Latest / The Promote Podcast / The Apollo Program & Dirty Ground Games
Transcript
- Hiten Samtani (00:08) Something quite special happened in Seattle. I was in town for a wedding, driving down, and the Seattle skyline emerges. So I immediately thought of our boy Martin Selig Yeah, Martin. I just tweeted, hey, can someone get me a meet? in jest, right? On Saturday evening, I got a call from Jordan Selig speaker-1 (00:27) She listens. Hiten Samtani (00:27) She says that she's listened to the pod and she very much appreciated that episode and that Martin also listened to it. And Hiten Samtani (00:37) I had a meeting set up for Sunday, which did not happen unfortunately. It's a dream deferred, but I was supposed to meet Martin for breakfast on Sunday. Our youngest listeners are twenty months and twenty-six months, respectively. And turns out our oldest listener is Martin Seelig. speaker-1 (00:54) My father in law's ninety three. So suck it, Martin. He is legally deaf though, so he's not technically listening. Hiten Samtani (01:10) Welcome back to the Promote Podcast, your insider guide to the money and mania of the CRE markets. I'm Hiten Samtani. speaker-1 (01:15) Will Krasne. Hiten Samtani (01:18) A shout out to our sponsors, we appreciate you mucho. Bravo Capital, a leading HUD and Bridge Lender. speaker-1 (01:24) Harvard University's AMDP, the leadership program for mid to senior CRE execs. Unsure if I qualify because I think I'm mid career, but I'm senior in my own company, of which I am the only employee. So Hiten Samtani (01:37) on the up and up. And Loan Boss, your mission control center for CRE Debt. Now supercharged by AI. Look, we're getting nearer to Guy Fox day, and that means live pod night. We gotta reveal our guest now. One of our guests is Joe Lubeck. He is one of the maddest lads in multifamily, the founder of American Landmark. speaker-1 (01:55) Even among real estate guys, and this Hit Ten likes to say real estate has more characters per capita than any other industry, Joe is box office, so very excited to get into it. Having spread the word a little bit amongst my, you know, coterie of friends, there's been some great exchanging of ideas and stories, so it's gonna be a fun time. Hiten Samtani (02:15) We're really looking forward to sharing it with you all in New York City. speaker-1 (02:19) This first one's invite only. We'll be a great time. Forward to seeing everybody. Hiten Samtani (02:23) Eventually we're gonna sell out the Will Turn in Radio City. That's just a few years away. speaker-1 (02:27) It took Giggly Squad s five years to sell out MSG. Hiten Samtani (02:33) Garden. That's madness. speaker-1 (02:34) I think we can do it in twenty thirty. We can sell out S G. Hiten Samtani (02:38) From your lips to God's ears. Okay, this week we break down an ingenious scheme that has wreaked havoc on several regional banks. A lad of Lakewood, Shaya Prager, became one of the biggest buyers of Suburban Office in the pandemic era. Everyone wondered how he could make the numbers pencil, but probably his lender should have wondered a little bit harder as well. Next, we look at how Apollo is looking to become the everything store of CRE finance. Two fresh deals, one with UDR and the other with Mabodla Capital, showcase the breadth of this ambition. speaker-1 (03:10) Before we get into all that, let's start off with the punch list, our signature breakdown of the newsiest news in CRE. speaker-1 (03:19) This week's punch list brought to you by HEquities, the place to find that last little bit of the cap stack you need, whether it's code GP or bridge debt. Find them at aquities.com. That is hities.com. Hiten Samtani (03:33) 350 Park, they got their $3.3 billion construction loan. I believe it's a consortium led by Wells Fargo. The Citadel, New York, HQ. It's gonna be a thing. speaker-1 (03:44) Yeah, this is a Gary sized loan. So good for these guys. This is a big vote of confidence in the New York office market, which I think Chris Mickelson said it from Walker Dunlap last week. This is the strongest leasing market in history. So this is the time. Come one, come all for all of your big debt needs. What's also crazy about this too is how far out you have to go to get this space, because this is very capable, capitalized, credible developers. speaker-1 (04:14) And this space is going to deliver in twenty thirty two. And they've already started demolition. So this is a six year project. Hiten Samtani (04:23) Rents are what, gonna start in the mid three hundreds of foot? speaker-1 (04:27) honestly it might be the time to lock in now because given where things are trending, we could be staring out of the barrel of half a buck rents in in twenty thirty two time. Hiten Samtani (04:37) Okay, next