Latest / The Promote Podcast / A Tale of Two Asset Classes: NYC Rent-Stabilized Carnage & Data Center Mania
Transcript
- Hiten Samtani (00:01) It was the best of times. Will Krasne (00:03) It was the worst of times. Hiten Samtani (00:06) It was the age of default. Will Krasne (00:08) the epoch of hyperscalers. It was the season of darkness. Hiten Samtani (00:10) It was the season of light. It was the spring of data centers. Will Krasne (00:15) It was the winter of New York rent-stabilized apartments. Hiten Samtani (00:22) Welcome back to the Promote Podcast, your insider guide to the CRE markets and mania. I'm Hiten Samtani. Look, dude, everyone knows who you are. 90 % of the mail that I get is just, my God, Will, my God, Will, everyone's fanboying over you. I'm a little jealous. Will Krasne (00:28) and I'm Will Krasne. well I'm glad to see that my bot farm in Vietnam is working. Hiten Samtani (00:39) The carnage in the New York rent stabilized market is very real and very, very swift. One of the surest things in the most important real estate market in the world is now a dangerous place to be. Capital and momentum both fleeing fast. On the other side of the spectrum are data centers. Just an astonishing amount of global capital and interest in that sector. The latest, OpenAI has come to Texas via nearly $12 billion project. But who are the behind the scenes players that bring such a massive project to life? You'll get a snapshot here. Let's go. All right, well, we got to start with New York. Pretty amazing set of headlines coming out of what I think used to be the most sure asset class there is. New York City rent stabilized multifamily. Will Krasne (01:29) mean, really the rent stabilized guidelines board is truly the Ms. Havisham of this Dickensian tale. This has sort of been a slow motion car crash because the rent laws changed in 2019. it was almost frozen for a while because people didn't fully comprehend exactly what it meant. And now six years on. We're seeing it and basically what it means is that if you own it, you're just slowly going bankrupt. So it's the first part of the Hemingway quote. The second part is coming up soon for a handful of folks. Hiten Samtani (02:03) Let's just put this into perspective. according to the landlords, property insurance costs have gone way up. Expenses and maintenance in general have gone way up. Property taxes have gone up, but rents ain't going anywhere, right? So there's like not enough of a rent increase they can get out of these units to even keep them. Will Krasne (02:21) Well, not just that. It's not that the rent has increased enough to keep place with expenses. It's that you used to be able to deregulate a lot of these apartments and take them to market rents. And so you wouldn't just rely on the rent guidelines board giving you a 3 % increase to help because state farm auto insurance screwed you over on your renewal. Hiten Samtani (02:42) we were talking about vacancy decontrol is one of the mechanisms for Will Krasne (02:45) Yeah, vacancy decontrol or MCIs, major capital improvements. Hiten Samtani (02:50) Just to break that down a little bit for our audience who might not be as familiar with New Yeah, sorry. If you improved the units, you would pass through some of those expenses. Will Krasne (02:59) it was 1 40th of every dollar that you spent. If you replaced the roof, if you replaced building water heaters and boilers, you could pass those increases along to every unit, 1 40th of whatever you spent. And then if you renovated units when they were vacant, you could take them to free market if you spent enough money in the unit itself. So what that meant, practically speaking, is that if you were in an area where market rents were well above the rent stabilized, line of demarcation, which I think at the end it was like $2,700. Hiten Samtani (03:32) you could be like, all right, this is a building in a perfect location. If I just kind of play my cards right, keep this going well enough and maintain the building to a certain standard, I can close that Delta and thereby really juice my NOI and build something. Will Krasne (03:46) Yeah, and it was a race to 2,700 bucks per unit because if you got over there, you're a free market. so these buildings didn't trade on cap rate. that's, no one looked at our rent stabilized building and said like, once my cap rate, it was how many rent stabilized units do I have and how quickly can I get those units to market? Yeah, and people, was a cottage industry. People made a fortunes on this and the entire business models were made on it. Hiten Samtani (04:05) yet can I turn them over to market right And we're just the timeline of