss.com, and tell them the promote sent you. You said you got several emails from folks. I did. What's happening? Will Krasne (24:10) I really enjoy that everyone seems to think I also write the newsletter. I'm just not gonna disabuse anyone of that notion. I did get several emails last week after you published the breakdown of how the TIA real estate account, which manages what, twenty odd billion on behalf of teachers all throughout America. Yeah. And they gave their prospectus recently and the numbers were not great. Hiten Samtani (24:34) The numbers were not pretty at all. They detail their latest acquisitions and dispositions. Things happen in the market, but this is a pretty long string of beatdowns. Out of the 15 properties that they sold in this period and call it a nine month period from June 25 through February 26, they realized losses of $429 million. They got their asses handed to them on office deals, on multifamily deals. It's been a bad run. Will Krasne (24:58) It's a little bit unfair to mention the total loss because clearly one massive loss can offset quite a bit of gain. So why don't we talk about of the fifteen deals they had, surely the majority were profitable and we just had one or two big office losers, right? Hiten Samtani (25:13) Yeah, no. No. Most of these, I think there were three deals that had somewhat modest gains. The rest of them were just just all losses. It's in general, we're fascinated by these bargain buys that a lot of people are making. David Werner, 601 West, etc. And we always look at, yeah, 70% discount. This time we have actual color and information on that previous seller and how they marked those losses. So let's talk 449th Avenue. So this is a Manhattan Office Tower, Nouveen or T I A. Let's just Will Krasne (25:21) That is Hiten Samtani (25:42) Clarity's sake, just call them Naveen. Naveen is the the manager that runs the TIA account. So they had bought it with Taconic 270 million, which is about 650 a foot in 2018. Taconic's taken quite a few bats themselves. The idea was that this would be an alternative to Hudson Yards. And recently there was a short sale of the property for just 100 million, which is $240 a foot. And remember, an organization like Naveen holds the majority equity on projects like this, right? So Taconic is walking away. Losing not very much, but Noveen took a one sixty million dollar loss on this. Will Krasne (26:16) That's not good. Hiten Samtani (26:17) One of the pushbacks that they had was these accounts are marked to market. So it's not fair. Can we talk a little bit about that? Will Krasne (26:24) I do think that there is something to this because there are more than one component to return. Like real estate generates cash ostensibly, and that reduces your basis and is a meaningful component of return. If you buy something and you sell it for what you bought it for over 10 years, what's your return? It's what's your cash on cash. So like that's a meaningful component of the total return. Again, not totally fair to look at this, but these are staggering numbers. It's not a blip. And also generally speaking, Hiten Samtani (26:50) This is not just a blip wheel, right? Like Will Krasne (26:54) the value of a property and the cash flow it generates are so if you have a ton of losses, generally that means the cash flow is going down. Hiten Samtani (26:58) Yeah, intertwined, correct. Maybe this was just a bad year and everyone has a bad year, but no, I went back to the previous prospectus and you see these kind of giant losses too. Will Krasne (27:11) My favorite is the Fort Point office. Hiten Samtani (27:13) God. They paid Clarion two hundred and twenty five million for a five property portfolio in Fort Point. That's in Boston. They sold four of the properties recently for just fifty six million. They lost money on the last one too. So it's just a just a rough, rough go. Someone, I assume, is reviewing these losses, flagging these kind of things, no? Or this just kind of keeps going in the dark. I just Will Krasne (27:34) Keeps going in the dark. If you're a pension fund like this, or or I don't know, are they technically a pension fund or Hiten Samtani (27:40) Just think of them as a giant investment manager. They manage obviously all the teachers' funds, but they also do other stuff. Will Krasne (27:46) Right. But when the teachers, the funds come in constantly, they're being replenished all the time. And that's a lot different than if you are just raising discrete funds and then you got to go raise another fund. The teachers are still getting paid. It's a different gig and it's a different type of investment business than it is if you're raising discretionary funds trying to get opportunistic returns. They're looking for things that are all safe. This type of capital, they are not buying the contrarian thing. Hiten Samtani (28:13) not doing development deals, they're not doing some esoteric marina stuff, exactly. Will Krasne (28:18) No, they want to be down the middle as possible. And the problem is that to win those types of deals, you gotta pay the most. Yeah. You're not stealing them. There's no real alpha. You're generally buying them pretty leased. Safety can appear illusory because if you're fully leased and something changes, then all of a sudden your outcomes are all to the downside. And that's really what we've seen over the past five, six, seven years, where stuff that was previously deemed to be really safe. turned out to not be. And this is the type of capital that was buying the stuff, trying to be safe. Hiten Samtani (28:57) This entire episode led up to this man. This is sensational stuff. Will Krasne (29:02) Just to give a little bit of inside baseball on how this works. Generally speaking, I'll put together a draft of the rundown on like Saturday or Sunday