one. Hiten Samtani (04:40) Atlanta I hate calling this a mega project because that's just an insult to mega projects everywhere. Our friends at WebStar Technology Group have revised their 2025 earnings to reflect total liabilities of nearly 20 million, which is a correction from the earlier stated 1.1 million. So tiny bit of snafu in the accounting there. speaker-1 (05:04) That is a 20x miss, which that's not great. We love real estate. Hiten Samtani (05:10) We're fans of the game. Yeah. speaker-1 (05:11) Never try to be mean spirited. We'll say our piece, but we we won't want everyone to succeed, except this guy. This guy's such a crook. Hiten Samtani (05:20) I'm comfortable calling it a straight up Ponzi clusterfuck. And the craziest thing here is that they figured out how to get a nine figure bond sweetener on this project, which should not really exist for any reason. speaker-1 (05:31) No, it definitely shouldn't. Georgia has had such great news with Audi coming into the state. When you're doing stuff like this, I get business development's important, but not not not in this way. Hiten Samtani (05:44) Next one. New York has its own version of Topa. Copa. The community opportunity to purchase ACT has been watered down somewhat, but it essentially gives nonprofits first dibs at purchasing certain distressed multifamily properties. speaker-1 (06:01) For those who don't know what TOPA is, it's the tenant opportunity to purchase act. And this is in Washington, D.C. So essentially, whenever you sell an apartment building, the tenants have the opportunity to band together and purchase it. Now, that you may say, well, this can't be that big a deal. How often do they exercise it? It's a huge deal. The the transactions that are subject to TOPA take significantly longer. They're more expensive. And you'll see in the offering memorandums from speaker-1 (06:29) any of the big brokerage shops that are shopping a multi building, Topa exempt will be one of the first things up there. It'll be generational buying opportunity, below replacement cost, Topa exempt. Hiten Samtani (06:42) with the Mamdani administration. There's gonna be this explosion of what I've been calling the nonprofit industrial complex. Developers who figure out how to align themselves with the right nonprofits are gonna have a really, really good time in New York in the next four, eight years. The ones who can't figure this out are just going to be left behind. speaker-1 (07:00) The New York real estate market for developers is one of the most efficient markets, I think, in the world. And the water will seep into the wall and find any little crack to go down. If there's a crack here and people can find an ARB or find a cheaper cost of capital, New York developers are gonna find it. They're like truffle pigs. Is that what they're called? Bard, you can find them by Hiten Samtani (07:25) Okay, next one. Will said friends don't let friends invest in DSTs, so that vehicle is exploding. Heinz has a has a sweet little transaction here. speaker-1 (07:35) The Heinz Private Wealth Solutions LLC has completed its ninth DST and it's the largest one in the company's history. This is close. I do like the name though, H Rex. Hiten Samtani (07:48) Pretty badass. speaker-1 (07:49) You can invest in two multifamily properties here. One is a 495 unit property called Gables Station in Coral Gables, Florida. The other is the 451 unit left bank in Perry. No, it's actually in Chicago. Guess who the seller is though, Hatan? speaker-1 (08:05) Mm-hmm. speaker-1 (08:08) How about Heinz? This is the continuation vehicle of the real estate world. Hiten Samtani (08:13) A Heinz non-traded REIT is selling the property to a Heinz DST. Correct. Is there some fee juicing along the way? speaker-1 (08:21) Gonna be totally honest, I did not read the entire circular around this for HREX9, but I would wager there is. Hiten Samtani (08:30) Amazing stuff. Okay. Last one. Hiten Samtani (08:34) Here's my theory. Lower Manhattan. Not since our boys the Reichmans came in and willed World Financial Center into existence, has there been such an amazing shift in the power structures of Lower Manhattan where the from the Orthodox builders have once again taken center stage. Two bridges, which is this boondoggle, kissing, lorry side, Chinatown, had Chatreet, Michael Stern of JDS, and Gary Barnett. They owned these sites and they were. Hiten Samtani (09:04) wedded together because of this large-scale residential development plan, they all had to chip in. In the last few months, things have changed quite a bit. Gary Barnett is in contract to sell his site to Bushberg, which is Yossi Hoffman's company. Even more intriguing is that Shitreet is still the nominal owner of his site, but in