it. Like I remember early 2010s to maybe mid to late 2010s, all these walkups all over Manhattan and prime Brooklyn were just selling for crazy valuations based on what you're talking about, like the expected future revenue. Will Krasne (04:28) Exactly. you know, young strivers made fortunes doing this. Hiten Samtani (04:33) about Isaac Kassirer, Emerald Equity, people like that. Or Stephen Vegh. Will Krasne (04:35) That guy, SilverShore, this was a cottage industry, as I said. So that changed in 2019. So what that meant though, is that you had to buy a building on a cap right now because you could no longer do vacancy decontrol. You could no longer pass those improvements along, which meant that if you had a unit that was paying 800 bucks, it's paying 804 bucks next year. you know, if the rent guidelines board deigns you with such an increase. Hiten Samtani (05:04) alluding to the capital market. suddenly this asset that was highly prized is no longer highly prized. But let's also talk about the people who own this stuff and expected a massive payday down the road. They're Fucked. Will Krasne (05:15) ⁓ They're screwed. It's a pretty simple thing. You got two lines, you got revenue and expenses and you know, like as Logan Roy said, There's this fancy new business theory. It's called make more than you spend and you're king cunt. Right now it's really hard to spend less than you make. And those lines, that revenue line is flatlining and the expenses are going up and sooner the, like, what is it? The never the two shall meet. They're going to meet. Like that's, that's a problem. Hiten Samtani (05:28) and Obviously rent stabilized ownership is everything from mom and pops who own a couple of buildings. You know, you're kind of Albanian immigrant who came here in the seventies, bought a couple of buildings, made the best of them, et cetera, all the way up to people like Joel Weiner, A &E Real Estate, who own thousands and thousands of these units across the city. The reason we're talking about it today is that Joel Weiner's Pinnacle Group, one of the biggest players in the space, apparently a billionaire of some sorts, is at risk of foreclosure on two massive portfolios. 5,000 odd units and he's just put them into bankruptcy to basically stave off NYCB, which Steve Mnuchin production now wanted to take them back. Will Krasne (06:23) Yeah, is that a better or worse Stephen Mnuchin production than his film career? No, they kept saying Steve Bannon did that and there was no record of it. Hiten Samtani (06:27) Did he syndicate Seinfeld Oh yeah, yeah, okay, right. They fooled me, Jerry! But anyway, so NYCB is trying to take these units back, 5,000 units, and Wieners just put them into bankruptcy to try to push the... Will Krasne (06:46) I think the other reason we're talking about it too is that two investors show P &L statements, their books for rent state-buys properties in New York. One group is a nonprofit. Hiten Samtani (06:55) The charts are pretty dramatic when you look at them. It's like, wow, okay, you really see this illustrated how bad this is. Will Krasne (07:00) I know, it's really stark. One of the investors was a nonprofit organization that owned a thousand rent-stabilized units across the Bronx, across 40 buildings they bought in 2008. The buildings when they bought them were in disrepair. The previous owner owed tens of millions of dollars. Many of them were uninhabitable. The nonprofit renovated them. And in 2022, they started losing more than a million dollars a year combined. Hiten Samtani (07:26) And I think they lost what? Four million over a three-year period. Will Krasne (07:29) Yeah, and if you look at this chart pre-HSTPA passing in June of 2019, the revenues are down like 50%. Hiten Samtani (07:37) pretty stark. The other landlord is a for-profit landlord and they showed information on 3,000 odd units across Brooklyn, Queens and Staten Island. And they said two of the portfolios are already underwater, two others would meet the same fate, it's just a matter of time according to this landlord. Property taxes on one of the portfolios is doubled, insurance costs are up 400 % and then this was a very telling quote that I think really brings this to bear. We're hoping that between now and when we're actually in distress, which is gonna happen, we could get a change in the laws, which will allow the buildings to start becoming profitable again. It's basically hope as a strategy. Will Krasne (08:16) Right, exactly. Just to put more stark numbers to it, the nonprofit was making about $2 million a year in 2018 pre-rent law change. And in 2023, they lost $2 million a year. And again, this is before debt service. And