and we'll record on Monday. I read this and said, My God, we must do this. And I took the actual workday of my ostensible day job to do this because I was so inspired. So what are we talking about? This is a Bloomberg article from this past week. It's how private credit lost big on Bob Bull's mobile home park empire Hiten Samtani (29:37) A literal gypsy founded a luxury caravan company in the UK called Royale Life. He had already declared bankruptcy in the past, so this was not his first rodeo. He raised about two billion dollars of debt from ICG and frickin' Avenue, which is the biggest private credit player in New York, and again is now bankrupt. So how do we get here? Who's our protagonist? Let's start there. This is Yeah. Will Krasne (30:00) Robert Bull. He took it by the horns. A literal gypsy. Like Brad Pitt in Snatch. ⁓ Hiten Samtani (30:15) Just to be clear, listeners, in the US, especially. In the US, it's considered a derogatory term. In this case, Bull and his family use the word deliberately. Tyson Fury, the heavyweight champion, also refers to himself as the Gypsy King. So that's the caveat. We're done with the PC talk. Will Krasne (30:30) So gypsies often travel in caravans, which are essentially mobile homes. Yes. All of these things start with an actual clear, unique insight. Yes. And his was we're gonna make caravans but nice. Yes. It's sort of like how we talked about Tillman Fertita doing what poor people think of rich people restaurants. ⁓ Yeah, affordable luxury. That's kind of what Robert Bull did. It's a really good insight. These are hard things to build because people don't really want caravan parks near them. Hiten Samtani (30:47) Yeah, affordable luxuries. Will Krasne (30:57) And he found this really clever loophole where you could convert land that if they'd had some historical precedent for residency, yeah, you could turn it into housing for caravans and it created an arbitrage. Hiten Samtani (31:03) Just genius. Can we talk about a couple of the use cases in which he in fact made this happen? Yes. Okay, so you've played paintball, right? Well one royal life property, which was valued at less than four million pounds in 2021, was dotted with huts that had formerly been used by paintball enthusiasts to recreate the 1964 Battle of Nam Dong in Vietnam. Bull's consultants argued successfully to the local authority that the existing structures established enough precedent. Will Krasne (31:16) Wants me. Hiten Samtani (31:38) To justify residential use. Absolutely fucking amazing. So good. Will Krasne (31:46) And the prices here too. The the story is littered with he bought this for four hundred thousand dollars and then f borrowed nine million dollars against it after getting this arbitrage. And so he bought Hiten Samtani (31:59) Bought for four hundred with a cousin shipping in a hundred K and then they immediately appreciated it. Will Krasne (32:04) Or he bought it from his cousin for above market value. ⁓ Hiten Samtani (32:08) Yeah. Reminded me of, remember that Lorry side property called the Rivington House? The scene of a major scandal in city government. So what happened was our boy Yoli Landau, nursing home operator we've talked about in the SNFs episode, bought this property from the city, and there was a deed restriction which it stipulated that it could only be used as a nursing home. Somehow he got that restriction lifted, and then he went and sold it to Slate Property Group almost instantly for double the price. Will Krasne (32:12) I do indeed. Hiten Samtani (32:35) To build luxury condos. And it was a huge thing. But the whole thing was, Yoli found the ARB, and Robert Bull here seriously found the ARB. Will Krasne (32:42) And as he was building up this business, he managed to convince one of the largest British based asset managers, ICG, Intermedia Capital Group, to lend him hundreds and hundreds of millions of dollars based on this thesis. The stories about his controls at the company are just laughable. No idea how much cash they had, no idea what they owned. They're supposed to be managing all these construction projects. At one point, he was supposed to have thousands of lots under construction. I think he had like seven. Hiten Samtani (33:10) Pretty bad. And you can see how the contagion might have started, right? Private credit, desperate to do deals, hella liquid, needs to put money to work, looking for alpha in these random asset classes. And here was something that could you can see the pitch. British retirees are loath to travel by air. There's more and more money, baby boomers, whatnot. They've got to go out and explore the countryside. This is the way to do it. We all have lists of places one things we'd like to see and experience, don't we? Will Krasne (33:34) Would like to go Well what you're waiting for. Yeah, and Ibita and Majorca have gotten more expensive, they're priced out, so they gotta stay local. There's a whole thesis behind it. And it makes quite a lot of sense. At one point he raised two billion in total of debt. He was on the Sunday Rich list saying he was one of the whatever, however many richest people in Britain with ten cars. He has a wife who looks like she's off an assembly line and Yeah, Norwegian beauty queen. But throughout Hiten Samtani (34:04) A Norwegian beauty queen. Will Krasne (34:08) this the thing starts to collapse on itself and when he was taking the picture for the Sunday Times ritualist, he was in active default and all the cars were rented. Hiten Samtani (34:21) It's really bad. He's a thicker lad. He says, I was four stone heavier than I knew I was punching above my weight, which is a funny thing for him to say because she's stunning. Everywhere we go, people look at her, but I'd been so badly hurt that I didn't believe in love. I thought, this is amazing. I