reality, our guy Simon Dushinski is calling the shots. speaker-1 (09:28) Simon, who is the international man of mystery, split from his longtime partner, has been doing his own deals, and he has gotten stuff built and has access to just seemingly unending amounts of equity. Most importantly, though, can build. These sites have been installed. They've been talking about these for the better part of a decade. Gary built one Manhattan Square in Hiten Samtani (09:48) One of his worst projects. speaker-1 (09:50) the interview with he did with Ryan Sirhant, talking about how we we have six projects going on. speaker-1 (09:54) Right now and he goes like one we're gonna break even, one we'll lose a little bunny and he goes one we're gonna lose lot of money and I'm pretty sure that's Hiten Samtani (10:00) Yeah, yeah. He's divested or is divesting rather from this property. And Bushberg is coming in, former Bushwick guys, and they've been buying up a lot of the Phi Dye unloved buildings. They're doing some major office to Razi conversions with the Rudin property because of this intertwined fates of these sites. They would not have come in if their counterparties were Shatreet and Michael Stern. One who's in crazy distress and then one who doesn't seem to have any interest in moving ahead right now in Michael. Hiten Samtani (10:29) But because Simon Dushinski is in there, that gives them a little bit of confidence that things are actually going to move ahead. It's it's a fascinating dynamic. If you break ground, you've got to kick in for those community improvements, which are in the millions of dollars. Right. Yeah. You basically have an IOU with the other developer until they break ground. So if they don't go, you're on the hook for these extra millions of dollars. speaker-1 (10:49) That is nuts. Not a prisoner's dilemma, but it kinda is a prisoner's dilemma. Hiten Samtani (10:54) One owner of these sites described it to me as as such, he said, We're basically all at the bungee jumping depot at the end, they're going, You first, you first, you first. Hiten Samtani (11:07) That's it for the punch list. When we come back, it's time to bifurcate some deals. Hiten Samtani (11:18) Aaron Crowitz from Bravo Capital, thanks for being with the promo. Do speaker-2 (11:21) Great being here. Hiten Samtani (11:21) you think in general HUD is understood well enough by the sponsors out there? speaker-2 (11:25) Definitely speaker-2 (11:26) not. People call us every day with very outdated misconceptions and ask, is HUD only for affordable properties? The majority of what we finance is market rate. People don't understand how some of the rules work, how MIP works, how stat limit works. So our belief has always been if you're not pure play at HUD and bridge to HUD, you're not going to be good at navigating that particular process. Hiten Samtani (11:52) There's a HUD Healthcare Lane Express deal that you've been talking about quite a bit. speaker-2 (11:56) My mortal enemy is combating timing to close. Anything I could do to shave off hours or days without jeopardizing quality or diligence, we will do. And in this case, HUD made it easy for us. HUD rolled out an express lane on the healthcare side where if you meet certain underwriting criteria, you're eligible to submit within the express lane. Bravo seized the opportunity. speaker-2 (12:24) And submitted an application that in only four days was approved. Hiten Samtani (12:29) Aaron Crowitz from Bravo Capital, thanks for being with the promote. speaker-1 (12:43) Groucho Mark said he never wanted to be a member of a club that would have him as a member. And it's really trippy to hear a story about a bank that would have you as a borrower. Disclosure: I have been a borrower from the bank that we are about to talk about. Hiten Samtani (13:02) Citizens and Northern. They reported earnings last week. They pinned all of their URS woes to one GP. speaker-1 (13:09) It wasn't me. I paid him off. Hiten Samtani (13:12) It was Shaya Prager, who runs a company called Opal Holdings. He's a lad of Lakewood, pretty notorious, built up in rapid time a multi billion dollar portfolio in suburban office markets, the worst hit by COVID. Yeah. And then this guy was coming in and buying all of it at bargain basement prices. Now you would think that when an asset is existentially challenged as suburban office was during COVID, how do you make the numbers pencil? And Shaya had his his own spin on that whole thing. speaker-1 (13:41) This is a strategy that's happened in other existential risk asset classes. Famously, Namdar was buying dying malls and essentially not spending any money and just milking them for cash flow. Maybe that's what Shaya was doing here, except his business plan didn't really