the Rent Guidelines Board allowed rents to increase by 3.25 % in 2023, which was the biggest hike in a decade. Yeah, yeah. Think about it this way. Everywhere else in the country, we've talked about rents in the Sunbelt, rents in the Midwest now. have increased 20, 30, 40 % more in some places. It's just since 2020. now, mean, talking rents have been flat in New York. Hiten Samtani (08:55) Is the better comparison to be made the difference between how quickly market rate rents have grown in New York as well? Will Krasne (09:00) Yeah, sorry. That's right. Like, marker area rents in New York have also grown quite a bit. Hiten Samtani (09:04) So these landlords are in a pretty tough position and you're seeing lenders that we talked about, know, traditional bank NYCB all the way with A &E's ⁓ distressed portfolio. It's a CNBS deal, right? So they securitize that and the bondholders are now coming after them. I don't know if there isn't a shift what the end game is here. Are we just going to see a kind of a wave of distressed units floating on the market with no takers? Will Krasne (09:30) Well, there's one taker and he's everywhere. Hiten Samtani (09:36) There is – hunger like the wolf. Peter Hungerford. Will Krasne (09:39) Yeah. But I think what you're going to see, I mean, again, everything that's old is new again. You know, our parents and folks of a generation above us saw this in the 70s and 80s. mean, you know, what you end up with is the Panic! in Needle Park. That drugs live and hustle. And you have buildings that it doesn't make sense to have people in where if you're losing $1400 a unit, you know, that's what you're losing per month. Hiten Samtani (09:53) It is here. Gotta move and steal. Will Krasne (10:06) because that's what it costs to operate with three taxes, insurance, maintenance. You just leave them vacant. Hiten Samtani (10:10) you just have like these ghost buildings. Will Krasne (10:12) You just give them back. mean, there's literally a lawsuit right now where Hiten Samtani (10:15) Everyone's talking about this lawsuit, the 125th Street one. Will Krasne (10:18) Yeah, where it was, it's L&M is trying to give a building back to Santander. Yeah, that's why I'm surprised NYCB is coming after Joel Wiener so hard. I thought they would be like, no, no, no, you take it. It's all good. Because the whole point is we've talked a lot about malfeasance and bad operators on this podcast. This isn't that. there's no way to do it. Even Peter Hungerford, his bet. I mean, he's explicitly saying like, yeah, we're just going to, you know, try to buy these things cheap enough to where the guys who bought it, you know, pre-HSCPA. Hiten Samtani (10:22) And the lender's like, nah, thanks, man. Nah. Will Krasne (10:48) their margin for error on the execution wasn't very high. He's like, I'm just going to buy them cheap enough to give me enough runway to where if the law eventually changes, we're going to be. Hiten Samtani (10:56) we're going to be really, really in the gravy. should set this up. So Peter Hungerford, think eponymous firm, PH Realty, has bought more than 4,000 units, let's call it in the last 18 months. And he's done it in a variety of ways. Bought the buildings outright, bought the note via these funds that just didn't want to deal with the stuff anymore. So he's come in in a couple of ways and he's very vocal about it too. He had a LinkedIn post on his last closing where he said, hashtag drop the mic, M-I-K-E, which you can quibble with that, but. The guy is making mo- Will Krasne (11:27) I give him tons of credit because he's been able to tell and craft a great narrative to raise all this capital to go buy this stuff. Hiten Samtani (11:33) Who is funding these bets? These are quite large bets, even at a discount of, in some cases, 30, 40, even 50%. Who's down to put money into these things? Will Krasne (11:44) I think a lot of people, because he's couching it in a way of saying, we're going to keep providing affordable housing for New Yorkers. We're going to make these safe, clean places to live, which I have no clue. I've never worked with him, but it seems like he is a good operator and knows what he's doing. And if you look at the list of people that he thinks, it's like 75 people long on his LinkedIn post. Pretty good. He's got a lot of different capital partners. mean, they're big banks. Hiten Samtani (12:03) That's Did you see the humble brag from the Eastdil broker? think it was Daniel Parker. He's like, thanks so much for letting us work on what is the largest stabilized closing of the year. It's like a thank you slash advertisement. That was an extra brag. It's pretty good. Will Krasne (12:20) I love