thought if I'm gonna go through this again, I'm gonna go for a ten or an eleven. And look, she was playing her role too. She's like, We're gonna get you some new teeth, we're gonna get you hair plugs, we're gonna get you all skinny, we're going to give you the makeover that you deserve. for someone of this level of wealth. And they were living that life and they were playing that game and they played it very well. And everyone around them got rich for a time. Will Krasne (34:57) For a time until things started to go south. And so again, he had declared bankruptcy before, a literal gypsy. Yes. He is adjacent to quite a lot of the criminal underworld. One of the my favorite parts of this entire story is that he took a private loan from a gentleman called Fred Doe. And he is apparently affiliated with the Kinehan Cartel, which is the very famous Irish drug-dealing empire. Do you want to guess the interest rate on this loan? Because we talk about private credit, they're really generating good returns, a lot of cash flow. Like, what do you think Fred Doe is putting capital? Hiten Samtani (35:37) This is gotta be a loan shark rate. So let's call it the default interest rate in New York. Is it twenty four percent? Will Krasne (35:42) It's hundred percent a month. Hiten Samtani (35:47) He's not the kind of guy who's just gonna take you to court when you don't pay. He's the kind of guy who's gonna send guys to show up outside your house, which he did, or accost your employees, which he did. Will Krasne (35:56) Yeah, and so ICG, again, who is his lender? Robert Bull has borrowed money. ICG is nowhere near Fred Doe. Yeah. And apparently Fred Doe figures out that I hey ICG gave this guy a billion dollars. So they clearly have got some money. So let's go try to see if we can get made whole. And so he then goes and threatens an ICG executive. And I gotta say, the ICG executive who is unnamed, if this were me in this article This guy put my name on everything. ICG executive says Hiten Samtani (36:19) Yeah, just Will Krasne (36:25) Bring it, we're worth billions. I relish a fight. Hiten Samtani (36:27) And Fred Folds, he says, I'm a minnow. Why would I put on box of gloves with a chap? Fred and ICG come to settlement. So all this heat's coming to Bob Bull from multiple fronts, right? His blue chip lender, his private credit lender in New York, and then Fred Doe. They're all coming at him. Employees aren't being paid. Bills aren't being paid. It's getting very, very bad. At the same time, he's YOLOing in pretty hard. He's buying cars. He's flying private. He's doing all his stuff. Will Krasne (36:55) Yeah. And what's crazy is that he almost got bailed out here because other big mobile home park owners were looking for this thing. Yeah, they were looking for British mobile home operators. And a couple of folks, Sun Communities at one point, the US mobile harm giant, some money. They were sniffing around looking for a British operator. And I think were at one point in talks to buy them for two billion, didn't get down the road there. But he was not that far from pulling it off. He had Hiten Samtani (37:03) ⁓ Goblin. Will Krasne (37:24) A great story, most importantly, had the germ of a clever idea, and he found something with tailwinds that was in the Zeitgeist that's being institutionally investable. Hiten Samtani (37:35) There's two ways to attract the attention of big money. I described it recently as scale and kink. You're either buying up everyone else in the eventual buyout by the biggest of the big, or you're doing something so differentiated, so quirky, and building a lot of narrative around that. And that's what Bob Bull did here with his caravan business. Yes. Yes, he did. Which he doesn't call caravans, by the way. He didn't like that term. What was the term he came up with? Bungalows. So Bob Bull, where is he at now? You see a guy like this who's been on the map twice. You'd expect maybe he's humbled, maybe he's contrite for all the money he's lost for everyone. He wasn't. His lesson, Will, was never grow a business past 500 million quid. The UK really can't handle that. He was also really upset with his family. He's like, I made them, I gave them so much money. And when I needed them, they just kind of walked away. Fuck all. No help, nothing. And he said, Look, I'm done with this business. I'm done with the UK. If you're a British guy down in his luck and you want to make a fresh start and do something even bigger, where do you go? I believe in America. Will Krasne (38:36) Go into America. Believe in America. I believe in America. Hiten Samtani (38:46) That's it for the promote podcast this week. We had to give you an extra dose of CRE's characters and capers, cause unfortunately we're off next week. I'm hitting the road for the World Cup. I'll be in Dallas and Houston and Kansas City. Well we might give Will a mail back. Will Krasne (38:56) Honestly, I might record solo. Let's put out some topics, see what people want me to rant on for a half hour. Hiten Samtani (39:03) Listeners actually podcast the promote.com. That's podcasthepromote.com. If you want to hit us with some ideas, we might let Will cook. We'll see. Will Krasne (39:10) No parents wanna thank our sponsors, without whom none of this is possible. Hiten Samtani (39:17) Loan Boss, the best in class series debt management software. You can find them at LoanBoss dotcom. Will Krasne (39:22) And Bravo Capital, a leading HUD and bridge lender that lives and breathes cap stacks, they're at BravoCapital.com. Hiten Samtani (39:29) And Real Property Captive? They're the first group captive for mid-market owners. You can find them at rpcaptive.com. See you in a couple weeks, mush mush. Will Krasne (39:37) Thank you very much. Dags. Dags. Yeah, Dags. Dags. Dag Dags. Hiten Samtani (39:41) Ciao