involve the operation of the property at all. Hiten Samtani (14:01) Solomon esque wisdom splitting the baby? speaker-1 (14:04) Divide the child into speaker-1 (14:05) two parts. They say you make the money on the buy. And man did Shaya really do that. Hiten Samtani (14:10) So let's break down the mechanics. speaker-1 (14:15) So normally when you buy a building, if you're buying the fee simple interest and the leasehold, essentially you're getting the ground, which is the fee simple interest, and then the leasehold in the building, and they're all one thing, so they're not split. So you get a loan on that, you have a purchase price, you gotta put in some equity, plus or minus closing costs, and there you are. What Shaya Prager would do is he would take the ground. So he would take the fee simple interest. Yeah. And he would sell that off to somebody else. Now that's like a pretty common strategy. Hiten Samtani (14:44) See these on pretty primo assets in Manhattan. You can think of 625 Madison, the erstwhile 625, Leverhouse with RFR. You see this happen quite a bit. speaker-1 (14:53) Chrysler Building, famously. Yep. So not so often on no offense to suburban office, but crappy suburban office. Yes. And so what he would do is he would sell that. That's okay. People understand that. Yep. But it's not okay to sell it to yourself or an affiliated party. And what he would do is essentially get a loan on the thing he sold. Yes. To himself. Yeah. So he sold the ground to himself, he would get a loan. He would speaker-1 (15:22) get a loan on the leasehold interest. And those two loans together were generally more than it costs to buy the property. Yes Hiten Samtani (15:29) That's correct. speaker-1 (15:30) That's how you buy a property with no money down. Hiten Samtani (15:36) And then you basically pocket some proceeds. One of my sources artfully described it. He said, You've heard of refines. These are almost prefies. And he did this quite a bit. So he partnered very often with a a woman called Catherine Cartagena. And it turns out she was allegedly in cahoots with him this whole time. He would bifurcate, she would own the fee, and then on and on and on. And he made money. Young guy, he's probably our age. Shaya was not shy of flaunting his newfound wealth. speaker-1 (16:06) Can't get over this lady's name was Catherine Cartagena. That's legitimately Carmen San Diego. Hiten Samtani (16:15) San Diego. speaker-1 (16:17) how did nobody think like nobody nobody was questioning this at all? Hiten Samtani (16:23) This is on north of $2 billion in transactions. And a lot of it was in the Chicagoland area, but all over Texas. I hate saying this, but I'm going to say it. Sophisticated banks who've dealt with a lot of high octane real estate would have seen through this stuff. But he did not necessarily target such banks. He went for those rinky dink regional lenders that prop up our great country. And I was told by one of my sources who's been following Prager for a long time, their due diligence is less than zero. speaker-1 (16:52) It was really smart because these are also the only banks that were really lending on office at this point. Yep. If you were trying to go to JP Morgan, if you were trying to go to a city for good office, you could not get a term sheet. The assets that could get financing were these types of assets in somebody's backyard. I'm sure full recourse on all of it. If you owe the bank two billion dollars, you really own the bank. The diligence, it's it's not. speaker-1 (17:16) what it is for a larger transaction. It's a little bit of George Bailey type situation. I think of someone I know who's dealing with bank, a family run bank in Texas in the 80s during the SNL crisis, and the guy hires fancy lawyers. They go to his office, the bank president's office, they give this great presentation. Here's how you're gonna get paid back. We're gonna do this, that we're moving this around, you're gonna be made whole. The president of the bank, whose name is on the front door, puts his, you know, boots up on the desk and says, Son, speaker-1 (17:45) That was a great presentation. Now when is your client gonna sit in that chair, look me in the eye, and tell me he's gonna pay me back my money? Hiten Samtani (17:52) We gotta give a shout out there to Papa Krasne 'cause that's Will's dad story if I remember. speaker-1 (17:58) Who was that young man? Hiten Samtani (18:01) Atrium Data, which is a platform that the Promon partnered with, they did a sweep of all the lenders who've been caught up in this Prager thing. Webster Bank, Pinnacle Bank, Valley National Bank, Midwest One, and another dozen or so lenders. Pinnacle Bank has actually sued Prager alleging mortgage fraud, and that is a term that has come