the contrarian bet. again, like hope isn't a strategy, but he's buying these things cheap enough to where his runway is really long. I I can decline quite a ways from where he's at and he's still going to be okay. And he's just bought himself a ton of time. And eventually this stuff has to change. always goes in cycles. There's literally a book called the Bronx is burning because it was cheaper to burn the buildings and get the insurance proceed than it was to operate them. Hiten Samtani (12:44) Speaking of the Bronx is Burning, do you remember anything about Keith Rubinstein's Bronx is Burning party at the piano district? Because that's one of the most legendary gaps I've ever seen. Will Krasne (12:52) I'm ashamed that I don't. Hiten Samtani (12:54) So Keith Rubinstein, Somerset Partners, he had bought that big project in the Bronx. We ended up selling it to, I think Brookfield is now developing it. But basically he had all these supermodels and hoi polloi show up in the Bronx. And the theme of the party was the Bronx is burning. And they had these burning cars outside their new development launch. Amazing. Pretty astonishing. So on this, we brought this up in a previous podcast as well. The pendulum has shifted so violently. I was telling you about this anecdote where Steve Spinola, who's the head of Rebny, once called Charlie Bagli of the New York Times while Spinola was in the Senate chambers writing the industry favored legislation. So that's how much juice they had. And as of 2019, they had basically no juice. And that's how we ended up in a situation where the market is trying to unravel what the fuck happened in that 2019. reform. Will Krasne (13:50) And I want to be clear, like this is obviously the HSTPA was a humongous overreaction, but there was warranted anger here. If you're a multifamily or residential landlord, you provide homes for people. That is an enormous responsibility. Yeah, you need to make a profit. It's a business just like any other. But a friend of mine likes to say, like, if you do stuff wrong at your building, it just cascades in these people's lives. Like if the hot water isn't working, they take a bad shower, they're mad at their kid, they have a shitty day at work. You know, all these things cascade. Hiten Samtani (14:22) Yeah, it's probably the asset with the highest degree of responsibility for an owner, right? Totally. Yeah. And it's the most, I should say, also the most politically radioactive asset there is. Like, you do not want to be the city councilman or the mayor or whatever who is essentially enabling eviction, quote. Will Krasne (14:39) Yeah, and what people would do before, we should get into it a little bit, is it wasn't just, like little Granny Smith is moving out of her one bedroom where she paid $75 a month in the West Village, and we're just gonna put in hot water, new everything, and take it to $6,000 a month and rent it to someone who was in that New York Times article about, the Hamptons. The Wall Street Journal, Hamptons article. People weren't doing that, people were just. Hiten Samtani (15:00) The Wall Street Journal, Hampton's Will Krasne (15:05) completely neglecting these buildings and trying to force people out because their incentive was to get them out any way possible. So power got turned off, repairs and maintenance never happened. Hiten Samtani (15:13) Some of the stories got even uglier than that. were like dogs that would be sent there. Awful. Constant harassment. Yeah. Misleading buyouts, all kinds of Will Krasne (15:21) Yeah, and that's not everybody. mean, you'd get like, there's one group that famously with like mail letters basically saying like, the world is ending. Like now is the time to get out. People are obviously taking advantage. But again, it's the same thing with crime. Like you can point to whatever stats you want about New York, but it's like you see a crazy person on the subway. Like that's going to color your feeling. Hiten Samtani (15:39) Yeah, and I do think this is even though you have the bad actors are far outnumbered by what I would call responsible stewards of these buildings. Totally. There is a little bit of a collective action problem here, which is I think there should have been a bigger effort by what's called them good landlords to call the shit out, crack down on it. Because for a long time they're like, whatever, we're making money. We're not doing this. You know, it's not our problem. Will Krasne (16:04) Totally, and I think a lot of people thought, well, this is my God-given right to make this profit, which it's not. First of all, in real estate in general, you make your yield every day. No yields are guaranteed. You got to do it every single day. this business model, everything comes down to incentives. And the incentive was to get people out of units so you could renovate. And obviously, some people took that too far. Hiten Samtani (16:28) The flip side though, Will, the flip side, because you brought up entitlement, God given right, I think the flip side of it on the tenant side, just to be fair to some of these industry people, is that there is an expectation sometimes in the rent stabilized market that the family that was in there can just be there forever and nothing needs to change for them. And we're talking about like prime, prime, prime locations, right? yeah. So there's an excellent quote in this ⁓ thing called marginal revolution, which I believe is Tyler Cowen's blog. I'm going to quote it. Thanks to succession rights, what was meant to help the poor now functions as a kind of family heirloom, a subsidized apartment passed down like grandma's china set. And I think it's a very telling point to make as well. Will Krasne (17:09) It absolutely is. Like there are people who took advantage of the system on both sides of the equation, but at the landlord side and the tenant side. And I think the pendulum has to swing back because clearly what's happening now doesn't work. doesn't work for investors, but more importantly, it doesn't work for New York, the city. And you have units that are getting warehoused. Obviously not a ton, but like when people say, well, look at all these landlords. Like they're just warehousing units, like, cause it's profitable. They're not, it's not profitable to operate them. Like if something goes wrong, that's my. You have to fix it. That's money you can never get back. So you might as well leave it vacant just to avoid that risk. It's got to come back. There has to be some way for people to get paid to renovate these units because at the same time, think of how many every each year, how many renovated new units came on the market in a lot of areas that need new housing and God knows New York makes it hard enough to build anything. So this was one way that we had, you know, thousands of units, effectively new units coming online every single year. And that's Hiten Samtani (18:02) And just to put put a number on this overall pool like it's a million apartments One million. It's a pretty large portion of the housing stock in the city Will Krasne (18:12) I mean, people live in New York. Yeah. You know? So we just need to make a way that like, what people need to earn a profit. But they also need to be responsible because you're dealing with people's homes and people's lives. And it's really, really important and deep responsibility that you have to take. Hiten Samtani (18:29) I think we got to have Peter Hungerford on the podcast. So Peter, if you're listening, open invite, hop on with us. I'll ping him. I know he likes to talk, drop the mic. So Peter, come on, join us. It is a big commitment for us to make, but we'll do it. So I think this is a really broad, important story because on the one hand, you have these mega landlords who are losing these portfolios that they put together over decades. On the other hand, you have these contrarian players, not many of them, but Peter's one example. Will Krasne (18:39) We will Hiten Samtani (18:57) We're coming in and saying, ⁓ if I can just kind of hold on long enough at a price that's low enough, when things turn, and they hopefully will, there's a lot of money to be made. Will Krasne (19:08) This is one of these things where you can make like an 18 IRR over 20 year old and you make all of the profit in the last year when the things change. Hopefully it doesn't take that long. Hopefully the people get their act together and we come up with a housing policy that works. That makes more sense. And the last thing I want to say too is that the portfolio that Peter just bought, you know, when you talk about, well, these guys are running it badly or they're not sophisticated or whatever. was Related. They are the largest affordable owners in New York. Like if they can't make money running this thing, what does that tell you about it? Hiten Samtani (19:36) and they sold it at a 40 % haircut. That says a lot. Will Krasne (19:42) Indeed, drop the mic. Hiten Samtani (19:50) So I think it's time to stop talking about these depressing asset classes where money and capital is fleeing. And let's talk about one where there doesn't seem to be enough capital. Everyone wants to pump money into this. We're talking obviously about data centers. And we're talking about a new transaction that just happened. OpenAI, chat GPT fame, is going to anchor a data center in Abilene, Texas. Will