up quite a bit. So many of them are suing him for closing on him, going after him over PGs. speaker-1 (18:26) You might say, Well, gosh, he sold these things, them's the brakes. They knew what they were getting into. I say, let crash. The issue is that you've got different priority on all of these different loans. And both loans are subordinate to the ground rent. Yeah. You have to own the dirt to have any of this work. So the mortgages can foreclose, but the ground rent still has to get paid. The landlord then can terminate the lease and speaker-1 (18:56) And the leasehold mortgage, what happened? There's nothing there. The collateral is gone. And like that. Hiten Samtani (19:05) How does this end for the banks? Is this just a few quarters of disclosing ugly news like citizens of northern just did? speaker-1 (19:11) Honestly, probably in one of those first loss, best loss situations, announce it, get ahead of it, write it off. Cause this is gonna be in litigation for a long time. And meanwhile, these assets are probably not doing tremendously well operationally. Hiten Samtani (19:25) Yeah, there's no real end buyer for this stuff. you can't really hand it off to anyone. Part of it is that it's not like Shaya Prager did related or BXP level CapEx and TIs and such. A lot of these properties have occupancy rates in the thirties and forties. So there's a lot of work for any buyer or any lender who takes it over. They would have to do a lot to get it up to snuff. speaker-1 (19:47) One of the things that has pushed distress out in a way that we haven't seen in previous cycles is a lot of the non bank lenders who are now a huge portion of the lending universe, they're cool taking the property back. That's something that wasn't really the case as much when it was banks and life co' in previous downturns. But in this case, these are all banks. I'll tell you, citizens of the Northern does not want to be running leasing on some of these Chicagoland office buildings. Hiten Samtani (20:18) This issue of mortgage fraud or alleged mortgage fraud has been a major factor in the regional banking crisis. We talked about Zions Bank disclosing certain mortgage fraud with the the California craziness that was happening. And I believe it wiped out what, a billion dollars in the market cap? speaker-1 (20:36) We live in a trust based society. The more you get down the stack in terms of not just deal size, but just outside of gateway markets, a lot of it is trust. Remember when check fraud became the TikTok infinite money glitch? this is the real estate equivalent of that. Hiten Samtani (20:53) When the going was good here, when Shaya was the man and buying up half of Chicago office, the brokers they went with it. I gotta read you a quote from twenty two. This is when Shaya was hot. They've been a go to because they're gonna perform. Chicago capital markets broker Dan Deuter said. It's a bit of a contrarian mindset. Go where others are fearful. speaker-1 (21:15) Tell you what, one great way to know that you're gonna perform is to not have to put in any money at closing. And in fact, take money out. speaker-1 (21:34) If you're a mid to senior CRE striver, we have news for you. School's back in session in the best possible way. Hiten Samtani (21:41) Registration for Harvard's AMDP, their advanced management development program in real estate, is now open with the class kicking off in July 2027. speaker-1 (21:49) As a GP running his own shop, I get it. I spend all day in my own deal flow, my own markets, my own cap stack. It's hard to see around the corner when the corner is the only thing that I ever look at. Hiten Samtani (21:59) And AMDP is a few weeks of being inspired to look elsewhere. Faculty-led cases pulled from every asset class, and a cohort of operators who are seeing cycles that you aren't, different geographies, different product types, different capital. speaker-1 (22:11) You emerge with a map of the whole board, not just your own square. Plus, let's be real, it's Harvard. The network compounds faster than default interest. Hiten Samtani (22:20) See if Harvard AMDP is for you at their website. We'll drop it in the show notes. And tell our friends there that the promotes enter. speaker-1 (22:28) Mm-hmm. Hiten Samtani (22:29) JP Conklin, welcome back to the promote. There's almost a running gag on the show now where Will can recite the Loan Boss, tagline for memory, but the product itself has changed quite dramatically in the last year or so. You've started to incorporate AI in some pretty surprising ways. speaker-3 (22:46) I am an AI fanboy and have been from day one. We have just successfully launched all of our AI capabilities. No longer will a vendor and a customer have a discussion around here are the