Krasne (20:14) Abilene. Hiten Samtani (20:17) this project has just secured $11.5 billion of funding. So that's just astonishing numbers. And yeah, I thought it would be really fun to unpack kind of the process of how a mega project like this gets built. This, by the way, just this one project is half the total capitalization of Hudson Yards, just to put it in context. Will Krasne (20:37) deep cut, but I felt like in the episode of the wonderful, too short TV show, Better Off Ted, when Veridian Dynamics installs motion sensors, they can't sense black people and they start hiring white people to follow the black people, to follow the white people, to follow the black people. And then the only way that they stop the cycle is by saying that in seven months, we're going to employ every person on earth and we don't have enough parking for that. That's how I feel about this. Hiten Samtani (21:06) I was really worried about where you were going with this. Will Krasne (21:08) We're going to invest all the money on earth into these bath centers. Hiten Samtani (21:12) Well, you've made this point before, right? Like putting capital to work is one of the biggest problems that people have. There's no shortage of capital. It's like, how do you deploy it efficiently enough in big enough chunks, right? Office, in many cases nationwide is off the table. You can no longer pump billions in to these big office projects. So now you have data centers and they've come in and every player, I Microsoft, Blackstone, OpenAI, Oracle, Blue Owl, et cetera, Abu Dhabi, all these. sovereign wealth funds are all putting money into data centers. Will Krasne (21:44) To give you a sense about the second phase of this project, which is coming up, they are consisting of six additional buildings and it's going to have the same amount of gigawatts that the professor from Back to the Future needed to send the car back. 1.21 gigawatts! I swear to God, it's 1.2 gigawatts. 1.20 gigawatts. Sitter out. Sitter out. Hiten Samtani (22:08) It's incredible and you bring up a point I was gonna get into this later, but fuck it, let's do it now. Do it live. So you remember that line, the kind of unbelievable wisdom from Tony Montana to our boy Manny in Scarface? Of course. In this country, you gotta make the money first. Da da da da da. In data centers, you gotta get the power first. Once you get the power, then you get the tenant. And once you get the tenant, then you get the funding. Will Krasne (22:31) And then you get the private jet. Hiten Samtani (22:34) you might just get the private jet. So the biggest constraint in all of these data center projects, as I understand it, and John Gray talks about this and something else is like securing the power. The power is the biggest riddle to solve. If you can get the, as you said, 1.2 gigawatts. What the hell is a gigawatt? That is absolutely massive. If you can figure out the capacity, you can go to these blue chip tenants. There's not many sites that can figure this out at the scale that they need. And once you get those tenants, then the funding kind of just happens. Will Krasne (23:04) I mean, the numbers are staggering. Like, they're going to have 50,000 NVIDIA GB200 NLV72 chips on a single integrated network fabric. And that is a sentence of words. Hiten Samtani (23:16) Even on the capital side, So this is phase two. Phase two is 11.6 billion. Phase one, JP Morgan led consortium agreed to pump in seven billion, right? And Oracle is, I don't know exactly how it's, it's not very clear. Like Oracle, believe is like the master lease on this thing. And then Oracle brought in OpenAI. It seems like that's the way it works. Will Krasne (23:36) Yeah, I think it's sort of like a department store, guess. So like Oracle is Neiman Marcus in this sense, and OpenAI is Canali. Hiten Samtani (23:47) There's a lot of players that you and I probably are not really familiar with. lot of our audience may not be familiar with, but they're like fucking crushing it in this space. Crusoe AI, primary infrastructure partners. are in there too, but let's talk a little bit about these players who've been dominant in the space for however long it's been around, right? So Crusoe AI looks like it's the developer here. They're putting this whole thing together. They build and operate cloud computing infrastructure. Will Krasne (23:59) Blue Owl. Hiten Samtani (24:16) I think they're the ones who are running point on this project. And then you've got primary digital infrastructure and they're the financier here. So they're the ones putting this capital together. They bill themselves as quote, founded by the industry's founders. like the guys in charge of however long the data center space has been around, the people at primary have been in the mix. Will Krasne (24:39) Did chatGPT write their website? But then you got Blue Owl and you know... Hiten Samtani (24:41) It's so- Do you cook on Blue Owl just a little bit? Like what their strategy is? They're all over everything in real estate private credit. Will Krasne (24:50) Man, so they are all over the place. That's a great point. mean, they are so famously created via SPAC merger. Oh, wow. Alrock Capital and Dyal Capital Partners. And Dyal famously was one of the pioneers in in buying GP stakes. They were very early in seeing that that was a great business, which kudos to that. That's an incredible one of the one of the best trades of the last 15 years. But they created this mega asset manager that was just you know, all things to everybody. They could do everything because they had all these stakes through, you know, the dial component. bought a big net lease platform so they could do credit. They could do fixed income. could do equity. And most importantly, like they seem to be really in the mix on, you know, anything that's like zeitgeisty. Hiten Samtani (25:41) Is there anything more Zeitgeist-y at the moment than data centers now? Will Krasne (25:44) No, but like think like what are the management fees on the equity commitment here? Hiten Samtani (25:49) With this much money at stake, are the cuts? How much are you wetting your beak on each transaction? Will Krasne (25:54) I mean, so each of these things is done out of a fund, I'm sure. And then there's also a massive sidecar also, I'm sure, because if you have a $5 billion fund, you can't really have like a $2 billion equity position. that's just not how it works. Like you would put in, you know, 800 million in the fund and then syndicate out 1.2 in a sidecar and LPs like that, because it's a way for them to essentially buy down their management fees. It's great if you're the sponsor, because it just means it's another $1.2 billion that you got management fees on that you weren't counting on before. you 1 % a year on $1.2 billion at $12 million a year that comes in. And the incremental spend on that is zero. Maybe like a few more sweet green dinner orders for the extra analysts you have to hire. Like, that's it. Hiten Samtani (26:41) And let's talk on the commission side, on the deal side. you're seeing a lot of these. The promote tried to map out this, called it the dons of data centers, just the snapshot of the players in the space that are making it rain. One of the names that keeps coming up on the brokerage side is a company called DH Capital. Cyrus One sold to KKR slash GIP for $15 billion. And DH Capital was kind of this investment bank that brokered the transaction. One of DH Capital's key guys, Brent Mayo, picked up recently by Newmark and I've been told that he's cleaning up quite a bit on these. That's why you Newmark pop up on all these transactions and Jordy Roeschlaub and all those guys are having a ball with it. Will Krasne (27:21) I'm ensuring they get beaten to smithereens on the percentage. But even at this scale, mean, we just talked about what 1 % of $1.2 billion is. Hiten Samtani (27:31) Yeah, so to that point, so Darcy Stacom sold Stytown the first time, ⁓ arguably for a record $5.4 billion. And her fee on that wasn't a percentage, it was a flat $5 million fee. Will Krasne (27:43) can't put a price on the value of the Traded post. Hiten Samtani (27:48) The 14 guys, I love it. I don't think we have enough time and space here to get into the broader global capital flows, but as OpenAI is doing this, they've also agreed to do a massive campus in the UAE, which is going to be this JV between the UAE government and OpenAI. OpenAI is also tied up with Microsoft. Blackstone's raised a ton of money from the Saudis and the Emiratis through a company called G42. So it's like every major sovereign wealth fund. wants to get in here. I guess my question is like, how long can this go on? We have seen a couple of hiccups in the space as well. Will Krasne (28:23) It's above my pay grade to understand how all of this works on the software side. But what I will say is that we don't have any idea how these facilities are going to age. And, you know, I do know what Moore's law is. And that means by the time that these things are built, you know, who knows what the actual capacity needs are. Hiten Samtani (28:41) Yeah, what you're saying is how long can state of the art be state of the art. Will Krasne (28:44) Exactly. They don't say when when these things are going to be delivered or open or get CEO. They say when they're going to get powered. Yeah. Yeah. And