features that you want us to build, let's talk about how we're going to build them. Instead, it is just simply we are structured data with real estate expertise and the rules and governance to go around that. And then you just plug in your imagination and you can make your data do whatever you want. speaker-3 (23:15) We were able to ask Loan Boss AI various questions about covenant testing or stress scenarios, create a map of all of my deals. And I wanted bubbles to look a certain way. And then we would pivot to can we do a mortgage statement reconciliation? And it could do all that stuff because we've got this good old-fashioned software company that is being paired with really powerful AI. And then it's just what do you guys want to do with your data? And they're off to the races. Hiten Samtani (23:41) JP Conklin from Pensford and Loan Boss, thank you so much for being with the promote. Hiten Samtani (23:48) This one should be a lot of fun, the Vitruvian man of C R E finance. speaker-1 (23:53) That's great. I love that. Hiten Samtani (24:00) We've talked previously about the Apollo perpetual money machine with Athene and becoming such a major player in the construction loan market, but Apollo's not content with just being that guy. speaker-1 (24:11) No, they're not. And frankly, I think this is a lot more interesting than what's gone on in private credit because real estate went through, particularly multifamily, went through a cycle where it was a double your money in three, four years. And that's just not what it is. It is eight, ten, twelve percent. Cash is the majority of the total return component. Hiten Samtani (24:33) Recently you said the the multifamily trade is over, we're back to apartment investing. speaker-1 (24:38) I stole that from Sam something on Twitter. The reason we're bringing this point up is because it's really hard to find the capital that is willing to go back and accept those historical levels of return. People still want equity returns, you know, 15, 18, 20%. Apollo, say what you will, some of the smartest guys out there. These guys have thought through this and created this platform in a way that not many people have. They are now. speaker-1 (25:04) able to take this risk because they have this capital. And I think the clever thing that they've done here is realize that there is space for that core plus return profile. And I would argue right now that risk is mispriced. And what I mean by that is if you're underwriting a 20% IRR, risk return, you know, is a line, like either there's the efficient frontier. Sure. And what you want to do is you want to find the high return with the low risk. And that's really, really hard. But another mispricing is speaker-1 (25:33) The lower return with no risk or incredibly little risk. That's still that delta. And this is what Apollo is doing. They're buying into return streams that have arguably very little risk at a return profile in excess of the risk-free rate. And they're getting the upside. The difference, when someone says, like why would I look for 10%? I can make that in my credit fund. That's your best case. That's the best. And what they're doing here. speaker-1 (26:01) Is they're buying things where they think they can make a high single digit IRR on this. And if things go right, they make much more. Hiten Samtani (26:09) They're doing this with an unbelievably low cost of capital, right? The lowest that they've ever had. speaker-1 (26:13) They can still make their ARB on it. So let's talk about a couple of these deals that they've done. Let's Hiten Samtani (26:17) Let's start with UDR. speaker-1 (26:18) shout out to UDR. I own some assets that old UDR, before they went public, owned. So my guys, they've performed well. Thank you. but UDR, one of the largest multifamily REITs out there, one of the only ones left, performed a $2 billion strategic JV with Apollo. So Apollo is investing like $1.3 billion in. speaker-1 (26:43) In new equity capital, acquiring basically two thirds interest in these properties. And so it's seventeen properties, I think. Hiten Samtani (26:49) Seventeen properties out of six cap, roughly. speaker-1 (26:52) So take cap rates with a grain of salt, depends on whose numbers. Is it trailing? Is it T three T twelve? Is it tax adjusted? Yeah. But the average rent is about $2,000, $2,100. And the average age, this is also very interesting, is 40 years old. There's very little bid for apartments that are older than the 90s. So Apollo is doing this, but you have great operator, very low leverage, highly occupied. The cash flow is noble. This is not. speaker-1 (27:21) Bridge debt Sunbelt Multi, this is lower octane, more durable cash flow. Hiten Samtani (27:26) Doesn't this rhyme quite a bit with something they did with Starwood? speaker-1 (27:29) That's exactly right. So Starwood or S reet rather. Hiten Samtani (27:33) S Reed, we should add, for listeners, was going through a bit of a redemption crisis for a better part of a year. They've had liquidity issues. speaker-1 (27:40) Had speaker-1 (27:40) to raise capital to buy back shares from their investors who wanted to cash out. And so what Apollo did is they took a forty odd percent stake in the entire S Street affordable housing portfolio. This is a great portfolio of assets because they are essentially fully occupied because they're affordable in these markets which are very high rents. And the contractually the rents can increase by a certain amount every year. speaker-1 (28:08) What did Baron Rothschild say? You want to invest when there's blood in the streets? And they did this when S REE suspended stockholder redemptions, they cut their distribution rate, and they were trying to raise capital to, you know, support liquidity and support all these redemptions. And Apollo didn't do this and try to like make a 20 IRR. I'm just reading from the press release here. Under the joint venture agreement, S REA guarantees Apollo an annual minimum yield on its investment that increases over time. speaker-1 (28:35) With S R responsible for the payment. So when you sign a loan, you have a payment guarantee. that's what this is. And it goes up over time. And as the rents increase annually, if all goes well and things, the storm passes, S re can buy it back. Yes. And that call option, if exercised between the fifth and tenth anniversary of closing, is calculated to ensure Apollo a capped IRR of seven percent. So essentially, okay, this is almost a mesla. Hiten Samtani (29:03) Our good friend E B always talks about how debt and equity are essentially the same. The distinction is almost meaningless. This is a perfect illustration of that. speaker-1 (29:11) Yeah, Apollo is not solving to deal level returns. They're solving to their cost of capital. That's the difference. Their tentacles need to go find these durable cash flow streams so that they can earn their spread. What the project makes does not matter. What matters is the aggregate the ever-growing capital and then the spread on that. It's a volume game. And so this is a great place for them to put a huge chunk of capital, earn a cash return, and then have essentially, you know. speaker-1 (29:41) Guaranteed yes. Hiten Samtani (29:41) Yield. Hiten Samtani (29:42) You're making pennies on each trade, but you're making so many of them that those pennies start to speaker-1 (29:47) It was basically how they were supposed to steal all the money in office space. Hiten Samtani (29:53) So I'm talking fraction of a penny here. speaker-1 (29:53) And over time they speaker-1 (29:55) had a Hiten Samtani (29:58) The other part of this that's interesting, the the benefit from UDR's perspective, Apollo pays them a fee. speaker-1 (30:03) Yeah. speaker-1 (30:04) Mm-hmm. We've talked about how it's really hard to be a re you're trading below nav. You can't lever assets. Hiten Samtani (30:10) Can't Hiten Samtani (30:10) get no respect. Yeah. You're just getting smashed and the public markets are killing you no matter what you do. speaker-1 (30:15) Owning these properties at scale is not as good a business as getting paid to own properties at scale. And that's really what UDR is doing. And I'm not a REIT accounting expert, but at some point, if this is $1.3 billion, it's probably what, I don't know, 1% of equity or some sort of revenue big. But, you know, at 1% of equity here, that's $13 million. At $2 billion valuation at a six cap, these properties do $120 million of NOI. So actually that's not true. That's way too low. Hiten Samtani (30:45) Will is trying to do math live and his veins are popping out on his forehead. It's quite beautiful to see speaker-1 (30:49) We speaker-1 (30:49) gotta cut that 'cause Chris Graham's gonna be mad. But a two do two billion dollar value, yeah, at a six cap, that's a hundred and twenty million bucks. You're getting ten percent of your annual NOI just in fees. Hiten Samtani (30:58) Yeah. To zoom out, your S reads and UDRs of the world are getting much needed liquidity at a time when the public markets aren't cooperating. They're also getting this fixed payment, which is incredible to have at this time. And then for Apollo, they're essentially able to spread their money into these places. And because they have such a low cost of capital, they don't need to crush it on a deal level because all they need to do is put money out. They need to put it out at serious scale. speaker-1 (31:24) Go back to the risk and reward point. I don't think they're taking seven IRR risk. Like this is an