I guess the question is like how quickly can you power these up and how future ready operator aligned and mission critical to fulfilling AI driven compute demand are they? Hiten Samtani (28:52) That's what I told you. It's the first thing here. The other part of this that we should bring up is the regulatory backlash. There's also already been in Northern Virginia, which is one of the cradles of the data center civilization. Data center. Right? There's been a lot of backlash. A lot of politicians are like, what are we doing here? What are we creating? Like what kind of monster have we unleashed? Do they create enough jobs? Who the hell knows? Will Krasne (29:14) Data Center Alley. That's another great question because the construction jobs, absolutely. I think they said 3000 people a day, up to 5000 in the middle of it. That's real. That's incredibly real. But how many people though are going to be at the status center? You know, not 3000. And then what does that, what does it mean for the resources of wherever they are? Like, what does it mean if you have a house in Abilene? Like what happens to your power bill? Hiten Samtani (29:46) we're a little too far out to understand what this looks like. We only know what the kind of the players who stand to benefit most from this are saying. So Blackstone has defined data centers as quote, it's lens into the AI economy. And so they've made a giant mega bet through this company that they acquired called QTS. They took it private in a $10 billion deal and they've invested another 25 billion odd in it. And now they've raised a ton of money and they're one of the biggest players in the space in the matter of what three years pretty, pretty insane ramp up. Will Krasne (30:15) I mean, Jon Gray's gonna be filming his LinkedIn videos of running in these data centers. Hiten Samtani (30:20) That's actually, that's a great little run. It's got to be a couple miles in there at least. And then we're also going to see so much of this roll up &A activity in the next few, you know, it months years. So Josh Harris's family office or investment firm is apparently in talks to acquire Digital Bridge, which is Mark Ganzi's company, right? Will Krasne (30:38) And I guess the question is, what's the ultimate liquidity event? Because I think the CoreWeave IPO was sort of a tectonic thing in this industry. so are we going to see a Caruso AI IPO? Are we going to see single asset IPOs? This asset is big enough to go public, this one asset. Yeah. There's been a lot of dark times in commercial real estate over the last two, three years. It's been really difficult. Old, steadfast asset classes have become uninvestable or delivered subpar or negative returns. And what we found is a NASA class that's bigger than all of them. That can sop up all that capital, even has secular tailwinds that get investment committees excited to put capital out into the space. And we'll see how long it lasts for because all these things come to an end at some point. Hiten Samtani (31:24) You mentioned the word returns. So far, the only people that have made returns are the ones that own these gorgeous sites that used to be in middle of nowhere and have now 25x their money in some cases, right? We don't really have returns to look at. Will Krasne (31:39) Digital Bridge reports their fund returns in their quarterly statements and they're not scintillating. Hiten Samtani (31:46) Not so bueno. That's it for the Promote Podcast this week. A tale of two asset classes. One that's in serious decline. New York City rent stabilized multifamily. The other where a billion dollar investment is barely a starting point. Will Krasne (32:04) Please like, share, subscribe, shave our logo into the side of your dog. Hiten Samtani (32:09) Guys, don't do anything to your dog, yes, please evangelize. Will Krasne (32:12) We'll remember you. Leave us a review on Apple or Spotify right in at podcast at thepromote.com. This is super fun. It's one of highlights of my weekend to do this with Hiten and we hope you guys are enjoying it. Hiten Samtani (32:14) Yeah Will Krasne (32:29) Actually, you know what? You know what? Let's just do this too. Let's everyone go on the Scott Galloway and the ProfGMarkets Reddit page and tell them that real estate is more than just like houses in Delray Beach and we'd love to come on and talk about it. Hiten Samtani (32:44) Scotty G, you gotta have us on. More coming next week as always. And if you like what you hear and you want to get in front of our audience, hit us up at partnerships at thepromote.com. That's partnerships at thepromote.com. Well, thanks dude. Will Krasne (32:59) Thank you. Hiten Samtani (33:01) Ciao.