unleveraged seven IRR. Like, that's not nothing. They're not taking that risk because this is like lower leverage. The properties are highly occupied because they are affordable and the rents contractually increase over time. That's a much lower risk than a seven. It's not just about like what are you making? It's what is the risk you're taking. You want to find mispriced risk. That's the whole game. And you can do it by speaker-1 (31:53) Making a thirty on a deal that had the risk of a twenty, but you can also do it by making a seven on a deal that had the risk of a zero. Hiten Samtani (32:00) This is not all they're doing, by the way. There's a new transaction that they just announced where they're buying ten percent of Mubadala Capital. It's the asset management subsidiary of the giant Emirati sovereign fund called Mubadala. Mobodla Capital is interesting to us because they also are the majority owners of Fortress. Right. Fortress sold to SoftBank and then Pete Brigger and Josh Pack, who's who's since passed, and McKnight and a couple of other key executives, they did a management led buyout backed by Mobodla Capital. Hiten Samtani (32:30) And so now Apollo is gonna own a a 10% stake in Mubadla Capital, which look through in turn owns Fortress. And the look through exactly the reason that I think it's so fascinating is that Apollo Jettison their mortgage read recently, because again, the REIT business, not a great business right now. But with this transaction, they have the construction loans in Athene. They've got this thing that we just talked about with UDR and stuff, the mothership level deals. Then they've also got Hiten Samtani (32:59) The skullcracking Fortress deals of Fortress 1.0. And then they've got the more, as you've talked about before, the more boring widgetized credit deals that Fortress has been doing recently. And then there's a growing pipeline of CMBS loans that are in special servicing. Fortress also owns CW capital. So Apollo's there too. That grand circular theory of money. speaker-1 (33:21) In Mubaba Mubab I mu muba Mubadala. Hiten Samtani (33:24) my god, this is the movie. speaker-1 (33:26) Mubadala? Hiten Samtani (33:28) Mubadla. Mubadla. speaker-1 (33:29) Apollo's buying into Mubadla capital, but they're also buying access essentially to all of this fire hose of capital at the parent cove. Potentially. It makes it a lot easier to call up because Mubadla's gonna call for capital to go buy more things and grow their business and Apollo's gonna own a VIG on that. Hiten Samtani (33:46) That's a wonderful point because what the Emiratis have shown us is that they're they're deal guys. And so just a little bit of background on Mupadla. Mubadla's got close to 400 billion in AUM. One of several sovereign wealth funds that are controlled by the Abu Dhabi royal family. That purse, which is Bloomberg estimates is north of one and a half trillion dollars, is controlled by Sheikh Dahnoun. Sheikh Dahnoun is the the swashbuckling guy who's like doing Brazilian jiu-jitsu everywhere and then sitting with Satya. Hiten Samtani (34:16) And then doing these data center deals and is all over everything. Having access to these relationships is priceless for Apollo in the long run. speaker-1 (34:24) Absolutely. Well said. Nothing to add. As Charlie Menger would say. Hiten Samtani (34:35) That's it for the promote podcast this week. You cannot take a step in CRE finance without tripping over Apollo. Except probably for Shaya Prager's bifurcated office deals. They ain't going anywhere near 08701. speaker-1 (34:46) No such thing as bad deals, there's only bad prices. A quick shout out to our sponsors, Bravo Capital, a leading HUD and Bridgelender. Hiten Samtani (34:53) You can find them at Bravo Capital dot com. speaker-1 (34:56) H equities, your go to shop for Ko G P and Hiten Samtani (34:59) Bridge Hiten Samtani (34:59) debt. Check them out at h equities.com speaker-1 (35:02) Harvard. speaker-1 (35:04) Have you heard of him? Hiten Samtani (35:07) Their advanced management development program. Enrollments open now. We'll drop the link in the show notes because it's mouthful. speaker-1 (35:13) And Loan Boss. That's your interest rate headquarters powered by AI. Also, JP, send me the fender. Hiten Samtani (35:20) Check them out at loneboss.com. And listen, I like to say y'all see you next week, but I'm gonna add a little pizzazz to it because I will see you next week in person. In person. speaker-1 (35:30) Live speaker-1 (35:31) at Street. Hiten Samtani (35:33) Are we telling people they're just it's speaker-1 (35:34) Sure, but Hiten Samtani (35:35) on We're gonna bleep the location. No, it's not. It's not on the invite. Anyway, I'll see you next week, Matt. See ya. Thank you. Thank you. Ciao.